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If you work for APA, it's imperative to consider one of the common threads of a mobile workforce. Many individuals who leave their job are faced with a decision about what to do with their 401(k) account.
Individuals have four choices with the 401(k) account they accrued at a previous employer.
Choice 1: Leave It with Your Previous Employer
For APA employees, you may choose to do nothing and leave your account in your previous employer’s 401(k) plan. However, if your account balance is under a certain amount, be aware that your ex-employer may elect to distribute the funds to you.
As an employee of APA, there may be reasons to keep your 401(k) with your previous employer —such as investments that are low cost or have limited availability outside of the plan. Other reasons are to maintain certain creditor protections that are unique to qualified retirement plans, or to retain the ability to borrow from it, if the plan allows for such loans to ex-employees.
The primary downside for APA employees are that individuals can become disconnected from the old account and pay less attention to the ongoing management of its investments.
Choice 2: Transfer to Your New Employer’s 401(k) Plan
Provided your current APA employer’s 401(k) accepts the transfer of assets from a pre-existing 401(k), you may want to consider moving these assets to your new plan.
The primary benefits to transferring are the convenience of consolidating your assets, retaining their strong creditor protections, and keeping them accessible via the plan’s loan feature.
If the new plan has a competitive investment menu, many individuals prefer to transfer their account and make a full break with their former employer.
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Choice 3: Roll Over Assets to a Traditional Individual Retirement Account (IRA)
Another choice for those in APA is to roll assets over into a new or existing traditional IRA. It’s possible that a traditional IRA may provide some investment choices that may not exist in your new 401(k) plan.
The drawback to this approach may be less creditor protection and the loss of access to these funds via a 401(k) loan feature.
Remember, don’t feel rushed into making a decision. You have time to consider your choices and may want to seek professional guidance to answer any questions you may have.
Choice 4: Cash out the account
The last choice for those in APA is to simply cash out of the account. However, if you choose to cash out, you may be required to pay ordinary income tax on the balance plus a 10% early withdrawal penalty if you are under age 59½. In addition, employers may hold onto 20% of your account balance to prepay the taxes you’ll owe.
Think carefully before deciding to cash out a retirement plan. Aside from the costs of the early withdrawal penalty, there’s an additional opportunity cost in taking money out of an account that could potentially grow on a tax-deferred basis. For example, taking $10,000 out of a 401(k) instead of rolling over into an account earning an average of 8% in tax-deferred earnings could leave you $100,000 short after 30 years.
- In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.
FINRA.org, 2022
- Those in APA must acknowledge how an unpaid 401(k) loan is deemed a distribution, subject to income taxes and a 10% tax penalty if the account owner is under 59½. If the account owner switches jobs or gets laid off, any outstanding 401(k) loan balance becomes due by the time the person files his or her federal tax return.
- For APA employees, in most circumstances, once you reach age 73, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ as long as you meet the earned-income requirement.
- This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.
What is the APA 401(k) plan?
The APA 401(k) plan is a retirement savings plan that allows employees of APA to save for retirement on a tax-deferred basis.
How can I enroll in APA's 401(k) plan?
Employees can enroll in APA's 401(k) plan by completing the enrollment form available on the APA employee portal or by contacting the HR department for assistance.
What is the employer match for APA's 401(k) plan?
APA offers a matching contribution of 50% on the first 6% of employee contributions to the 401(k) plan.
When can I start contributing to APA's 401(k) plan?
Employees at APA can start contributing to the 401(k) plan after completing 30 days of employment.
What types of investments are available in APA's 401(k) plan?
APA's 401(k) plan offers a variety of investment options, including mutual funds, target-date funds, and company stock.
Can I take a loan from my APA 401(k) plan?
Yes, APA allows employees to take loans from their 401(k) accounts under certain conditions. Employees should consult the plan documents for specific terms.
What happens to my APA 401(k) if I leave the company?
If you leave APA, you have several options for your 401(k), including rolling it over to another retirement account, leaving it in the APA plan, or cashing it out, subject to taxes and penalties.
How often can I change my contribution amount to APA's 401(k) plan?
Employees can change their contribution amount to APA's 401(k) plan at any time, subject to the plan's guidelines.
Is there a vesting schedule for APA's employer match?
Yes, APA has a vesting schedule for employer contributions, which means that employees must work for a certain period before they fully own the employer match.
How can I check my balance in APA's 401(k) plan?
Employees can check their 401(k) balance by logging into the APA employee portal or by contacting the plan administrator.