PC-ES 401k Plans PC1372-Print

example, if you make your first Roth contribution to your employer’s 401(k) plan in December 2019, your five-year waiting period begins January 1, 2019, and ends on December 31, 2023. Each nonqualified distribution is deemed to consist of a pro-rata portion of your tax-free contributions and taxable earnings. WHAT ABOUT EMPLOYER CONTRIBUTIONS? Many employers will match all or part of your contributions. Your employer can match your Roth contributions, your pretax contributions, or both. But your employer’s contributions are always made on a pretax basis, even if they match your Roth contributions. That is, your employer’s contributions, and investment earnings on those contributions, are always taxable to you when you receive a distribution from the plan. SHOULD I MAKE PRETAX OR ROTH CONTRIBUTIONS? Assuming your 401(k) plan allows you to make Roth 401(k) contributions, which option should you choose? It depends on your personal situation. If you think you’ll be in a similar or higher tax bracket when you retire, Roth 401(k) contributions may be more appealing, since you’ll effectively lock in today’s lower tax rates. However, if you think you’ll be in a lower tax bracket when you retire, pretax 401(k) contributions may be more appropriate. Your investment horizon and projected investment results are also important factors. A financial advisor can help you determine which course is appropriate for you. Whichever you decide – Roth or pretax – make sure you contribute as much as necessary to get the maximum matching contribution from your employer. This is essentially free money that can help you reach your retirement goals that much sooner. WHAT HAPPENS WHEN I TERMINATE EMPLOYMENT? Generally, you forfeit all contributions that haven’t vested. “Vesting” means that you own the contributions. Your contributions, pretax and Roth, are always 100% vested. But your 401(k) plan may generally require up to six years of service before you fully vest in employer matching contributions (although some plans have a much faster vesting schedule). When you terminate employment, you can generally take a distribution (all or part of which may be taxable to you), leave your money in your 401(k) plan (if your vested balance exceeds $5,000) until the plan’s normal retirement age (typically age 65), or you can roll your dollars over tax free to an IRA or to another employer’s retirement plan that accepts rollovers.* WHAT ELSE DO I NEED TO KNOW?  Saving for retirement is easier when your contributions automatically come out of each paycheck   You may be eligible to borrow up to one-half of your vested 401(k) account (to a maximum of $50,000) if you need the money   You may be able to make a hardship withdrawal if you have an immediate and heavy financial need. But This should be a last resort – hardship distributions are taxable events (except for Roth qualified distributions), and you may be suspended from plan participation for six months or more   If you receive a distribution from your 401(k) plan before you turn 59½, (55 in certain cases), the taxable portion may be subject to a 10% early distribution penalty unless an exception applies   Depending on your income, you may be eligible for an income tax credit of up to $1,000 ($2,000 if married filing jointly) for amounts contributed to the 401(k) plan Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. 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. * When considering a rollover, to either an IRA or to another employer’s retirement plan, you should consider carefully the investment options, fees and expenses, services, ability to make penalty-free withdrawals, degree of creditor protection, and distribution requirements associated with each option. Prior to making decisions regarding a particular investment strategy, individuals should discuss their unique financial circumstances and evaluate possible tax consequences with a professional advisor. To explore how the preceding informational article could potentially impact you, please contact a Commerce Trust Company advisor. 1-855-295-7821 | commercetrustcompany.com

Wealth | Investments | Planning Commerce Trust Company

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