Ted's Table

TB: Your options will be the same as any other participant in a 401(k) plan. The money will be subject to U.S. income tax when it is withdrawn. The 10 percent early distribution penalty tax will also be imposed unless you are over age 55 when you leave your employer, delay the withdrawal until after age 59½, or withdraw the money as an annuity income stream. You will, of course, be able to control when you withdraw the money triggering the tax.

Your options include:

a. Withdrawing the money before retirement and paying the applicable tax. The best time to do this is after returning to the U.K., during a year when you have no other taxable U.S. income.

b. Leaving the money in the 401(k) plan until you retire. Your employer may not force you to take the money out of the plan earlier. If you had a balance of less than $5,000 they could, but that doesn't apply in your case.

c. Transferring the money into an IRA with a financial organization of your choice. The money will be taxable when you withdraw it from the IRA.

The money can pass to your children only upon your death, if you name them as your beneficiaries, or by making gifts after you withdraw the money and pay the applicable tax.

You expressed a desire to retain the money for your retirement. If you want to avoid tax liability until you retire, I recommend transferring the money into an IRA, rather than leaving it in the 401(k) plan, because it will be a lot easier for you to keep in touch with the financial organization where you invest the money than with your former employer. Getting attention from a former employer years after leaving the company can be difficult due to staff turnover, organizational changes, etc.

TB: You or your brother's wife should obtain advice from an attorney who is familiar with this area of the law. One rather unpleasant possibility is for your sister-in-law to seek a divorce. She has a right through divorce to receive a portion of your brother's benefit. This may be her best alternative. It is most unfortunate if this is the only way she can avoid being wiped out. She obviously has enough to deal with already without having to make such a decision.

TB: A 401(k) is available only through an employer. The employer must establish the plan for its employee(s) — individuals are not able to open a 401(k). The employer establishes the eligibility rules within the applicable legal boundaries.

Legally, there aren't any minimum or maximum age requirements. For example, both a 16- and 90-year-old can participate. However, employers are legally permitted to exclude employees until age 21. Many plans exclude under-age-21 employees because saving for retirement is not a high priority for those folks.

TB: You're correct that life insurance can be purchased through a 401(k). It's also possible to purchase disability-income insurance but there isn't any tax advantage. The entire premium is taxable. I'm not sure whether long-term care can be purchased through a 401(k) but, if it can be, the entire premium will be taxable similar to disability-income insurance.

TB: The applicable date is the actual payday. In your example, this would be June 7, 2000. The employer is actually required to deposit the money as soon thereafter as possible. The 15 business days after the end of the month doesn't necessarily meet the Department of Labor (DOL) regulations.

Employers are required to deposit the money as soon as possible. The best alternative for employers who want to avoid potential problems is to deposit employee contributions ASAP after each pay period.

Many employers combine the contributions that are deducted during each month and make only one combined deposit after the end of the month. I advise employers that handle contributions in this manner to make the deposit within a few days after the end of the applicable month. Employers that wait until the 15th of the following month are likely to be asked why they're taking so long to deposit the money, if the DOL audits them.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every week. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

Ted's Table

TB: Your options will be the same as any other participant in a 401(k) plan. The money will be subject to U.S. income tax when it is withdrawn. The 10 percent early distribution penalty tax will also be imposed unless you are over age 55 when you leave your employer, delay the withdrawal until after age 59½, or withdraw the money as an annuity income stream. You will, of course, be able to control when you withdraw the money triggering the tax.

Your options include:

a. Withdrawing the money before retirement and paying the applicable tax. The best time to do this is after returning to the U.K., during a year when you have no other taxable U.S. income.

b. Leaving the money in the 401(k) plan until you retire. Your employer may not force you to take the money out of the plan earlier. If you had a balance of less than $5,000 they could, but that doesn't apply in your case.

c. Transferring the money into an IRA with a financial organization of your choice. The money will be taxable when you withdraw it from the IRA.

The money can pass to your children only upon your death, if you name them as your beneficiaries, or by making gifts after you withdraw the money and pay the applicable tax.

You expressed a desire to retain the money for your retirement. If you want to avoid tax liability until you retire, I recommend transferring the money into an IRA, rather than leaving it in the 401(k) plan, because it will be a lot easier for you to keep in touch with the financial organization where you invest the money than with your former employer. Getting attention from a former employer years after leaving the company can be difficult due to staff turnover, organizational changes, etc.

TB: You or your brother's wife should obtain advice from an attorney who is familiar with this area of the law. One rather unpleasant possibility is for your sister-in-law to seek a divorce. She has a right through divorce to receive a portion of your brother's benefit. This may be her best alternative. It is most unfortunate if this is the only way she can avoid being wiped out. She obviously has enough to deal with already without having to make such a decision.

TB: A 401(k) is available only through an employer. The employer must establish the plan for its employee(s) — individuals are not able to open a 401(k). The employer establishes the eligibility rules within the applicable legal boundaries.

Legally, there aren't any minimum or maximum age requirements. For example, both a 16- and 90-year-old can participate. However, employers are legally permitted to exclude employees until age 21. Many plans exclude under-age-21 employees because saving for retirement is not a high priority for those folks.

TB: You're correct that life insurance can be purchased through a 401(k). It's also possible to purchase disability-income insurance but there isn't any tax advantage. The entire premium is taxable. I'm not sure whether long-term care can be purchased through a 401(k) but, if it can be, the entire premium will be taxable similar to disability-income insurance.

TB: The applicable date is the actual payday. In your example, this would be June 7, 2000. The employer is actually required to deposit the money as soon thereafter as possible. The 15 business days after the end of the month doesn't necessarily meet the Department of Labor (DOL) regulations.

Employers are required to deposit the money as soon as possible. The best alternative for employers who want to avoid potential problems is to deposit employee contributions ASAP after each pay period.

Many employers combine the contributions that are deducted during each month and make only one combined deposit after the end of the month. I advise employers that handle contributions in this manner to make the deposit within a few days after the end of the applicable month. Employers that wait until the 15th of the following month are likely to be asked why they're taking so long to deposit the money, if the DOL audits them.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every week. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.