401(k) plan sponsors can use this article to understand what the normal retirement age (NRA) controls in a Gusto Retirement plan, Gusto Retirement’s standard NRA, and how NRA is handled for participants converting from a plan with a different NRA definition.
While reaching normal retirement age (NRA) can affect when a participant can take a distribution, since all Gusto Retirement 401(k) plans already permit in-service distributions at age 59½, at Gusto Retirement, NRA typically only triggers full vesting. If your plan has a vesting schedule for matching or profit sharing contributions, a participant who is still employed when they reach NRA becomes 100% vested in those contributions, no matter how many years of service they have.
Note: The IRS doesn’t let a plan set its NRA at just any age. NRA has to be reasonably close to the age workers in that industry typically retire. An NRA of age 62 or later always meets that standard. An NRA below age 55 is presumed too low unless the plan can show a reason, like a public safety workforce. Most 401(k) plans, including Gusto’s, use an NRA of age 65, which is well within the safe range.
Gusto’s plan document sets the NRA at age 65 for every plan. Gusto doesn’t offer an alternate NRA, such as age 59½, or a definition that combines an age with a participation requirement.
Some plan documents define NRA differently than Gusto. Two common examples are an NRA of age 59½ and an NRA of age 65 or, if later, the participant’s fifth anniversary of participation in the plan (sometimes described as age 65 or 5 years of participation). If your plan is converting to Gusto from a provider that used one of these definitions, or any definition besides a flat age 65, the change affects current and future participants differently.
Important: Moving to a later NRA can take something away from a participant, since it can push out the date they’re fully vested or the date they can take an in-service distribution. To avoid that, the plan preserves the prior NRA for anyone who was already a participant before the conversion. Those participants keep whichever NRA applied to them under the old plan document, like age 59½ or the later of age 65 or 5 years of participation, even after the plan moves to Gusto.
Anyone who becomes a participant on or after the date Gusto’s plan document takes effect uses the standard Gusto NRA of age 65. There’s no grandfathering for new participants, since they were never subject to the prior plan document’s NRA in the first place.
You don’t need to track this split yourself. Gusto’s recordkeeping carries each participant’s applicable NRA — the old one for participants grandfathered in, and age 65 for everyone who joins after the conversion.
For a while after converting, your plan may have participants operating under two different NRAs at once. That’s expected, and it’s what keeps the conversion from taking away a right a participant already had.
Check your plan document or talk with your plan’s advisor for how normal retirement age works under your specific plan.
This information is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein.