How to Close an Empower Retirement Account: A Comprehensive Guide

Closing a retirement account, especially one you’ve diligently contributed to, can feel like a significant decision. The process with Empower Retirement, like most 401(k) administrators, requires careful navigation to ensure you comply with tax regulations and optimize your financial outcome. In short, closing an Empower Retirement account involves requesting a distribution of your funds, which can be done online, via phone, or through mail, depending on the specifics of your plan and your individual circumstances. Be prepared to choose a distribution option like a rollover to another qualified retirement account (e.g., an IRA or a new employer’s 401(k)), or a cash distribution (subject to taxes and potential penalties).

Understanding Your Options Before You Close

Before you initiate the process, it’s crucial to fully grasp the implications of closing your Empower Retirement account. Consider these factors:

• Vesting Schedule: Are you fully vested? This determines how much of the employer contributions (if any) you are entitled to.
• Age: Are you over 59 ½? If not, taking a distribution will likely incur a 10% penalty in addition to income taxes.
• Financial Goals: Does closing this account align with your long-term retirement strategy? Could a rollover be a better option?
• Investment Performance: Are you potentially selling at a low point in the market? Consider the timing of your request.

Once you’ve considered these factors, you can proceed with confidence.

The Step-by-Step Process of Closing Your Account

Here’s a detailed breakdown of the steps involved in closing your Empower Retirement account:

1. Contact Empower Retirement: The first step is to reach out to Empower Retirement directly. You can do this by visiting their website and logging into your account, calling their customer service line, or by sending a written request via mail.

2. Review Your Plan Documents: Familiarize yourself with the specifics of your retirement plan. These documents will outline any specific rules or restrictions that apply to distributions.

3. Request a Distribution Form: Request the necessary paperwork to initiate a distribution. This form will require you to provide personal information, account details, and your desired distribution method.

4. Choose Your Distribution Option: This is the most critical decision. Your options typically include:

   • Rollover to Another Qualified Retirement Account: This is generally the most tax-efficient option. You can roll over the funds into an IRA (Traditional or Roth, depending on your original contributions) or into a 401(k) plan with your new employer. A direct rollover is highly recommended to avoid potential tax implications.
   • Cash Distribution: This option involves receiving the funds directly, but it comes with tax consequences. The distribution will be taxed as ordinary income, and if you are under 59 ½, you will likely be subject to a 10% early withdrawal penalty.
   • Annuity: Some plans offer the option to purchase an annuity, which provides a guaranteed stream of income in retirement.
   • Keep the Funds in the Plan: If your balance is over a certain threshold (typically $5,000), you may be able to leave the funds in the Empower Retirement plan even after you leave your employer.

5. Complete the Distribution Form Accurately: Fill out the form completely and accurately. Errors can delay the processing of your request. Pay close attention to tax withholding options.

6. Submit the Form: Submit the completed form to Empower Retirement via the method specified in the instructions (usually online, by mail, or fax).

7. Review and Confirmation: After submitting the form, Empower Retirement will review your request. You may receive a confirmation email or letter.

8. Receive Your Distribution: Once your request is approved, Empower Retirement will process your distribution according to your chosen method. Be aware that processing times can vary.

9. Tax Reporting: Empower Retirement will send you a Form 1099-R, which reports the distribution to the IRS. You will need this form when filing your taxes.

Avoiding Common Pitfalls

• Don’t Forget About Tax Withholding: Unless you elect otherwise, Empower Retirement will automatically withhold a percentage of your distribution for federal income taxes.
• Understand the Impact of Early Withdrawals: If you’re under 59 ½, carefully consider the 10% early withdrawal penalty. There are some exceptions to this rule, such as qualified domestic relations orders (QDROs) or certain medical expenses.
• Don’t Let the Deadline Pass: If you choose a rollover option, be sure to complete the rollover within 60 days of receiving the distribution to avoid tax consequences.

FAQs About Closing an Empower Retirement Account

Here are some frequently asked questions to provide additional clarity:

1. What happens to my vested employer contributions if I close my account?

If you are fully vested in your employer contributions, you are entitled to 100% of those funds. They will be included in your distribution. If you are not fully vested, you will forfeit the portion of the employer contributions that you haven’t yet earned.

2. Can I close my Empower Retirement account if I’m still employed by the company sponsoring the plan?

Generally, you cannot close your account and take a distribution while still employed. However, there may be exceptions for hardship withdrawals or in-service distributions as outlined in your plan documents. Contact Empower Retirement to clarify.

3. How long does it take to receive my distribution after submitting the form?

Processing times can vary, but it typically takes 7-10 business days to receive your distribution after Empower Retirement approves your request. Check with Empower directly for specific timelines for your plan.

4. What is a direct rollover, and why is it recommended?

A direct rollover is when Empower Retirement directly transfers your funds to another qualified retirement account, such as an IRA or a new employer’s 401(k). This avoids any tax implications because you never actually receive the money. It’s the most tax-efficient way to move your retirement savings.

5. What happens if I miss the 60-day rollover deadline?

If you receive a distribution and fail to roll it over within 60 days, it will be considered a taxable event. You will be subject to income taxes and potentially a 10% early withdrawal penalty if you are under 59 ½.

6. Can I roll over my Empower Retirement account to a Roth IRA?

Yes, you can roll over your funds into a Roth IRA. However, if your Empower Retirement account consists of pre-tax contributions, the rollover to a Roth IRA will be considered a taxable conversion. You will pay income taxes on the amount converted.

7. What is Form 1099-R, and why is it important?

Form 1099-R is a tax form that Empower Retirement sends to you and the IRS to report any distributions you received from your retirement account. It’s crucial for accurately reporting your retirement income when filing your taxes.

8. Are there any fees associated with closing my Empower Retirement account?

Some plans may have administrative fees associated with distributions. Review your plan documents or contact Empower Retirement to understand any applicable fees.

9. What are the exceptions to the 10% early withdrawal penalty?

There are several exceptions to the 10% early withdrawal penalty, including:

*   Qualified domestic relations order (QDRO) *   Unreimbursed medical expenses exceeding 7.5% of adjusted gross income (AGI) *   Disability *   Death *   Distributions to beneficiaries after death *   First-time homebuyer (limited amount) 

10. Can I withdraw just a portion of my retirement account?

Yes, you can typically withdraw a portion of your retirement account. However, the same tax and penalty rules apply to partial withdrawals as they do to full distributions.

11. What if I need help understanding my options or completing the paperwork?

Empower Retirement offers customer support to assist you with any questions or concerns you may have. You can also consult with a financial advisor or tax professional for personalized guidance.

12. What happens to my investments if I don’t choose a distribution option immediately?

If you don’t specify a distribution option, Empower Retirement may automatically roll over your funds into a default IRA or keep them in the plan if permitted. Review your plan documents to understand the default options available.

Closing an Empower Retirement account requires careful consideration and attention to detail. By understanding your options, following the correct procedures, and seeking professional advice when needed, you can ensure a smooth and tax-efficient transition of your retirement savings.