11 Mar I have a Rutgers pension. When can I access the money?

Q. I was told that I cannot withdraw the residual funds from my Rutgers pension, a 401(a) Plan (SC/SU), until age 55. It seems I can only transfer the funds to another “permissible funding vehicle,” but I need the money to pay for housing. Can that be correct?
— Confused

A. Retirement plans, as you’re seeing, have some very specific rules.

A 401(a) plan is an employer-sponsored retirement account, much like a 401(k), that typically covers government workers and employees from educational institutions and nonprofit organizations.

The employer sponsors the plan, determines the investment options that the employees can choose from, and sets the vesting schedule, which is the amount of time an employee will have had to have worked with the organization before all employer contributions become fully theirs, even if they leave the company, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

He said a 401(a) plan can have mandatory or voluntary contributions, and the employer decides if contributions are made on an after-tax or pre-tax basis. Employer contribution options include the employer paying a set amount into an employee’s plan, matching a fixed percentage of employee contributions, or matching employee contributions within a specific dollar range, he said.

“Any 401(a) contributions an employee makes and any earnings on those contributions are immediately fully vested and eligible for withdrawal when leaving the company,” he said. “However, becoming fully vested in the employer contributions depends entirely on the vesting schedule the employer sets up in your particular plan.”

DeFelice tried to get the details of your plan online, and he learned it provides for a 5% employee contribution and an 8% employer contribution to the mandatory 401(a) Alternate Benefits Program (ABP).

Additionally, he learned that only employee contributions are available to ABP retirees until age 55. Once attaining age 55, employer contributions are also available to ABP retirees. For information about payout options and possible tax penalties for cash withdrawals prior to age 59 ½, contact your investment carrier, the Rutgers website said.

If by the “residual funds in your pension” you are referring to the 8% employer contributions Rutgers made into the plan, then it appears you must indeed wait until age 55 to have access to them, DeFelice said.

“Typically, an individual may roll funds from a 401(a) plan into an Individual Retirement Account (IRA) once they separate from service without any tax consequence, but it is unclear whether this is an option available to you,” he said. “Regardless, even if you are eligible to roll employer contributions into an IRA, you would be subject to a 10% early withdrawal penalty plus income tax on any withdrawals prior to age 59 ½ once in the IRA.”

He said you would have to carefully consider your options to determine if this makes the most sense for you financially because it is certainly not the most tax efficient way to gain access.

You should contact the plan administrator at Rutgers for further clarification on your options and speak to a qualified tax advisor to discuss the best distribution strategy for your particular situation.

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This story was originally published on March 11, 2022.

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