CARES Acts in Action

January 14, 2021

In response to the economic fallout of the COVID-19 pandemic in the United States, the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, a $2.2 trillion economic stimulus bill, was passed by the U.S. Congress and signed into law by President Trump on March 27, 2020. The CARES Act made it easier for millions of U.S. workers to withdraw or borrow money from their retirement plans through December 30, 2020. People under the age of 59.5 affected by the coronavirus were allowed to take a distribution of up to $100,000 from an IRA, 401(k), or similar account without penalty. It also permitted loans of up to $100,000.

Usually, withdrawing funds from a tax-deferred account before age 59.5 would result in a 10 percent penalty on top of any income taxes incurred. But under the temporary rules part of the CARES Act, people with pandemic-related financial troubles could withdraw without penalty up to $100,000 from any combination of their tax-deferred plans, including 401(k), 403(b), 457(b) and traditional individual retirement accounts. The rules applied to plans only if the employee’s employer opted in.

Virus-Related Withdrawals

Some plans already permitted hardship withdrawals under certain conditions, and the rules for those were loosened in 2019. But the CARES Act rules were even more lenient by allowing virus-related hardship withdrawals to be treated as taxable income, but the liability was automatically split over three years unless the account holder chose otherwise. The tax can be avoided if the money is put back into a tax-deferred account within three years.

Almost 60 percent of Americans withdrew or borrowed money from their IRA or 401(k) during the coronavirus pandemic, according to a survey from Kiplinger and digital wealth management company Personal Capital. Most U.S. retirement accounts were already underfunded and the pandemic caused a significant number of Americans to withdraw money, potentially setting them back even further. They will now have to work longer or delay retirement in order to rebuild their savings.

“The past year rocked the confidence of most Americans saving for retirement,” Mark Solheim, editor of Kiplinger Personal Finance, said in a release. “With many people dipping into their retirement savings or planning to work longer, 2020 will have a lasting impact for years to come.”

When it comes to drawing down savings, younger workers have been more willing to withdraw from retirement accounts during the pandemic. A Transamerica survey found that 43 percent of millennials have either taken out a loan or withdrawal from a retirement account or plan to do so in the near future, compared to 27 percent of Generation Xers and 11 percent of baby boomers.

Boomers were much more likely to completely rule out withdrawing from their retirement accounts, with nearly 3 in 4 (73 percent) saying such a move was out of the question. In contrast, 36 percent of millennials and 56 percent of Gen Xers say they won’t take money from their retirement accounts to deal with financial shortfalls attributed to the COVID-19 pandemic.

Retirement Savings Sacrifices

Many workers are sacrificing their retirement savings in order to keep afloat during the coronavirus pandemic. Now that the original CARES Act has expired, taking an early withdrawal from a retirement account can have far-reaching implications. You may not only have to pay a 10 percent penalty, but you’ll also lose out on having your money earn interest for a longer period of time.

As a result, you may likely have to work longer in order to have enough money for retirement if you withdraw funds from your account now. Nearly a third of Americans say the pandemic has already led to a change in their expected retirement age. Since the start of the coronavirus outbreak, the economy has risen to the top of survey respondents’ list of obstacles with 49 percent saying it is the top barrier to achieving a financially secure retirement. The economy was followed by 33 percent claiming a lack of savings and 32 percent blaming health care costs as reasons to delay retirement.

Emergency Savings Accounts

Effects of the pandemic on emergency savings accounts have brought to light how few households have set aside money inside a retirement plan or for education expenses and it has prompted more employers to start their own programs. For now, about 10 percent of large employers offer some type of support to encourage emergency savings accounts.

But the scope of the damage caused by the pandemic means that even the traditional emergency savings advice of putting aside roughly three to six months of basic living expenses hasn’t been enough to provide a secure provision for an emergency. During the coronavirus pandemic, millions of Americans have lost incomes and work. An employee who lost a job early in the pandemic could have easily used up all his savings while being unemployed.

But withdrawing funds from a 401(k) has consequences, such as increased tax bills and possibly sacrificing future retirement income. According to survey data of 1,902 U.S. workers by Edelman Financial Engines, one in five Americans is considering taking an early withdrawal. But the survey also found that many Americans who have done so regret it.

For most borrowers, doing so was for an essential reason—35 percent spent their funds on housing, and 7 percent took a loan due to a loss of income. Some did so for less pressing reasons, for example, about 20 percent borrowed to pay off credit card debt and 8 percent funded a car purchase. 

Borrowing Consequences

Borrowers admit they didn’t understand the consequences or alternatives or not doing enough research on other options available. Many people say they regret their decision for this reason—about 41 percent of people who took hardship withdrawals and 42 percent who took a loan regret it because of a lack of understanding. 

Others say they wish they’d understood the other options available. During the pandemic, many lenders have helped to ease the burden on Americans facing financial hardship. As part of the CARES Act, all federally-backed mortgages had the option of forbearance. Banks across the country offered help programs for loans ranging from mortgages to personal loans.

According to Edelman, some wish they’d turned to those programs before making a long-term commitment in reducing their retirement savings. Of people who took hardship withdrawals, 52 percent said they wish they’d explored other options first, while 44 percent of those who took a loan said the same.

Overall, most wish they’d consulted a professional before taking funds from their 401(k). Four out of five borrowers who regret the withdrawal or loan say that consulting a financial advisor would have helped their decision making. 

CARES Act II

On December 27, 2020, President Trump signed H.R. 133, another stimulus bill that Congress passed on December 21. This legislation extends unemployment assistance not only for employees but also for independent contractors and other self-employed individuals for 11 weeks. The bill includes the “Continued Assistance for Unemployed Workers Act of 2020,” which provides for an extension from December 31, 2020 until March 14, 2021 of the CARES Act’s unemployment provisions, including a new form of benefits for all self-employed individuals: pandemic unemployment assistance (PUA). 

The original CARES Act provided PUA benefits for up to $600 a week for as many as 39 weeks, retroactive to January 27, 2020. The new stimulus bill, CARES Act II, halves that amount and limits PUA to $300/week. Those eligible for PUA also will receive an additional $300/week through the end of the extension period, whereas CARES Act I had added $600/week in federal stimulus payments. Finally, the new stimulus bill provides independent contractors with paid sick and paid family leave benefits through March 14, 2021.

CARES Act II contains a new provision: unemployed or underemployed independent contractors who have an income mix from self-employment and wages paid by an employer are still eligible for PUA. Under CARES Act I, any such worker was typically eligible only for a state-issued benefit based on their wages. Under CARES Act II, the individual now is eligible for an additional weekly benefit of $100 if he earned at least $5,000 a year in self-employment income. The $100 weekly payment which would be added to the $300 weekly benefit, also will expire on March 14.        

InsureYouKnow.org

If the original CARES Act or CARES Act II applies to your personal financial situation, you may want to consult a financial advisor about decisions you made in 2020 or plan to make in 2021. Then, keep a record of all your financial decisions at InsureYouKnow.org so you’ll be prepared for additional financial challenges or government stimulus opportunities in the new year.

Racing to Retirement?

September 14, 2020

If you had been carefully planning your retirement and thought that you had a few more years to accumulate a nest egg before you officially called it quits, you may be prompted during the COVID-19 pandemic, to shift gears and reevaluate your options.

Employees worldwide are enduring furloughs pending a rebound in the economy, permanent layoffs because of drastic downturns at their workplaces, or have decided not to return to a work environment that may expose them to COVID-19. If one of these, or another reason, has spurred you to consider or plan to retire sooner than you had anticipated, make sure your retirement income strategy is right for your current and future financial situation. You may want to consult a financial planner who can help you project and protect your retirement benefits while you decide when to retire.

Retirees with limited financial resources face numerous risks, including out-living their money, investment losses, unexpected health expenses, the unforeseen needs of family members, and even reductions in retirement benefits. Some workers, including teachers, restaurateurs, and healthcare providers, whose professions require close contact with others, have started withdrawing from the workforce earlier than they had planned because of challenges and concerns resulting from the COVID-19 pandemic.

The pandemic has hit older workers hard. The unemployment rate among Americans age 55 and up reached a staggering 13.6 percent in April, up from just 2.6 percent in January, according to the U.S. Bureau of Labor Statistics. As of August, the percentage had gone down to 7.7 percent but other data show that one in five Americans in their 60s has lost his job or has been furloughed due to COVID-19, according to the July 2020 Retirement Confidence Index by the financial technology company SimplyWise. Overall, 15 percent of Americans are now considering claiming Social Security benefits earlier than they had anticipated. One in five respondents who was laid off during the coronavirus pandemic is now planning to retire early.

If you can identify with these staggering statistics, take a deep breath and review the following suggestions to guide you to the finish line for a financially successful retirement.

Examine Expenses and Downsize

For many employees, the COVID-19 pandemic has revealed how fragile their financial security is. A recent survey from the National Endowment for Financial Education found that nearly 9 in 10 (88 percent) Americans said that the COVID-19 crisis is causing stress on their personal finances. Americans who are not yet retired but whose finances have been impacted by the pandemic can use this time to review their expenses and reduce unnecessary spending. You’ll need to take inventory of your entire financial situation and determine how much cash will see you through retirement.

Take Stock of Resources and Make Adjustments

Evaluate what resources you have available. Make any necessary adjustments to savings and portfolio asset allocations, including your 401(k) or 403(b) accounts, pension plans from former or current employers, IRA accounts, and annuities as well as Social Security benefits based on your employment and age. For those who are eligible but not yet drawing Social Security payments, this is a good time to consider how to maximize your benefits.

Decide how much money you want to keep in stocks vs. bonds, based on your risk tolerance and financial goals. Keep in mind, most people need to maintain a stake in stocks, even in retirement, to get the long-term growth they need. But for those who prefer a more cautious strategy—and for older investors who have already amassed enough savings to afford a comfortable retirement—it may make sense to reduce the percentage you invest in stocks and increase your fixed-income holdings.

Rethink Withdrawal Rate

People in or nearing retirement need to review their withdrawal rate, and the pandemic has given new urgency to designing a safe withdrawal strategy. The 4 percent rule is the traditional rule of thumb for retirement withdrawals. You take out 4 percent of your portfolio in the first year, then increase that amount by the inflation rate in subsequent years. Studies show that this strategy can minimize your risk of running out of money over a 30-year retirement.

The article, “Don’t Let the Coronavirus Derail Your Retirement: How to Get Back on Track If Your 401(k) Has Taken a Hit,” published in the May 2020 issue of  Consumer Reports advises retirees to consider skipping their required minimum distributions from their 401(k) plans and individual retirement accounts that is permitted this year under the coronavirus relief package. If you can forgo those withdrawals, your portfolio will have more time to recover from losses.

Consider Taking Social Security Early

The longer you wait to claim Social Security benefits, the larger the payout you’re likely to receive. If you are at the full retirement age between 65 and 67 years old, you can claim benefits about 30 percent higher than if you take them early starting at age 62. By waiting until you’re 70 years old, the benefit amount would be another 32 percent higher than the amount you’d get at full retirement age.

But waiting isn’t always the best option and individuals need to be aware of how claiming benefits at different ages will impact their overall retirement strategies.

Evaluate Employment Opportunities

If you figure out that you don’t have enough currently saved for a comfortable retirement, consider remaining at or returning to work–even in a part-time position. Earning additional income and accumulating money in your retirement savings account will be beneficial if you can delay retirement and avoid unemployment. One of the most effective measures for protecting your finances is to amass an emergency fund that can cover three to six months of expenses—perhaps as much as a year if your job isn’t secure. That money should be kept in a safe, easily accessible account, which will spare you from having to dip into retirement funds or rely solely on credit cards for unexpected bills.

Once you have come to terms with a retirement date and a vision of a secure financial future, store copies of your decisions for portfolio changes, Social Security formulas, records of all of your 401 (k) or 403(b) accounts, pension plans, IRA accounts, annuities, and other investments at InsureYouKnow.org.

Time to Review Your Retirement Allocations

June 1, 2020

The Teachers Insurance and Annuity Association of America (TIAA), recently sent an email to members. Their advice was clear: review your allocations carefully. Financial advisors, self-help blogs and money-smart books suggest periodically looking at your available funds and asking questions. Do you have savings? Do you have a rainy day fund? What is your income stream? The answers take us on a journey of possibilities. The resources of 401k, pensions, insurance, investments, savings and CD accounts provide the financial safety for the future.

There are few resources available to let us know when and how to access our systems. Is today the time to use the money that was set aside for later? The money set aside for retirement, supporting adult children or grandchildren, investments and dreams may be utilized at a more efficient rate now. The funds can be available today during our COVID days. The stress levels are high from furloughs, loss of jobs, reduction in hours, and lack of work for the self-employed.

401k and Pensions

Intended for future days of retirement, the 401k and pension plans were projected to be utilized by the current workforce later rather than sooner. To prevent early access, penalties for utilizing certain financial safety resources available from employers were created. These include high fees, the loss of employer matching, and limits on the amount that could be dispersed annually. Part of the lengthy Coronavirus Aid Relief and Economic Security (CARES) Act passed by Congress, addresses some of the previous restrictions although they are not eliminated completely. Although up to $100,000 can be withdrawn from accounts instead of $50,000 and are not subject to the 10% penalty, taxes will need to be paid on the amount.

Despite the risk of lower resources for the future, the Washington Posthas indicated that many people have opted to utilize their pension and 401k resources for car and home payments. For the baby boomers, cashing into the pension at 55 instead of 65 wasn’t the plan, but is a necessity in some cases. It is also the smart option when basic needs take precedence over potential losses or gains in the volatile market. There are choices between loans from the accounts or withdrawals, and each have their own set of benefits. 

Whether opting for the withdrawal option instead of the loan, the premature access is worrying the financial industry globally, who have advised against utilizing this resource in light of the downward economy.  In March, the Federal Reserve lowered the interest rates to close to zero to try and support the marketplace. Over the recent weeks, some accounts have seen fees above yields, leading to negative returns in some accounts. Given the current environment, and the financial volatility in personal circumstances, markets could still fall before we see the bottom.  Companies like TIAA are providing certain limited and short-term fee waiver of expenses to help prevent their client accounts from having negative yields, but that may not last too long.

Your Action Items

At a minimum, review where 401k and pension resources are allocated for yourself and those that are in your care. Since the money is invested in the global stock exchange until you access it, the recession may leave you in a different place than anticipated. Morningstar’s report indicates people in aggressive portfolios have seen the largest declines.

To recall your 401k account information, log into http://www.insureyouknow.org and sign in with your personal credentials. If you do not utilize this online information storage resource, create an account with InsureYouKnow.org and start saving your documents, and files relating to your affairs. Set a reminder within the portal to revise and review the allocations as the world market changes further. There are various levels of access you can set to allow your family members, caregivers or business associates insight into the documents.

Financial Advisors 101

November 26, 2019

Have you wondered if you need a financial advisor? Are you puzzled about the type of financial professional you need to help with investing, financial planning, selecting insurance, repaying debt, education funding planning, tax planning as well as estate and retirement planning?

Many titles, including robo-advisor, broker, investment advisor, and financial planner are used to describe financial advisors who help clients manage their money and achieve long-term financial goals. Although there is crossover among all groups, and many financial advisors hold multiple credentials, they can be described in general as follows: 

1. Robo-advisors

Robo-advisors use computers to select and manage your investments. Some offer access to human advisors to answer questions, but their primary service is investment management, not financial planning.

Fees start as low as 0.25% of your balance and most charge 0.50% or less. Many have no or low account minimums, so you can start investing with a small amount of money.

Consider whenyou need help investing for financial goals like retirement, but don’t want or can’t afford a more holistic financial plan.

2. Online financial planning services

Relatively new to the market, these services offer investment management in conjunction with virtual financial planning. Clients typically meet with financial advisors by video or phone and receive comprehensive financial plans.

Fees, based on how much money is overseen for you, are described as “assets under management,” or AUM, that might range from 0.25% of your account balance to 1% or more, depending on the type of advisor you choose. 

Consider when you are interested in investment management, a comprehensive financial plan, and ongoing access to financial planners for less than the cost of a traditional in-person advisor. 

3. Traditional financial advisors

Working directly with clients to help them meet their short- and long-term financial goals, traditional financial advisors recommend specific investments and insurance products and may provide tax advice. In most cases, you’ll work with an advisor in your local area.

Fees will be based on a median financial advisor fee of about 1% of the assets managed for you, although some charge by the hour or have a set rate per service. Some require a minimum balance, such as $250,000 in assets.

Consider when you want specialized services, your situation is complex, or you want to meet your financial advisor in person.

4.  Brokers

Brokers work for broker-dealers—firms in the business of buying and selling securities (stocks, bonds, mutual funds, and other investment products) for customers. Brokers are required to make “suitable” recommendations for clients.

Fees are typically a mix of commissions and an advisory fee for portfolio-management services. Each firm has its own compensation formula. Statements show advisory fees and transaction costs. 

Consider when you need guidance or broad advice on funds or stocks, or on how to divide your assets among stocks and bonds based on your age and risk tolerance.

Tips for finding the best financial advisor for you

Once you’ve decided which type of financial advisor is best for your situation and budget, you can start your quest of finding an advisor appropriate for you. 

You should interview a few financial advisors before choosing one. Ask questions (including ones about philosophy on financial planning and investing, experience working with clients like you, and the number of years in practice) and check out their credentials and disciplinary history.

To vet a registered investment advisor, visit the U.S. Securities and Exchange Commission database, search an individual’s name, and find information on qualifications, employment history, disciplinary actions by regulators, and criminal convictions. 

When you’re ready to seek a financial advisor’s assistance, prepare by arming yourself with your personal financial data and specific questions to find the right pathway. Then, you can store quarterly and annual reports as well as investment portfolio changes at insureyouknow.org.

How to Save for Retirement by Decade

November 2, 2018

Saving for retirement for daunting. When you’re saving for something like a down payment on a house or a new car, you can have a pretty accurate figure in mind. But when you’re saving for retirement, it’s hard to know how much you’ll need. There are so many unknowns: How old will you be when you retire? Will you have any major health issues? What will your tax rate be? How long will you live?

It’s easy to want to throw up your hands and decide to worry about it later, but that is the exact wrong thing to do. Thanks to the power of compound interest, it’s important to start saving as early as possible and keep saving for as long as possible.

Not convinced? Look at the numbers. Assuming an 8 percent rate of return, if you start investing $250 a month at age 25, you will have $878,570 by age 65. If you start at age 35, you will have $375,073. And if you wait until age 45, you will have $148,236.

It’s time to stop procrastinating and develop a savings plan.

If you’re the type who likes to have an exact target, we have good news. Fidelity Investments has developed age-based milestones to help you travel the road to retirement. By biting off your savings plan into manageable chunks, you can keep track of where you are and feel more confident that you’ll get to where you need to go.

Fidelity recommends you aim for the following targets by age:

• By age 30: Have saved the equivalent of your annual salary
• By age 40: Have saved three times your salary
• By age 50: Have saved six times your salary
• By age 60: Have saved eight times your salary
• By age 67: Have saved 10 times your salary

The ultimate goal is for you to have saved enough by age 67 to be able to maintain your current lifestyle in retirement. Your personal goal may vary; if you’re planning on living modestly in retirement, you may need to save less, and if you’re planning on traveling extensively, you may need to save more.

The age at which you retire also plays an important part in your planning. If you want to retire earlier, at age 65, you will need to have saved 12 times your salary. If you wait to retire until age 70, you will need to have saved eight times your salary.

Those numbers probably still sound daunting, but they’re a good starting point. After all, the hardest part can be taking that first step.There are a number of ways you can save for retirement, including participating in a 401(k) plan offered by your employer and/or contributing to a separate IRA. No matter how you do it, be sure to store all your important retirement documents at InsureYouKnow.org. That way, when it’s time to sit back and enjoy the fruits of your labor, you’ll know how to access all the money you’ve painstakingly saved for years.

What Constitutes a True “Emergency”?

May 28, 2018

You’re a responsible person. You’re saving for retirement. You have a 529 plan set up to help pay for your daughter’s college education. Your car is paid off. You have an adequate amount of life insurance. You’re using InsureYouKnow to make sure your loved ones know how to access your important documents and financial information if needed. And you have six months of living expenses set aside in an emergency fund.

Then the unexpected happens: The alternator goes out in your car. It’s going to cost $400 to replace it.

Where do you find the money to pay for it?

If you answered, “My emergency fund,” you may want to take another look at your definition of “emergency.”

Your emergency fund is money you have socked away in case of a major life event, such as a job loss, divorce, or medical issue. This money would be used to cover your day-to-day expenses and bills if needed.

Washington Post columnist Michelle Singletary advocates the use of a separate fund—the “life happens” fund—for those pesky but somewhat predictable expenses that crop up.

“You’ll withdraw money from this fund to pay for unexpected or major expenses that don’t quite fit the dire straits definition,” Singletary wrote. “Car repairs would come out of this account. Start with trying to save $500, ideally increasing to a few thousand.”

Whether you call it the “life happens” fund, the “just in case” fund, or some other term, this fund is for those immediate expenses that aren’t quite catastrophic. These are expenses that result from situations that people often treat as emergencies but that in reality are expected, if irregular, like a broken appliance.

In an ideal world, you’d never touch your emergency fund. You wouldn’t lose your job. You wouldn’t get diagnosed with a major medical condition. You would have a regular, steady income with no major disruptive events in your life. For many people, this is indeed the case. That money sits in an easily accessible savings account where it earns minimal interest but supplies maximum peace of mind.

But even in an ideal world, you’re probably going to tap into your life happens fund fairly regularly. Even the most budget-obsessed person can’t predict every expense that may appear, such as the following:

• A storm blows through, knocking large tree branches onto the roof of your house that have to be sawed apart and hauled away.
• Your dog swallows a tennis ball and needs emergency surgery to remove it.
• Your toddler climbs onto the dishwasher door one too many times and it finally breaks.
• Your aunt dies and you need to fly out for the funeral.

In many of these situations, life is already stressful enough without you needing to scramble to come up with money for the resulting expenses. And you don’t want to tap into your emergency fund because that’s money you never want to touch. The life happens fund is the perfect compromise. Like an emergency fund, it’s kept in a savings account where it’s accessible on a moment’s notice. But unlike an emergency fund, taking money out of it won’t potentially result in your water getting shut off when you suddenly find yourself without an income.

Keep in mind that because you do need to access this fund somewhat regularly, it’s important to replace any money you take out as soon as possible. After all, life happens—and you never know when the next storm is going to pass through town.

Rеtіrеmеnt Plаnnіng

August 31, 2016

Plаnnіng fоr уоur rеtіrеmеnt іѕ nо ѕmаll tаѕk. It rеԛuіrеѕ thаt уоu knоw hоw muсh mоnеу уоu wіll hаvе ѕаvеd uр, аnd hоw muсh уоu wіll nееd реr уеаr fоr еасh уеаr аftеr уоur rеtіrеmеnt. Bоth оf these fасtоrѕ аrе whаt mаkе rеtіrеmеnt fіnаnсіаl рlаnnіng ѕо dіffісult, ѕіnсе уоu hаvе tо kеер trасk оf уоur rеtіrеmеnt ѕаvіngѕ ассоuntѕ аnd іnvеѕtmеntѕ, аѕ wеll аѕ уоur ѕtаndаrd оf lіvіng аnd thе аmоunt іt соѕtѕ tо kеер іt uр.

Thе 403b retirement рlаn іѕ аvаіlаblе tо US rеѕіdеntѕ wоrkіng іn ѕресіfіс ѕесtоrѕ, аnd оffеrѕ аn аttrасtіvе аltеrnаtіvе tо thе uѕuаl 401k. Emрlоуееѕ whо аrе еlіgіblе fоr thе 403b wоrk іn оrgаnіzаtіоnѕ thаt аrе tаx еxеmрt, рublіс ѕсhооlѕ, оr аrе ѕеlf-еmрlоуеd аѕ a rеlіgіоuѕ mіnіѕtеr. Thеrе аrе bеnеfіtѕ fоr bоth thе еmрlоуее аnd thе еmрlоуеr іn сhооѕіng a 403b.

Mаnу соmраnіеѕ uѕе thеіr 403b рlаnѕ tо аttrасt аnd rеtаіn thе bеѕt саndіdаtеѕ fоr еmрlоуmеnt. Onе rеаѕоn whу еmрlоуееѕ bеnеfіt frоm thе 403b іѕ thаt іt hаѕ аn еxсеllеnt mаtсhіng рlаn. Thеrе іѕ аlѕо nо nееd fоr еіthеr thе соmраnу оr thе еmрlоуее tо рау tаx оn соntrіbutіоnѕ thаt аrе gоіng іntо a 403b. Thе recipient оnlу hаѕ tо ѕtаrt рауіng tаx whеn thеу bеgіn tо wіthdrаw fundѕ.

Thеrе is a mаxіmum аmоunt, whісh саn bе раіd іn thаt іѕ ѕеt fоr еvеrу уеаr, аnd employees wіll оnlу rесеіvе thіѕ mаxіmum іf thе соmраnу іѕ dоіng wеll.

It іѕ аlѕо роѕѕіblе tо tаkе оut a lоаn аgаіnѕt thе ассumulаtеd fundѕ іn a 403b, whісh саn bе uѕеful іn аn еmеrgеnсу. Tаkіng оut tуре оf lоаn аnd mаkіng rерауmеntѕ tо іt wіll hаvе tаx соnѕеԛuеnсеѕ, hоwеvеr.

If thе еmрlоуее wіѕhеѕ tо wіthdrаw fundѕ frоm thе 403b bеfоrе thеу hаvе rеасhеd thе еxресtеd аgе оf 59.5 уеаrѕ, thеrе wіll bе fіnаnсіаl реnаltіеѕ. Onсе thе rесіріеnt іѕ оvеr thе аgе lіmіt thеу wіll оnlу bе сhаrgеd tаx fоr thе аmоunt thаt іѕ tаkеn оut, but younger реорlе wіll аlѕо hаvе tо рау аn аddіtіоnаl реnаltу оf 10%.

Pеорlе whо оwn оvеr 5% оf thе соmраnу thаt thеу аrе wоrkіng fоr аrе ѕubjесt tо аddіtіоnаl rulеѕ. Thіѕ іѕ іn оrdеr tо рrеvеnt thе wеаlthіеѕt mеmbеrѕ оf ѕосіеtу frоm uѕіng thе 403b tо ассumulаtе vаѕt аmоuntѕ оf tаx-frее ѕаvіngѕ.

Onсе thе еmрlоуее іѕ оf rеtіrеmеnt аgе thе аmоunt thеу hаvе ѕаvеd іn thе 403b wіll bе dіѕtrіbutеd ассоrdіng tо hоw muсh thеу hаvе ѕаvеd аnd thеіr еѕtіmаtеd lіfе еxресtаnсу. Thіѕ аіdѕ іn dіѕtrіbutіng thе fund in a fаіr mаnnеr. However, іf уоu dо nоt tаkе аt lеаѕt thе mіnіmum рауmеnt аvаіlаblе, уоu wіll bе сhаrgеd tаx оn your 403b ѕаvіngѕ аt a vеrу hіgh rаtе.

Emрlоуееѕ whо аrе еlіgіblе fоr a 403b ѕhоuld tаkе thе tіmе tо mаkе ѕurе thеу undеrѕtаnd bоth thе ѕаvіngѕ thеу саn mаkе оn tаx whіlе thе funds аrе bеіng buіlt uр, аnd thе іntеrеѕt, саріtаl gаіnѕ аnd dіvіdеndѕ thеу саn rесеіvе frоm thе рlаn.