GENERAL 401(K) INFORMATION:
When will I get my statement?
Participant statements are generated quarterly. Another option is to receive your statements electronically with our eStatements. To sign up, log into your account and edit your profile by adding your email address. Then complete the form under Reports, Tools. You will then receive a notification by email when your statement is ready to view - through your account.
What is the difference between my account balance and vested balance?
The total account balance illustrates the total value of your account if you were 100% vested in the employer contribution. Your vested account balance is the employer contribution you would be entitled to if you left employment, today. As you continue to work, you will become more vested in your employer's contribution. A common vesting schedule example: After two years, you may be entitled to 20% of the employer's contribution, after 3 years - 40%, 4 years - 60%, 5 years - 80%, and after 6 years, you would be eligible to withdrawal 100% of the employer's contribution. It is important to note, you are always immediately vested in your personal contributions.
What should I know about investing for retirement?
How you invest your money is just as important as how much you save. The key to understanding your risk tolerance is to be proactive - not reactive. Diversifying your investments will all help you to achieve your retirement goals and an American Trust representative is available to help you develop your strategy. Contact our retirement team to discuss in more detail.
What is dollar cost averaging?
Dollar cost averaging is a technique designed to reduce your market risk through the systematic purchase of mutual funds or securities at predetermined intervals and set amounts. Many successful investors already practice this without realizing it. With each paycheck, you are making regular and ongoing contributions into the stock market through your 401(k) plan.
Instead of investing dollars in a lump sum format, your ongoing contributions allow you to work your way into the market by slowly buying smaller amounts over a longer period of time. This spreads the cost basis out over time, which provides insulation against the vast swings in the market price.
The Cow Story: An Example of Dollar Cost Averaging.
We all have a different time horizon until we reach retirement. For someone just entering the work force, this may be 40 years or more. For illustrative purposes, assume Joe is going to work for 5 days. Starting to invest on Monday and retiring on Friday. Joe is going to make $10 daily payroll deductions to his plan. As you have 17 mutual fund investments to choose from in your 401(k) plan, Joe is going to invest in cows.
|Share Price Per Cow||$10||$5||$2.50||$5||$10|
|Number of Cows Purchased||1||2||4||2||1||10|
You can see the fluctuation in the share price each day; however; Joe continues to buy. Over the course of the week, Joe purchased 10 cows for $50. He retired on Friday and sold his 10 cows for Fridays share price of $10, for a retirement value of $100.
Moral of the story: Joe doubled his money and the price of the cow never got higher than the day he started.
How do I handle market changes?
When the market goes through declines and fluctuations, it receives a lot of media coverage which stirs up a lot of concerns for you as an investor. Remember the golden rule of investing, "buy low, sell high". One of the biggest mistakes you could make is stopping your contribution when the market is low and starting again when the market is high. When the market is low, look at it like this: you are buying shares "on sale." See the dollar cost averaging section for a great example. Overall, saving for retirement is a long term investment, keeping long term perspectives.
Do I need to rebalance my 401(k) investments?
If you choose one of the American Trust Asset allocation models, we will automatically rebalance your investment quarterly.
Are my 401(k) assets diversified?
If you chose an American Trust asset allocation model, we will diversify your investment based on the model of risk you chose.
What are the American Trust Asset Allocation Models?
American Trust has 5 actively managed asset allocation models available for you to choose from: Aggressive Growth, Growth, Moderate Growth, Conservative Growth, and Income. A seven member investment committee meets monthly to review the models. As the market conditions change, the investment committee will properly diversify the investments within the models.
How do I choose the appropriate American Trust Asset Allocation Model?
The models are based on risk tolerance. To evaluate your risk tolerance, complete the questionnaire or contact American Trust.
I was automatically enrolled, where is my money invested?
Your contributions will automatically be deposited into the plans default investment. As of January 1st, 2011, the default election will be an asset allocation model, chosen based on your age.
Can I participate in my employer's 401(k) plan?
In most cases, as long as you meet the eligibility and entry requirements, you can participate. In some cases, an employer is allowed to exclude specific classification of employees from the retirement plan. For example, an employer may choose to allow hourly union workers to participate, but not allow salaried employees into the plan.
When can I enroll into my 401(k)?
Each employer has elected eligibility and entry requirements to enter a 401(k) plan. You can contact your Human Resources department or American Trust to discuss your employer's eligibility and entry requirements.
I am a rehire, when can I re-enroll?
If you were previously eligible to enroll in the 401(k) plan, you will be allowed to start contributing again, immediately. If you were not eligible, you will need to meet the eligibility and entry requirements.
What are the differences between eligibility and entry dates?
To be eligible, you generally need to work at least "x" number of hours over a specific time period. For example, you may need to have 1,000 hours worked in one year. Employers will also choose to allow entry during a specific regular timeframe. For example a company many elect to allow employees to enter the plan on a quarterly basis.
I was hired on January 3rd, 2009 and have worked over 1,000 hours during the year, When can I enter the plan?
Each plan has different eligibility and entry requirements, contact your Human Resources to determine what your employer rules state. If in this case the company has an eligibility requirement of 1,000 hours in one year and allows entry on a calendar year quarterly basis: This employee would be eligible to enter the plan as of April 1st, 2010. It is important to contact your employer prior to your eligible entry date to set up your enrollment.
Why should I start right now?
The earlier you start planning for retirement, the easier it will be to obtain your retirement goals. Time is on your side giving you more potential to compound interest over a longer time. The Department of Labor uses an example of two employees, Jennifer and Michael.Jennifer contributes $1,000 annually starting at age 20. At age 30, she decides to stop contributing and keep the assets invested until she is 65.
Michael starts contributing $1,000 annually at age 30 and continues contributing until he is 64. Jennifer contributed $11,000 and Michael contributed $35,000.
At age 65, who has more in retirement savings? Jennifer.
Assuming the same 7% rate of return for Jennifer and Michael, Jennifer will have over $20,000 more than Michael.
What is automatic enrollment?
If your employer chooses to automatically enroll the eligible employees into the 401(k) you will receive a notification. Your employer will automatically take a specific percentage of your paycheck and contribute it to the 401(k) program. You have the option to elect out of the automatic enrollment and increase or decrease the percentage by completing an enrollment form.
I am ready, what forms do I need to complete to enroll?
You will need to complete an Enrollment form and Beneficiary Designation form to enroll. You can contact your Human Resources or American Trust for the forms. After you complete the forms, they need to be given to your employer.
Why should I contribute?
With life expectancy rates on the rise and the ever-increasing health care costs, it is extremely important to start saving for your retirement as soon as you can. Some of the other reasons you should contribute to your employers retirement savings include: (1) your employer may match your contribution, giving you free money, (2) tax savings, (3) it is easy to contribute - deducts directly out of your paycheck, (4) it is portable money, so if you change employers, you may be able roll it to your new employers retirement plan, and (5) Social Security may not be accessible when you are ready to retire. Time is on your side. The sooner you can start the easier it will be to save.
How much should I contribute?
Figuring out how much you need and how much you can afford can be difficult. Statistically, most employees contribute between 3% and 6% of their paycheck toward their retirement accounts. Every person has a different financial situation and different need. We are here to help. Contact an American Trust Enrollment Specialist to help you determine how much you will need to last you through your retirement years.
What is the maximum I can contribute?
For 2010, if you are under 50 years old you are allowed to contribute up to $16,500. This limit is adjusted every year according to cost of living standards.
I am over 50, can I contribute more?
Yes. If you are over 50 years old, you are allowed to contribute an additional amount called 'catch-up' contribution. For 2010, the limit for a catch-up contribution is $5,500. This limit is adjusted every year according to cost of living standards.
What is the difference between Roth and Traditional contributions?
Traditional contributions are made on a pre-tax basis which means that you do not pay taxes, now on contributions; instead, you will pay taxes when you take the money out. This is why traditional contributions are referred to as a deferral. You are deferring the taxes until later. Roth contributions are after-tax contributions, meaning you pay taxes on the contribution now, not when you take the money out. Additionally, if your Roth contributions become Qualified, you will not pay taxes on the earnings either.
What is the difference between a match and a profit sharing?
Your employer may contribute a match or profit sharing amount to your retirement account. In a match program, you make a contribution and your employer will match that contribution. For example, with a match program, your employer may have a $0.50 match on a $1.00 contribution. If you contribute $5,000 your employer would contribute $2,500 in the form of a match. In a profit sharing program, regardless of your contribution to your retirement plan, your company will contribute a percentage of your compensation or a flat dollar amount. For example, if your company has a 4% profit sharing program and your annual salary is $45,000, your company would contribute $1,800 to your account - equals 4% of your compensation - regardless of your contribution to the plan.
How do I roll my former employers 401(k) into my new 401(k)?
You can roll a former employer's 401(k) into your new 401(k) if your new employer allows rollovers into the plan. You may not have to wait to be eligible to enter the plan to roll into the new plan. To roll funds into the new plan, you will need to complete a Rollover Into the Plan form, a beneficiary designation form (if not already completed), and a copy of your last statement from the institute you are rolling your dollars from. To obtain the forms, contact your Human Resources or American Trust. The former institute will need to make the check payable to American Trust & Savings Bank; For the benefit of (your name); followed by the name of your new company's 401(k) plan. The rollover check can then be mailed to American Trust 895 Main Street, Dubuque, Iowa 52001.
What is the difference between a direct rollover and an indirect rollover?
A direct rollover goes directly from one institute to another, taxes are not withheld. An indirect rollover will be issued to you with taxes withheld. You will then need to issue a personal check to the new institution within 60 days. If you wish to rollover the full amount, you will need to issue your check for the gross amount of the original check. For example: If your net distribution check you received was for $8,000 and $2,000 was withheld for federal taxes. You then decide to indirectly rollover your distribution with in 60 days you will need to issue the new institution a check for $10,000.
Can I roll money out of my 401(k)?
If you are eligible for an in-service withdrawal or no longer employed by your company, you are most likely eligible to rollover your retirement savings.
Can I take a loan from my 401(k)?
Not all plans allow loans to be taken. To find out if you are eligible to take a loan, log-into your account, review your enrollment booklet or contact American Trust.
Is taking a loan from my retirement plan a good idea?
For most homeowners it is more beneficial to take a home-equity loan, unless you are borrowing more than the value of your home. Basic reasons to avoid 401(k) loans:
(1) Loans from your retirement account will not help your credit score.
(2) Loss of potential earnings because you will be taking money out of your account. You are not really borrowing; you are using money from your account and repaying it through your payroll deductions.
(3) Loans from retirement accounts are not tax deductible.
(4) Repayments are made on a post-tax basis out of your paycheck. For example, if your loan repayment is $500 and you are in the 28% tax bracket, you will need to make $694 to cover your $500 loan payment. Then, at retirement when you are ready to take your savings out, you pay taxes on those funds again.
(5) If you fail to make repayments a 10% penalty may be assessed on the outstanding funds, if you are less than 59 ½ years old.
What are the types of loans available?
A primary residence or general purpose loan may be available. General purpose loans may be restricted to hardship purposes only. For a list of hardship purposes available, contact your human resources department or American Trust.
What happens if I leave my employer and I have a loan?
Loan payments are due and payable upon termination. If you are unable to repay the loan, the loan will become a taxable event. If you are under 59 ½ years old, a 10% penalty will be assessed.
Can I pay off my loan early?
Yes, to pay off your loan early contact American Trust. You will need the payoff amount and instructions to send in the payment.
Can I make additional payments to my loan?
Yes. Contact American Trust for instructions to make additional payments.
I want to take a loan, what do I need to do?
You can calculate your loan repayments by logging into your account. Loan forms can be picked up and returned to your Human Resources department.
Can I consolidate my loans?
Loan consolidation and refinancing is not allowed.
Can I take a loan from my Roth funds?
If am still working, can I take a withdrawal out of my 401(k)?
If you are still an active employee you may not be able to withdraw funds. In-service and hardship withdrawals may be available, but under very restricted circumstances. To determine if you are eligible for a withdrawal review your Summary Plan Description or contact American Trust.
What is an in-service withdrawal?
An in-service withdrawal is a distribution from your retirement plan while you are still employed. However, this distribution is not in addition to your other retirement plan benefits; therefore, will reduce the value of the benefits you will receive at retirement. In-service withdrawals are eligible to be rolled over to other retirement vehicles but, taxes and penalties may apply to your withdrawal. Generally, you may need to meet specific requirements prior to being eligible for an in-service withdrawal. For example, you may need to be at least 59 ½ years old. You can contact your Human Resources or American Trust to see if in-service withdrawal is available.
What is a hardship withdrawal?
Some employers allow hardship withdrawals, a distribution to active employees, made to satisfy certain immediate and heavy financial needs that you may have. The reasons for hardships are specifically defined for each plan and generally include:
(1) Medical bills not covered by insurance for you, your spouse or your dependents,
(2) Costs directly related to the purchase of your principal residence,
(3) Tuition, related educational fees, and room and board expenses for the next twelve months of post-secondary education for you, your spouse, your children, or your dependents,
(4) Amount necessary to prevent your eviction from your principal residence or foreclosure on the mortgage of your principal residence,
(5) Payments for burial or funeral expenses for your deceased parent, spouse, children or dependents, or
(6) expenses for the repair of damage to your principal residence.
This hardship distribution is not in addition to your other retirement plan benefits; therefore, will reduce the value of the benefits you will receive upon termination of employment or other event entitling you to distribution of your account balance. Hardship withdrawals are not eligible to be rolled over to other retirement vehicles.
Is a withdrawal the right option for me?
The tax consequence and long term effects of taking a withdrawal from your retirement account can be crippling. If you take cash withdrawal from your account, expect to claim the withdrawal as ordinary income on your taxes. This may advance you into a higher tax bracket. In this case, you would not only pay a higher tax amount on the withdrawal, but on your total income. If you are under 59 ½ years old, the additional 10% tax penalty may apply. You will also need to evaluate the long term account balance adjustment. Here's an example:
$10,000 cash withdrawal at the age of 30
$2,000 for federal taxes will be withheld
$500 for state taxes withheld (if applicable)
$800 of additional federal taxes due when you file your taxes (if in the 28% tax bracket)
$1,000 penalty due when you file your taxes (10% penalty)
Total cost of taxes and penalties: $4,300
Your net withdrawal check = $5,700
If you left $10,000 invested for the 35 years until retirement, at an 8% rate of return, your $10,000 would turn into $164,093!
Moral of the story: Is $5,700 today worth $164,000 loss at retirement?
Required Minimum Distributions: I am 70 ½, do I have to start withdrawing from my account?
Most people who are 70 ½ or older are subject to the Required Minimum Distribution rules. Your first RMD payment will need to be taken by April 1st, following the year you turn 70 ½. The subsequent payments will need to occur by the calendar year end. Roth contributions are subject to the RMD calculations. You will receive notification if you are subject to the Required Minimum Distribution. RMD's are not eligible for rollover; therefore, you are not required to withhold 20% in federal taxes from your payment.
I have Roth contributions, so how do I know if I need to pay taxes on the earnings?
You can avoid paying taxes on the Roth earning if your distribution is a Qualified Distribution. Your Roth earning will be tax-free if your first Roth contribution was 5 years prior to your distribution and you are at least 59 ½ years old, disabled, or a beneficiary.
Will taxes be withheld from my distribution check?
Taxes will not be withheld from direct rollover checks, but are required to be withheld if the distribution is eligible for rollover and taken in a lump-sum or cash payment. The federal withholding minimum is 20% and the standard Iowa state tax withholding is 5%.
How do I get a distribution?
If you are no longer employed, you will need to contact American Trust for distribution paperwork.
I am no longer employed, so what are my options?
If you are no longer employed, you have several options available:
(1) If you have over $1,000, you can elect to postpone your distribution until further notice,
(2) Rollover your entire account balance to an American Trust Managed IRA, your employer's retirement plan, or an outside IRA,
(3) Receive your entire vested account balance in a full, direct payment minus any income tax withholding,
(4) Installment payments. Receive a regular amount over a specific period of time,
(5) A qualified annuity benefit (joint and 50% survivor annuity) or qualified optional survivor annuity benefit (optional joint and 75% survivor annuity), or
(6) A combination of the above listed options.
Will I have enough money to last during my retirement?
You can contact a retirement expert to calculate how much you are going to need or look at the calculators available online.
How do I get ready to retire?
First, evaluate what your projected income needs to be to cover your bills at retirement. Then contact an Enrollment Specialist at American Trust to discuss how to save enough to cover your needs.
Women in retirement:
As a woman, what should I know about saving for retirement?
Women face challenges that often make it more difficult to adequately save for retirement. In light of these challenges, women need to pay special attention to making the most of their savings. (1) Women tend to earn less than men and work fewer years. (2) More often, women stay at jobs for a shorter time period, work part-time, and interrupt their careers to raise children; therefore, they are less likely to qualify for their employer sponsored 401(k). (3) On average, women live 5 years longer than men and need to build a larger savings. (4) Some studies indicate women tend to invest less aggressively. (5) Women tend to lose more income than men following a divorce and (6) Women are twice as likely to receive income below the poverty line during retirement.