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How do i cancel my 403k while still working?

Sep 14, 2012 by carol from Philadelphia, PA in  |  Flag
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Just to clarify, a 401(k) is a tax-qualified plan offered by a private sector employer. A 403(b) is a tax-qualified plan offered by a public sector employer. It is a tax-sheltered annuity offered to public school teachers.

Not sure exactly what you have but essentially the way to cancel either of them is to contact the plan administrator (or Human Resources, if you don't know the number). They will help you from there.

Comment   |  Flag   |  Sep 14, 2012 from Amesbury, MA

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Please be aware that if you are looking for the money to be distributed directly to you from the plan, you will need to declare the distribution as income and will be subject to income taxes at your prevailing rate. If you are under age 59 1/2 , you will also incur an early distribution penalty of 10%. On top of this, you will pay income taxes to your state at the rate and penalty that may apply there as well.

Comment   |  Flag   |  Sep 14, 2012 from Amesbury, MA

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Hi Carol,

I'm a financial planner in Newtown Square, just west of Center City. Feel free to call or email directly with any questions.

Generally speaking, you cannot cancel your employer-sponsored retirement plan while you are still working for that same employer. These plans are tax shelters that are protected from the IRS until you withdraw money from the account during your retirement. In exchange for this benefit, you must abide by certain rules and regulations.

Let me quickly familiarize you with your possible options:

  1. Stopping your contributions - You can slow down or stop contributing to your retirement plan whenever you wish. To do that, simply call payroll and ask them to reduce your monthly contribution from your paycheck. Be careful not to leave free money behind, so consider contributing at least the minimum to get your employer's match (if any).

  2. Loans – Many plans allow you to take money out of the plan through a loan in which you borrow against your account balance. The maximum amount of the loan is usually $50,000 or half of your vested account balance.

  3. Hardship Withdrawal – Not all plans offer this, but some allow you take a hardship withdrawal if your circumstances fall into one of these categories:

    • Unexpected medical expenses
    • Costs relating to the purchase of a home
    • Tuition and related educational fees and expenses
    • Payments necessary to prevent foreclosure on your home
    • Burial or funeral expenses
    • Expenses for the repair of damage to your home
  4. In-Service Distribution – A few plans allow you to take money out while you are still employed by using something called an “in-service distribution." Even though the law permits these distributions, your employer is not obligated to offer them to you. If you are able to do this, be sure to process the rollover to an IRA. That way you can avoid taxation and IRS penalties on the money.

Speak with your plan administrator or call the number on your statement to learn which options are available to you. And as Steve correctly mentioned above, there may be taxes and penalties to consider, so proceed carefully.

Lastly, if you start to work for a new employer, closing your retirement plan is much easier. But that's not the question you asked! :)

Erik

Comment   |  Flag   |  Sep 28, 2012 from Berwyn, PA

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You can cancel your participation in the plan. These plans are voluntary. In the case of a 401(k), your employer may provide non-elective contributions to your account on your behalf. While you cannot cancel the company's plan (only the trustee of the plan can do that), you don't have to contribute. If you're still working for the employer, then the balance saved will simply stay there with the plan administrator.

Again, without knowing exactly which type of plan you have, it's difficult to provide an answer as there are different rules for different plan types.

1 Comment   |  Flag   |  Sep 29, 2012 from Amesbury, MA
Erik Evans, CFP®

Like I explained above, you cannot cancel your employer-sponsored plan, you can only stop contributing to it. You added nothing new. Why do that?

Flag |  Sep 29, 2012 near Berwyn, PA

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Mr. Evans,

While your contribution was lucid and very well-articulated, I felt it was necessary to gain further information from the poster to clarify what they have. Speaking to the issue of 401(k)s only does not address a pension or a 403(b). Given the original question being somewhat confused, I added to the discussion.

Your down-grading the vote is entirely inappropriate. If I had been "talking smack" about you or any other contributor, denigrating you or anyone's credentials, or insulting the poster, then I could understand the downgrade.

I did not flaunt anything. I did not even suggest that the client call me by putting in the top of my post my address or contact information.

I take exception to you and your action. I take exception to this entire forum. I do not plan to continue with this line of discussion.

Learn the rules or get off the forum.

1 Comment   |  Flag   |  Sep 29, 2012 from Amesbury, MA
Erik Evans, CFP®

I addressed employer-sponosred retirement plans as a whole, not 401k's specifically. And I didn't downgrade your post, although it is woefully thin.

Flag |  Sep 29, 2012 near Berwyn, PA

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