The maximum contribution dollar amount is set by law and adjusted for inflation annually. The 2014 contribution limit (pre-tax contributions plus Roth contributions) is $17,500. If you are age 50 or older you may also make an additional catch-up contribution of $5,500 for 2014.
Congress has passed laws allowing retirement plan participants who are 50 or older to make what are known as catch-up contributions. If your plan restricts your annual contributions to an amount less than the maximum federal limit, you may still be able to make a full catch-up contribution of $5,500 in 2014. After 2014, this dollar limit may be increased for cost-of-living adjustments.
Yes. But how often you can change the amount of your contribution depends on the rules of your company's plan. Generally, plans allow for monthly, quarterly, semi-annual or annual changes. Check with your human resources representative or your Union Bank & Trust educator regarding the rules for your company's plan.
That is up to you. When you enroll in a retirement plan, one of the things you have to decide is how you want to invest your contributions. Your plan sponsor will give you a variety of options in which you can invest in. Your investment elections may include money market funds, bond funds, and equity funds. The options available to you will depend on your particular plan.
Any savings is better than nothing and the sooner you get started, the better! One of the most important things you should do would be to maximize your company's match, if offered. For example, if your company matches 50 cents on the dollar up to 6% of your compensation, you should contribute at least 6% of your compensation to receive the full benefit. Simply defer as much as you can afford to budget and take full advantage of the tax deferral.
You can withdraw money from your retirement account only as permitted by your employer’s plan. Keep in mind that there may be early withdrawal penalties and possible tax consequences for a withdrawal, and any type of distribution will reduce the value of your retirement savings. Some of the more common examples of events that may allow you to make a distribution may include:
In-service distribution: Your plan may allow an in-service distribution from your retirement savings and any matching dollars from you company when your reach the age of 59 ½, even if you are still employed. If you have rollover dollars you can request an in-service distribution at any time, subject to your plan’s procedures.
Termination: When you leave the company you will receive distribution paperwork where you can indicate what you would like to do with your retirement account. Your options may include leaving the funds in the retirement plan; rolling your dollars to a new employer’s retirement plan, or an IRA; or receiving an immediate cash distribution of your funds.
Hardship withdrawal: Your salary deferral dollars may be eligible for a hardship distribution. Consult your human resources representative or your Union Bank & Trust educator if you are experiencing heavy financial need for one of the following conditions and are interested in learning more about a potential hardship withdrawal:
- Expenses for medical care for you, your spouse, your dependents,
or your primary beneficiary
- Costs directly related purchasing your home (excluding mortgage
- Post-secondary education expenses for yourself, your spouse, your
dependents, or your primary beneficiary
- If you are facing eviction or foreclosure from your primary residence
- Payments for burial or funeral expenses for your deceased parent, spouse,
children, dependents, or your primary beneficiary
- Expenses for repair of damage to your primary residence
Retirement contributions are made on a pre-tax basis, meaning you are not currently taxed on your compensation that is contributed to the plan. At the time you elect to take a distribution (withdrawal) from the Traditional retirement account, you will be taxed on both the contributions to the plan and any earnings on those contributions.
Roth contributions are made on an after-tax basis, meaning you have already paid taxes on the funds by the time you make the contribution. At the time you elect to take a distribution (withdrawal) from the Roth account, you will not owe any tax on the contributions (you have already been taxed on them), and further, if the distribution is a "qualified distribution" you will not pay any tax on the earnings associated with the Roth contributions.
If you receive a "qualified distribution" from your Roth account, the entire distribution (your contributions and earnings on those contributions) will not be taxed. A qualified distribution is a distribution that satisfies the "5-year rule” and is made after your attainment of age 59 1/2, death, or disability. The 5-year rule is met if five calendar years have passed since you first made a contribution to your Roth account.
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For more information about your retirement account, contact the Plan Administrator or a Union Bank & Trust Company educator. Because the above is not meant to be a comprehensive explanation of saving for retirement, for more information about the tax consequences of making contributions to, and withdrawing money from, your employer’s retirement plan, please consult with a qualified advisor.