Other FAQs

Other FAQs

 

What is an 1165(e) Plan, better known as a 401(k)?

It is a defined-contribution plan through which the employee chooses to participate and defer a percentage of his or her salary. That amount is deducted from his or her salary each pay day and is invested in a retirement plan, free of taxes.

While it is in the account, your money grows on a tax-free basis, with a compound interest effect, until you begin to receive distributions, which generally occurs upon retirement.

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What benefits do I get from an 1165(e) Plan that I don't get from other investments?

  • Contributions are tax-deferred until the time of distribution.
  • Contributions are flexible and can be adjusted to meet your circumstances.
  • The plan is the best way to save for your retirement because of the tax deferral on your contributions, the compound interest growth (also on a tax-free basis) and the matching contribution you may receive from your employer.

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How much can I contribute to an 1165(e) Plan?

Once you join the plan, the percentage you choose will be deducted from your pay. The percentage may be as high as 10% of your salary or $8,000, whichever is less.

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Who administers my 1165(e) Plan?

The assets in the plan are held in a trust. The employer names Banco Popular as plan's trustee to safeguard and invest the plan's assets according to the participant's or the employer's instructions.

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Can I have an individual retirement account (IRA) and an 1165(e) Plan?

Yes, and you may contribute to both, however, the deduction for the contribution to your IRA may be limited, depending on your income and your contributions to the 1165(e) plan. The deduction between the two cannot exceed the $8,000 limit imposed by law.

For example, if you decide to open an IRA account with $3,000, you may only contribute a maximum of $5,000 to the 1165(e) plan. The sum of the two cannot exceed the $8,000 limit.

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What is the difference between an individual retirement account (IRA) and an 1165(e) Plan?

Your 1165(e) plan allows you to save a larger tax-deferred amount than you would be able to save through an IRA, depending on your income level.

Some 1165(e) plans allow you to apply for a loan from the money contributed to your account, which you cannot do with an IRA.

The 1165(e) plan's investment options offer greater flexibility and opportunity for diversification than that offered by IRA investment options.

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What happens to my 1165(e) plan, if I decide to stop contributing to it?

Participation in an 1165(e) plan is voluntary and you can stop contributing to it any time you wish by notifying your company's Human Resources department.

The money contributed, along with earnings generated, will remain in the plan until there is a distribution of funds under the plan's provisions.

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What is a qualified rollover?

It is the transfer of the total amount distributed to you under a qualified retirement plan to another qualified plan or to an individual retirement account (IRA). It must be done within 60 days of having received the payment, or through a direct transfer from the previous trustee to your new plan's trustee. In the event of a rollover, it is best to request that it be made directly from one plan to another to avoid the tax withholding for distributions due to separation of employment.

Only distributions attributable to a separation of employment, which includes retirement, are eligible.

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Can I leave my money in the Plan, if I am no longer an employee?

Yes, you can leave your money in the plan as long as your vested amount is greater than $5,000.

You must begin to withdraw your money no later than April 1 of the calendar year following the calendar year in which you reached 70½ years of age.

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What is the best way to invest?

  • The best way to invest is the one that most efficiently helps us achieve the objectives we have established.
  • Although each person, based on his or her own objectives, must identify the type of investment that is most appropriate, we should all try to achieve the maximum possible return with the least volatility or risk.
  • The best way to diminish risk is through diversification. In other words, combining various investments options in such a way that when one is losing value, others compensate.
  • One of the most efficient ways to diversify investments is through mutual funds. These represent securities portfolios, professionally managed, in a very competitive environment.
  • Mutual funds offer the most fundamental diversification by investing in many different securities, almost always within a single category of assets (stocks, bonds or short-term notes.
  • The most important decision we must make is to determine how much we should invest in each category of assets. The distribution or diversification that we make among the various asset categories will determine more than 90% of the return and volatility we have.
  • One of the principal factors we should consider when distributing our investment among the various asset categories is the amount of time before we will use the money invested. The longer the time horizon, the more opportunity there is for positive fluctuations to make up for the negative fluctuations that are experienced in investing.
  • As a general principle, it can be stated that the longer the time available for reaching our goals, the better the results when investing in stock funds, which have the objective of providing appreciation or growth of capital. With less time available, it is better to try to generate income or preserve capital through bond mutual funds or short-term notes.

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Can I withdraw funds from an 1165(e) Plan?

You can only withdraw money from your plan under certain conditions:

  • Retirement at the normal age, according to the plan.
  • Early retirement.
  • Death.
  • Disability.
  • Termination of employment.

If provided under the terms of the plan, upon an extreme economic need such as hardship withdrawals: for the purchase of your primary residence, payment of college tuition or medical expenses not reimbursed by an insurance company, for you, your spouse or dependents, or to avoid eviction from your primary residence.

Loans, if provided for under the terms of the plan.

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What happens to my 1165(e) plan if I change employers?

If you change employers or end your employment, you have the option of withdrawing or transferring the total balance of your account to which you have vested rights, or leaving it in the plan if the vested balance is greater than $5,000. The money contributed is yours and, if your plan provides for it, you can withdraw the money and transfer it to an IRA or to another 1165(e) plan.

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THE INVESTMENT PRODUCTS OFFERED THROUGH BANCO POPULAR´S RETIREMENT PLANS ARE NOT FDIC INSURED. THESE PRODUCTS ARE NOT BANK DEPOSITS, OBLIGATIONS OF, NOR GUARANTEED BY BANCO POPULAR DE PUERTO RICO. THEY ARE SUBJECT TO MARKET RISKS, INCLUDING THE LOSS OF PRINCIPAL. PLEASE REQUEST A PROSPECTUS AND READ IT CAREFULLY BEFORE INVESTING.