A 401(k) plan is a cornerstone of retirement planning for many individuals, offering a tax-advantaged avenue to save and invest for the golden years. At its core, a 401(k) is a retirement savings and investing plan sponsored by an employer, where employees can elect to have a portion of their wages deferred into individual accounts under the plan for investment purposes. The contributions made can be either before or after-tax, depending on the options provided in the plan, and often, employers match a portion of the contributions made by employees, amplifying the savings potential.
One of the esteemed companies offering a 401(k) program to its employees is General Motors (GM), empowering them to build a substantial nest egg for retirement. The subsequent sections will delve into the specifics of the GM 401(k) program, shedding light on who holds custody of the funds, the matching contributions provided by GM, the range of investment choices available, and the 2023 contribution limits as outlined by the IRS.
Additionally, we will explore the opportunity for employees aged 59 ½ and above to rollover their 401(k) into an Individual Retirement Account (IRA), even while still employed, along with the benefits this transition can offer.
By understanding the nuances of the GM 401(k) program and leveraging the available options, GM employees can significantly enhance their financial security as they journey towards retirement.
UNDERSTANDING GENERAL MOTORS’ 401(k) PROGRAM
The General Motors 401(k) program is a valuable asset for GM employees in planning their retirement. Below are some key aspects of the program:
Custodian of the funds:
Fidelity is identified as the plan sponsor for the GM 401(k) program, providing a platform for managing the retirement funds3.
GM’s Matching Contributions:
GM offers a substantial matching contribution to the 401(k) plan. Employees receive a 100% company match up to the first 4% of their contributions. Additionally, there's an automatic 4% employer contribution plus an additional 4% match, meaning an employee contribution of 4% results in a total of 12% contribution, with 8% being contributed by the employer23.
Investment Choices Available:
The GM 401(k) program provides a variety of investment options to cater to different risk profiles and financial goals. There are a total of 36 investment options available12. The types of funds available for investment through GM’s 401(k) include:
- Conservative Funds: Primarily composed of high-quality bonds with proven returns, like U.S. Treasurys, focusing on slow growth with lower risk.
- Value Funds: Carry a medium level of risk and are expected to have moderate growth.
- Balanced Funds: Invest in a mix of “safe” stocks and bonds, along with riskier stocks.
- Aggressive Growth Funds: Aim for substantial growth by investing in stocks expected to have high returns, although at a higher level of risk.
- Specialized Funds: Invest in specific sectors such as pharmaceuticals or energy and can also be used to invest in foreign markets.
- Exchange Traded Funds: Track a specific sector, commodity, or stock index, and are traded like regular stocks.
- Target-Date Funds (Life-Cycle Funds): Adjust investments according to the projected retirement date of the investor, with fund managers making the investment selections.
Furthermore, the largest fund within the GM 401(k) program is the GMAM Investment Funds Trust12.
2023 Contribution Limits
Understanding the contribution limits set by the IRS for 401(k) plans is essential for maximizing the benefits of your GM 401(k) program.
For 2023, the limit on employee elective deferrals is $22,500, up from $20,500 in 2022. This is the amount an individual can contribute from their paycheck before taxes. This limit applies to traditional and safe harbor plans7.
If you are aged 50 or older, you have the opportunity to make additional catch-up contributions. For 2023, the catch-up contribution limit is set at $7,500. This means that individuals aged 50 and older can contribute a total of $30,000 to their 401(k) plans in 20237.
By staying updated with these contribution limits and adjusting your contributions accordingly, you can ensure you are taking full advantage of the tax benefits and growth potential offered by your GM 401(k) program.
Rollovers Post Age 59 ½
Upon reaching the age of 59 ½, General Motors employees have the option to roll over their 401(k) funds into an Individual Retirement Account (IRA) even while still employed. This transition offers several advantages and considerations:
The typical pre-tax contributions made by most employees become eligible for rollover once they reach age 59 ½, enabling them to transfer funds from their 401(k) to an IRA without any tax consequences127.
This provision allows individuals to initiate a tax-free, trustee-to-trustee rollover into an IRA while still employed, offering a pathway to manage retirement savings and diversify investments more effectively17.
Benefits of Rollover:
- Diversification: IRAs often provide a broader range of investment options compared to 401(k) plans, allowing for more diversification in the retirement portfolio.
- Beneficiary Flexibility: Some IRAs allow for multiple and contingent beneficiaries or naming a trust as the beneficiary, which might not be available with 401(k) plans.
- Ownership Control: Unlike 401(k) plans where the qualified plan trustee owns the assets, IRA holders have ownership control and are not subject to blackout periods.
- Distribution Options: Roth IRAs do not have a set age for required minimum distributions, unlike 401(k) plans and traditional IRAs which require minimum distributions post a certain age.
- Early Retirement: 401(k) plans often allow penalty-free withdrawals after age 55 for early retirees, while with an IRA, one must wait until age 59 ½ to avoid a 10% penalty.
- Changes in Fees: Rolling over to an IRA may result in either increased or decreased fees depending on the investment and management choices made. While a broader range of investment options in IRAs may sometimes come with higher fees, there are also cost-effective management and investment choices available that could potentially lower the fees compared to those associated with 401(k) plans.
- Loan Restrictions: Unlike 401(k) plans, IRAs do not permit loans from the account.
The General Motors 401(k) program is a robust platform designed to foster financial security for its employees as they work towards retirement. By understanding the intricacies of the program, from GM's matching contributions to the myriad of investment choices available, employees can make well-informed decisions to optimize their contributions and grow their retirement nest egg.
As we transition into 2024, staying abreast of the updated contribution limits set by the IRS is crucial for maximizing the tax benefits and growth potential of your 401(k). Moreover, the opportunity to roll over your 401(k) into an IRA post age 59 ½, even while still employed, presents a pathway to diversify your investments further and tailor your retirement savings strategy to better meet your financial goals.
Lastly, exploring a consultation with a retirement planning and investment expert at Quest Commonwealth can provide personalized advice and insights, ensuring you are on the right track to a financially secure retirement.
Take Control of Your Financial Future
Ready to take the next step towards securing your financial future? At Quest Commonwealth, our team of seasoned financial advisors is here to help you navigate the GM 401(k) program to your advantage. Contact us today for a complimentary consultation and discover how we can assist you in making the most of your retirement savings.
- “GM Financial.” GM Financial, www.gmfinancial.com/en-us/home.html.
- “Working at GENERAL MOTORS.” Glassdoor, www.glassdoor.com/Overview/Working-at-General-Motors-GM-EI_IE279.11,28.htm.
- “Who is the custodian of my 401(k) plan?” Capitalize, www.hicapitalize.com.
- “Plans and Benefits - GM Benefits.” GM Benefits, www.gmbenefits.com.
- “Investment Options - General Motors.” GM Benefits, www.gmbenefits.com.
- “General Motors 401(k) Plan - BrightScope.” BrightScope, www.brightscope.com.
- “401(k) Contribution Limits for 2023.” IRS, www.irs.gov.