For Amway workers, the ability to retire on your terms depends greatly on the health of your 401(k). The Amway 401(k) plan allows you to grow your savings for retirement.
Yet managing your own 401(k) is a tremendous responsibility. With little investment guidance, people are often confused about how much to save or what investments to buy. In a survey of 401(k) participants by Charles Schwab, fewer than half were confident making investment decisions on their own.
Have no fear, Amway employees. We’ll walk you through your 401(k) plan to help you understand how it works and, most importantly, how it can support your goals for retirement.
AMWAY 401(K) CONTRIBUTIONS
Let’s start with saving money. While you’re working, Amway allows you to save a portion of each paycheck into your 401(k) account, where it can grow tax-deferred for future use.
Pre-tax v. Roth
You have the option to save in a traditional pre-tax 401(k) account or Roth 401(k) account. With a pre-tax account, your contributions are not taxed. Instead, you pay taxes on your contributions and earnings when you withdraw the money in retirement. Contributions to a Roth account, on the other hand, are taxed upfront. The good news is that you are then allowed to withdraw your contributions and earnings tax-free.
When you become eligible to participate in the 401(k) plan, unless elected otherwise, 6% of your compensation will automatically be contributed to the plan on a pre-tax basis. You will also be automatically enrolled in the automatic increase program which means your deferral rate is increased by 1% each year on December 1, until you reach a deferral rate of 15%.
Amway matches 50 cents for each $1 you contribute. The match, however, is capped once you reach a 6% deferral rate, meaning the maximum match is 3%.
Maximum annual contributions
The maximum amount the IRS allows workers to contribute to a 401(k) is $19,500 (2021). If you're age 50 and older, you can add an extra $6,500 per year in "catch-up" contributions, bringing your total 401(k) contributions to $26,000 (2021).
AMWAY 401(K) VESTING RULES
So, when does all that money actually become yours? Amway 401(k) deferral amounts and Roth contributions are always 100% vested.
Meanwhile, the amounts you have in your discretionary contribution account, matching contribution account and base contribution account are 100% vested after 5 years if service.
For reference, here is the full Amway 401(k) vesting schedule:
- Less than 2 years – 0%
- 2 years – 20%
- 3 years – 40%
- 4 years – 60%
- 5 or more years – 100%
CHOOSING INVESTMENT FUNDS
Now, what should you buy with your savings? The process of selecting the right mix of investments in your 401(k) is critical to your financial success. It is also the part people often find the most challenging.
Basically, you should start aggressive then reduce risk closer to retirement. Younger workers should have a greater allocation to stocks for their higher return potential.
Over time as you near your desired retirement date, you should gradually reduce risk and move more of your accumulated savings to lower-risk investments like bonds. This helps avoid any substantial losses for a market downturn.
An effective way to reduce risk is to diversify your 401(k) by investing in a mix of different types of investment funds.
What asset allocation is right for you depends on personal factors such as your financial goals, age and attitudes toward risk.
While some employees try to invest on their own or rely on recommendations from coworkers, everyone’s situation is unique. Working closely with an experienced adviser can help you choose the funds most appropriate for you and your specific financial goals.
MANAGING YOUR AMWAY 401(K) ACCOUNT
The first time shouldn’t be the only time you review the fund options available to you. Check your account periodically to make sure you’re still on track. These factors can affect your journey toward retirement:
Markets can be volatile. Your investment amounts will move up and down with the markets. If they move too much, you may need to rebalance – sell what’s up, buy what’s down – to maintain your investment choices.
Economic forces often shift the need for different investments. For instance, lower interest rates may mean a change in how much you hold in bonds versus stocks.
As you progress through your career, adjust your allocation between growth assets (stocks) and income funds (bonds) to better manage your risk. Again, you’ll likely need to be aggressive early in your career then move to a more conservative portfolio as you get closer to retirement.
AMWAY 401(K) DISTRIBUTIONS
Finally, when and how you withdraw money from your Amway 401(k) account comes with its own important considerations.
There are limited circumstances where you can make a withdrawal from your 401(k) while still employed, such as a financial hardship. A hardship withdrawal requires documentation and approval for a specific circumstance, such as medical care for you or your dependents and costs directly related to the purchase of your principal residence.
Upon leaving Amway, it is common to rollover your 401(k) to an Individual Retirement Account (IRA). But you may leave some or all your savings in your 401(k) account.
Generally, distributions from a traditional pre-tax 401(k) are taxed as ordinary income, based on your yearly income. That income includes distributions from retirement accounts and pensions and any other earnings. If you’re under age 59 ½, that amount may be subject to a 10% early withdrawal penalty. Further, every withdrawal is subject to a mandatory 20% federal tax plus applicable state taxes.
If you retire from Amway in the year in which you turn age 55 or older, you have full flexibility regarding withdrawals from your 401(k), meaning no early withdrawal penalties.
Contributions and earnings in a Roth 401(k) can be withdrawn without paying taxes and penalties if the account owner is at least 59½ and has held their account for at least five years.
A 401(k) rollover is the transfer of funds from your 401(k) account to an IRA. There are many reasons why you may want to roll over your 401(k) savings to an IRA, including:
- Greater investment choices
- Withdrawal flexibility
- More withholding options
- Professional management by an adviser of your choosing
Note: For IRAs, age 59½ is when you gain full flexibility and can make withdrawals without penalties.
When done properly, no tax applies to the rollover. To conduct a rollover, work with a financial adviser to ensure that it’s done properly and to avoid a possible taxable event.
This concludes our journey through the Amway 401(k) plan. We hope you learned a lot and feel more confident in your financial future.