09 Jan 12 Make sure to work with a qualified financial planner.

One of the most obvious ways to do this is to invest in a retirement plan, like an individual retirement account, IRA, or 401k retirement plan. So, the government puts limits on the amount of money we can put away in our retirement plans. As you age, this percentage increases, so at age 90 for example, the percentage is currently 8.77%. You can take a qualified plan withdrawals at age 59 1/2, and the funds will be taxed at that time. These mandatory withdrawals are required each year and every year, allowing the IRS to collect taxes from the distributions of retirement accounts.

This may not sound fair to those that don’t have access to a 401k retirement plan, but it should provide more urgency for those whom are left out. Where as, current 401k limits are set at $20,500, inclusive of the 50 and older catch-up. Currently (for 2008), IRA contribution limits are a maximum of $6,000 inclusive of the 50 and older catch-up provision. Qualified accounts taken before 59 1/2 will be subject to early penalty in taxes.

These are made mandatory by the government, because contributions either to a 401k or an IRA were made with before tax dollars. 401k limits and IRA limits increase with each and every year, as the cost of living rises. If you’re fortunate enough to have a 401(k) available to you at your workplace, you should definitely take advantage of it.

As far as the required minimum distribution amount, at age 70 1/2 this currently works out to be about 3.65%, based on life expectancy tables. After contributing to these plans over the years there will come a time when we are required to make withdrawals, this is called Required Minimum Distribution, or RMD. Inflation and the uncertainty of Social Security income point towards the seriousness of our economic situation. If you are below 50 for either, the amount is $5,000 for the IRA account and $15,500 for the 401k retirement plan. If this were the case, it would be too easy to put large amounts of money away and avoid having to pay taxes.

Not only will you likely receive a match from your employer, but 401k limits are often substantially larger their IRA counterparts. Initially, you’re encouraged to save for retirement with an IRA or 401k deduction with the assumption that taxes are deferred until Required Minimum Distribution. The only way we can have a certain comfortable retirement is to take these matters into our own hands, rather than relying on what worked for others in the past. For obvious reasons, the government wants to get the taxes out of you before you die. Now, when you begin your initial investment in either an Individual Retirement Account or a 401k, you can’t just submit a substantial amount of money and defer it from tax. When it comes to retirement planning, saving for retirement is more important than ever, this day and age. This may not sound like the best deal in the world, but the benefits from tax-deferred growth are substantial over time.

Tags: 401k withdrawal

04 Dec 11 Paying off Debt with a 401k Loan

When you make a withdrawal before reaching retirement age you have to pay taxes on your withdrawal plus a ten percent early withdrawal penalty, which can easily total up to thirty percent or more of your retirement savings. Obviously there are some upsides to taking this option, or so many people wouldn’t be doing it. For something like paying off debt, which you could do through normal payments, it’s not worth the risk.

This is a lot of money to lose and means you’ll have a much smaller nest egg. If you decide to take a 401k loan then you have five years to repay the money you’ve borrowed, and if you fail to repay it in time the balance is treated as though you cashed out, meaning you owe the taxes and the ten percent withdrawal penalty. Yes, you could have a lower interest rate, which you would be paying into your account, however that interest rate could rise dramatically if something unexpected occurs and you have to treat your 401k loan as though you cashed out and you lose a great deal of your money to taxes and that ten percent penalty. If you’ve considered paying off debt with a 401k loan I urge you to think again.

The best of the upsides are that you have a very low interest rate, and that the interest you do pay goes back into your retirement savings account. Because of these high risks for something like paying off debt it’s not recommended that you take a 401k loan.

If you lose your job, or quit your job, during the time you are making your payments the balance becomes due and you have a short period of time, approximately a month, to repay the balance in full or it is treated as though you cashed out in the first place. When you have no other source of funding this is also definitely preferable to making an early withdrawal from your account. Despite the many advantages this option offers, there are some heavy downsides that need to be carefully considered.

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28 Nov 11 If done improperly, it can prove costly.

For these individuals, leaving funds at their previous employer doesn’t make much sense. A 401k rollover allows you to move your 401k funds to another account. The best way to do a 401k rollover is to not do a physical 401k withdrawal at all. Additionally, employers are required to withhold 20% that goes towards income taxes. If done correctly, the savings can be substantial. When it comes to your 401k withdrawal it’s important that you understand the process. First of all, when withdrawing from any type of qualified plan, whether it’s for income or a complete withdrawal, there can be consequences. 401k withdrawals made prior to age 59 1/2 are subject to both income tax and premature withdrawal penalties.

This is often preferred when changing jobs or retiring. He or she should be well versed in recent regulation, which could affect your retirement. You can withdraw up to $10,000 out of an IRA or 401k plan, without penalty, as long as it is for the purchase of your first home. You can do a direct transfer into your IRA account or new employers retirement plan. If you have a traditional 401k retirement plan, withdrawals are taxed at your income rate. This is subject to a 10% penalty, if you’re under 59 1/2 years old. This is most commonly done by moving the funds to an Individual Retirement Account, or IRA. An investment professional can be invaluable when it comes to this stage of retirement planning. If you want to avoid premature withdrawal penalties you can commonly do what’s called a 401k loan.

The other way is to rollover those funds into an IRA or another employer’s retirement fund without these penalties. When you get to the later stages of retirement planning it’s important to understand the distribution process. If you plan to do a 401k rollover and have a 401k loan balance, you will be required to pay it off expeditiously. If you’re fortunate enough to have an employer that offers a 401k retirement plan, you may have procured quite a nest egg over the years. At age 70 1/2, you are required to take mandatory withdrawals call required minimum distribution, or RMD. When it comes to making the move you can make a 401k withdrawal in the form of a lump sum distribution. In order to avoid these penalties, the rollover must be completed within 60 days. If year 59 1/2 or older, you can take withdrawals from your 401k, without penalty. So, if you’re separating from service, it is important to handle everything properly. These penalties can be avoided by doing what’s called a 401k rollover. The main reason being is that when it comes to paying back your 401k loan, you’ll be doing so with after-tax dollars. Considering your contributions were pretax dollars, this makes for a very expensive loan, making even loan sharks jealous. This really should be avoided, however, unless you’re in a very dire situation. The exception to this would be making withdrawal for a first time home purchase.

Tags: 401k withdrawal

20 Nov 11 If done correctly, the savings can be substantial.

He or she should be well versed in recent regulation, which could affect your retirement. A 401k rollover allows you to move your 401k funds to another account. It may or may not be appropriate for you to take a 401k rollover or 401k withdrawal; a little bit of the assistance is invaluable. You can withdraw up to $10,000 out of an IRA or 401k plan, without penalty, as long as it is for the purchase of your first home. For these individuals, leaving funds at their previous employer doesn’t make much sense. If you want to avoid premature withdrawal penalties you can commonly do what’s called a 401k loan.

This is often preferred when changing jobs or retiring. When you get to the later stages of retirement planning it’s important to understand the distribution process. Additionally, employers are required to withhold 20% that goes towards income taxes. This really should be avoided, however, unless you’re in a very dire situation. Regardless, there is a particular protocol that should be followed.

If you’re fortunate enough to have an employer that offers a 401k retirement plan, you may have procured quite a nest egg over the years. When it comes to your 401k withdrawal it’s important that you understand the process. This is most commonly done by moving the funds to an Individual Retirement Account, or IRA. In order to avoid these penalties, the rollover must be completed within 60 days. At age 70 1/2, you are required to take mandatory withdrawals call required minimum distribution, or RMD. If year 59 1/2 or older, you can take withdrawals from your 401k, without penalty.

If you plan to do a 401k rollover and have a 401k loan balance, you will be required to pay it off expeditiously. Considering your contributions were pretax dollars, this makes for a very expensive loan, making even loan sharks jealous. By making a 401k rollover to an individual account you not only get complete control, but also you have access to much more investment selection. First of all, when withdrawing from any type of qualified plan, whether it’s for income or a complete withdrawal, there can be consequences.

When it comes to making the move you can make a 401k withdrawal in the form of a lump sum distribution. It’s recommended that you find a more appropriate loan source. The exception to this would be making withdrawal for a first time home purchase. 401k withdrawals made prior to age 59 1/2 are subject to both income tax and premature withdrawal penalties. The main reason being is that when it comes to paying back your 401k loan, you’ll be doing so with after-tax dollars. This is preferable, but the 401k withdrawal can be done either way.

The best way to do a 401k rollover is to not do a physical 401k withdrawal at all. You can do a direct transfer into your IRA account or new employers retirement plan. If you have a traditional 401k retirement plan, withdrawals are taxed at your income rate. If done improperly, it can prove costly.

Tags: 401k withdrawal

07 Nov 11 This usually requires a $1,000 minimum loan amount.

Account owners are required by law to start withdrawing from their accounts by April 1 of the calendar year after turning 70 1/2 (or by April 1 of the calendar year after retiring, whichever comes later). Depending upon your plan, you may be eligible to take out a loan against your 401K. Such reasons include: the employee’s death, the employee’s total and permanent disability, separation from service in or after the year the employee reached age 55, a qualified domestic relations order, and for deductible medical expenses (exceeding the 7.5% floor).

Some employers even match part or all of the employee’s contribution. For employees of companies that offer 401K plans, they can choose to have their wages paid directly into the account.

The heaviest restrictions are for those people who are still with the company and are under the age of 59 1/2. You still must pay taxes on the income at the standard income tax rate, however. If you have a 401K and are finding yourself facing money troubles, you may be wondering what the rules are about tapping into some of that cash.

In short, they allow a worker to save for retirement, having the savings invested while deferring current income taxes on that saved money until later withdrawal. There is a maximum payback period of five years and payment amounts must be equal and evenly spread out (e.g., quarterly). Remember, the money in your 401K represents deferred income, not tax-free income.

The distribution amount varies and is based upon life expectancy tables created by the IRS. Once you reach the age of 59 1/2, you may start withdrawing funds from your 401K. Know the facts about your 401K and you will be prepared to access the money in your account at the most appropriate time and in the way most beneficial to you. However, the interest paid goes right back into your account – so, you are effectively paying yourself this interest. In some cases, you do not have to pay a penalty for withdrawing money early from your account. However, if you want to withdraw from your plan before that age, you will be subject to a 10% excise tax – along with owing income taxes on the money, of course.

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