Any person that is suddenly unemployed or plans to leave their job for another position needs to be careful with any retirement benefits built up through their current employer according to Nellie Lamers, a family financial education specialist with University of Missouri Extension.
“Ask your human resources director for the company’s summary plan document. That document will tell you how your benefits are calculated, when you become vested, when you may receive your benefits, and in what form,” said Lamers.
According to Lamers, the next step is to contact the administrator (not employer) for an individual benefit statement, which will explain what is in the plan.
It is important to know what kind of plan it is because an individual’s rights are different with each. Defined Benefit plans and Defined Contribution plans are the most common.
“Learn about your distribution and payment options before you make a decision about what to do with your retirement benefits. In most cases you will be better off if you leave the plan intact, move it to a plan at your new employer or to a Rollover IRA,” said Lamers.
If a person decides to “cash out” a retirement plan they may only get the contributions they made or pay a 10% penalty and 20% federal withholding tax if contributions were pretax.
“The penalty and tax will be deducted by your plan administrator before they send you a check. When you file your tax return, you may owe additional federal, state and local income taxes,” said Lamers.
For more information on issues related to home finances, contact either of the MU Extension family financial education specialists in southwest Missouri: Janet LaFon, Jasper County Extension Center, (417) 358-2158, firstname.lastname@example.org or Nellie Lamers, Taney County Extension Center, (417) 546-4431, email@example.com.