Don't Touch Your 401(k) Until You Read This: Tips for Telecom Employees Facing a Job Loss

As a telecom employee, facing a sudden change in employment status can be daunting. With companies like Verizon making cuts, you may be wondering how to be financially prepared for a potential RIF (reduction in force), IPP (income protection plan), ISP (income security plan), or retirement. In this blog post, we’ll cover one of the most important things to consider if you separate from the company: your 401(k).

A 401(k) is a popular investment option because it’s automatic and easy. When you leave the company, it can be tempting to tap into that account if you need funds. However, there are important things you must know first.

Importantly, before you touch your 401(k), you want to be careful because you could face a 10% penalty tax for withdrawing the money prior to age 59 and a half. So what are your options?

First, there is an exception to the 10% penalty tax rule. If you turn 55 and separate from service within your employer-sponsored plan, you can withdraw whatever you want at any time without penalty. However, it has to be that specific scenario. This exception is not allowed if you separate before age 55, nor if you are 55 or older and still with the company. It also is crucial to note this rule only applies to an employer-sponsored 401(k) plan, not an IRA. Be cautious of advisors who suggest rolling your entire 401(k) into an IRA because you may end up paying more tax later on. If you're close to turning 55 and may need to withdraw your money, this exception is a big issue to consider.

Second, you can use the substantially equal periodic payments (SEPP) option. SEPP allows you to essentially turn your lump sum 401(k) into a pension, providing you with money on a regular basis. However, SEPP is not for everyone. It comes with many rules and regulations, and the distributions have to be continued for at least five years or until you turn 59 and a half, whichever is longer. This means that you cannot make any changes to the distribution during the five-year period, even if your financial situation changes. Be cautious and consider all your options before choosing this route.

Finally, another option to consider is a Roth account. If you have a Roth contribution now, you can withdraw your contributions tax-free, giving you a penalty-free area of capital to get you through that hump. Like the other options, there are rules and regulations here too. You must hold the Roth account open for at least five years before making withdrawals, and you must be at least 59 and a half to avoid taxes on the withdrawals.

In conclusion, it's crucial to weigh all your options carefully before deciding what to do with your 401(k) in the event of a RIF, IPP, or retirement. Know the various rules and regulations, including age and time requirements. Remember, it's always best to be proactive and set yourself up for financial security to avoid any humps along the way.

ABOUT THE AUTHOR

Dennis O’Keefe? is a seasoned telecom benefits expert with over 30 years of experience in helping telecom employees maximize their company-specific benefits packages. Throughout his career, Dennis has helped countless clients navigate complex telecom benefits systems, including early retirement, buyout offers, and career changes. His experience and expertise have made him a trusted advisor to his clients, and his unique approach sets him apart in the industry.

What makes Dennis different than almost every other financial advisor around is that he has dedicated his entire career to telecom benefits. FFor the past 30 years, he has worked with a goal to maximize every penny of their telecom-specific benefits, from company 401(k) plans to pension plans and more. His knowledge of the telecom industry and its benefits systems is unparalleled, and he has literally written the book on how to retire from a phone company: "Retirement Built Right – The Essential Guide for Telephone Employees!"

Dennis's expertise has been recognized by top publications, including Business Insider, The Boston Globe, and Yahoo! Finance. He is a sought-after speaker and has presented at numerous conferences and events.

Dennis offers a range of services to his clients, including telecom retirement planning, advising on telecom 401(k) plans, consulting on buyout packages/early retirement offers, wealth management services, portfolio management, financial planning, investments, compensation & benefits, business retirement plans, and making sense of employee benefits plans. He simplifies the often complex telecom benefits system, ensuring that his clients maximize their benefits and make informed decisions.

Away from work, Dennis loves spending every second he can fishing. He and his brother have visited almost every major league baseball ballpark, and he has a never-ending supply of "Dad Jokes" to keep his clients entertained. Dennis also hosts the "Your Telecom Retirement" podcast, where he shares his expertise and insights on telecom benefits.

Looking for More?

I’ve spent the past 30 years helping telecom employees maximize their company-specific benefits packages for situations including early retirement, buyout offers, career changes and more.

If that sounds like something you’re interested in, then?let’s connect here on LinkedIn.

You can also?listen to my “Your Telecom Retirement” podcast?or?grab my free eBook on “Retirement Built Right!”

Looking forward to connecting with you soon!