FORUM Private Client Group

11313 USA Parkway
Fishers, IN 46037

Basic Retirement Planning

A 401(k) plan is a type of employer-sponsored retirement plan in which you can elect to defer receipt of some of your wages until retirement. If you make pre-tax contributions, your taxable income is reduced by the amount that you contribute to the plan each year, up to certain limits. The contributed amount and any investment earnings are taxed to you when withdrawn or distributed. If your plan allows after-tax Roth contributions, there's no immediate tax benefit, but qualified distributions are tax free.

Most 401(k) plans offer an assortment of investment options, ranging from conservative to aggressive.


401(k) Plans

Key strengths

  • You receive "free" money if your contributions are matched by your employer (subject to your plan's vesting schedule)
  • You decide how much to save (within federal limits) and how to invest your 401(k) money
  • Your regular 401(k) contributions are made with pre-tax dollars
  • Earnings accrue tax deferred until you start making withdrawals, usually after retirement
  • Your Roth 401(k) contributions (if your plan allows them) are made with after-tax dollars; there's no up-front tax benefit, but distributions of your contributions are tax free and, if you satisfy a five-year waiting period, distributions of earnings after age 59½ or upon your disability or death, are also tax free.
  • You may qualify for a partial income tax credit
  • Plan loans may be available to you (special loans provisions may apply in 2020 due to the CARES Act)
  • Hardship withdrawals may be available to you, though income tax and perhaps an early withdrawal penalty will apply
  • Your employer may provide full-service investment management
  • Savings in a 401(k) are generally exempt from creditor claims in bankruptcy (but not from IRS claims)

Bear in mind ...

  • 401(k)s do not promise future benefits; if your plan investments perform badly, you could suffer a financial loss
  • If you withdraw taxable funds prior to age 59½ you may have to pay a 10% early withdrawal penalty (in addition to ordinary income tax), unless an exception applies, including up to $100,000 in 2020 for coronavirus-related distributions
  • The IRS limits the amount of money you can contribute to your 401(k)
  • Unless the plan is a SIMPLE 401(k) plan, a safe harbor 401(k) plan, or the plan contains a qualified automatic contribution arrangement (QACA), you may have to work for your employer up to six years to fully own employer matching contributions

IMPORTANT DISCLOSURES Broadridge Investor Communications, Solutions, Inc. and FORUM Private Client Group are separate and unaffiliated entities. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

This communication is strictly intended for individuals residing in the state(s) of AL, AZ, CA, FL, IL, IN, MI, SC, TN and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020.