About Employer-Sponsored Retirement Plans
Our experts answer three of the most frequently heard questions about employer-sponsored retirement plans.
Q. Do I get a tax break on my employer's matching contribution? I know I get one on my contributions to the retirement plan.
A. An employer match does not impact your current-year tax liability. It does, however, compound tax-deferred until it's withdrawn, and over time that can more than make up for a one-time tax break. You can come out ahead when you take full advantage of an employer match to a company-sponsored retirement plan. That's because matching contributions made for your benefit are from the employer and aren't part of your regular paycheck.
Q. How much should I be saving for retirement? Is 15% of my pay really enough?
A. That depends on many things — how much you've already saved, how long you'll continue working, other sources of income in retirement, your expected longevity and perhaps most important, the lifestyle you anticipate once you retire. For a snapshot of where you stand right now, use our Retirement Planning Calculator to see whether you're on track toward meeting your retirement goals
Q. When can I withdraw funds from my company's retirement plan without paying a penalty?
A. Typically it's when you reach age 59½. Any sooner and you could be required to pay a 10% early withdrawal penalty (in addition to the income tax on pre-tax contributions).
But if you take your distribution after a qualified and permanent separation of service from the company that holds the retirement plan for your benefit and you terminated employment no earlier than the calendar year in which you turned 55, you can avoid the 10% penalty.
You also need to begin taking required minimum distributions from your employer's 401(k) by April 1 of the year after you turn age 70½ if you have separated from service or are a highly compensated employee.
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