Add to your retirement plan vocabulary

By August 8, 2011Tax Tips

The definition of retirement may be in flux, but the vocabulary describing your retirement plans remains the same. Here are three common terms.

Catch-up contributions. When you’re age 50 or older, you can choose to make additional contributions to your retirement plans above the usual annual limits.

For 2011, maximum catch-up contributions are:

  • $5,500 when you participate in a 401k, 403b, 457b or SARSEP.
  • $2,500 for your SIMPLE IRA or SIMPLE 401(k).
  • $1,000 for traditional or Roth IRAs.

Hardship withdrawals. The IRS defines a hardship as an immediate and heavy financial need such as medical or funeral expenses, and your retirement plan spells out if and when you can take hardship withdrawals.

Remember, the amount you withdraw is not a loan, so you won’t be able to pay the money back into your account. Instead, hardship distributions are income to you, and can be subject to a 10% early withdrawal penalty. In addition, you may be barred from making contributions to your account for six months after taking a hardship distribution.

Rollover. A rollover is a transfer of assets from one retirement plan to another. To keep the transaction tax-free, you generally must deposit the assets into the second plan within 60 days.

Note that not all withdrawals are eligible for a rollover. Hardship withdrawals are an example of rollover-ineligible funds.

Are you uncertain of the meaning of some of the terms in your retirement plan documents?

Give us a call. We’re here to answer your questions with plain-English explanations.