A 401(k) retirement plan lets you put away money tax-deferred. In most cases, you put in money and your employer matches.
Pay Attention to “Vesting”
As with a lot of other things, these plans require the traveling nurse to pay close attention to detail those with staff jobs don’t have to worry about. One is the concept of “vesting”, requiring you to stay with a company for a specific period of time before you keep the employer contribution. “The contributions you put are yours no matter what happens,” said Brandon Hayes, a managing director and Private CFO™ at oXYGen Financial, Inc. in Atlanta. “However, the employer may require you to stay with the company for 3 or more years before you keep their matching contributions.” Traveling nurses often work for multiple employers in the same year. Because of this, there are things you need to understand when talking 401(k) issues with your agency.
Safe Harbor Plans
“I would suggest nurses look for a company offering a ‘Safe Harbor 401(k)’ plan,” said Hayes. “In this case, all of the employer’s contributions are yours from the first day. This can be a match of up to 3 or 4 percent of your salary, something you should look for.”
If your employer has a traditional 401(k), then you have to understand what vesting means. One plan says you have to work for them for three years. Then ask what constitutes a year. In this example, it was 1,100 hours during a calendar year.
Know What Happens When You Leave?
Make sure you know what happens when you leave the company. Some let you keep the account active in case you come back. Others give you a certain amount of time and then close the account. Getting pushed out of a plan can be scary because there are specific things you have to do in a certain span of time to avoid major tax consequences. “One of the big mistakes you can make is say ‘yay, I got a check and I’m going to cash it’,” noted Hayes. “You have 60 days to move the money to an Individual Retirement Account (IRA). If you don’t, it is a taxable event and you have a 10 percent additional penalty to pay if you are not over 59.5 years old.”
All 401(k) plans are paid with pre-tax dollars. The easiest way to handle transfers is to a traditional IRA using a trustee-to-trustee transfer so the check never touches your hands. This money can be placed into a Roth IRA, but there will be tax consequences that you will want to discuss with your tax adviser.
Both types of IRA are easy to set-up. They are available through most major brokerages such as Charles Schwab, Fidelity, or others. Most financial planners can help you. They can be completely self-directed, run entirely by your adviser or anything in between. Make sure you know and understand the fees and costs before going forward.
Keeping Each 401(k) Active?
If the plan allows it, you could keep the 401(k) active at each employer. This lets you stay invested and avoids the transfer concerns. Those who go this route should check on the account at least yearly to see if you need to re-balance or make changes. “If you have the option, you may be better off leaving it in the 401(k) if you don’t feel comfortable managing it on your own,” said Hayes. “Use the 15 or so options in the plan instead of the virtually unlimited choices in an IRA. Trying to save a couple percent could backfire and lose you money if you don’t know what you are doing.”
For those that do leave money with the employer’s plan, keep track of all of the places you have worked over the years. Hayes talks about “orphan” accounts where people have money stashed but forgotten.
IRA Instead of 401(k)?
“I don’t know that I would suggest using the company’s 401(k) if you don’t think you are going to work long enough to vest and get the matching money,” said Hayes. “You can put your money in an IRA and avoid all the problems of transferring.”