27 Oct 11 Totally and permanently disabled 2.

Permanently laid off, quit, terminated or retired and have prepared a schedule of regular withdrawals in equal amounts based on your life expectancy. Canâ??t get the money anywhere else to satisfy that need 3. Immediate and severe/ heavy financial need 2. Permanently laid off, quit, terminated, or early retirement in the same year you turn 55 or later 5. All 401k hardship withdrawals are subject to IRS income taxes and a ten-percent penalty bases on the amount you withdraw with some exceptions for non financial hardships. Divorce decree orders you to give the 401k funds to your ex spouse, a child, or a dependent 4.

Do your homework and select the process that best suits your individual situation. There are two categories of hardship withdrawals; financial and non financial with slightly different IRS qualifications that adhere to very strict and detailed guidelines. Most 401k accounts have roll over and hardship withdrawal provisions in the retirement plan since most employees want to be able to access the funds in an emergency and take the plans when they leave. A 401k hardship withdrawal may be the last resort if all other sources including loans and gifts fail.

If you are under the age of 591/2 your 401k retirement investment account might be the answer if you qualify for a hardship withdrawal. Your investments will take additional years to make up the difference in the plan value. The financial hardship withdrawal process has penalties while the non-financial hardship is much more penalty friendly. Primary home purchase 2. The IRS provides for a financial hardship if all the following five conditions are met: 1. An alternative is a 401k loan that is allowed by the IRS with restrictions and guidelines. All distributable or non-taxable loans available under your 401k plan have been used 5.

The investor/employee still pays the IRS taxes on the non-financial hardship 401k account withdrawals but, the ten-percent penalty is waived if you qualify meeting one of the following five conditions. Medical expenses not reimbursed to you, spouse or dependents 5. Some employers provide this service but smaller firms may not because of the extra paper work costs. Eviction or foreclosure from your primary residence 4. Higher education tuition, room, board and fees for the following twelve months for you, spouse, dependents or children (no longer dependent) 3. Once the first withdrawal occurs, the investor is required to continue taking withdrawals until the age of 59 1/2, or five years whichever is longer. Can not contribute to the 401k plan for one week or six months after the withdrawal depending on the certification of financial records substantiating the need The certified hardship amount can be withdrawn from your 401k investments if used for at least one of the five following allowable hardships: 1. Medical debts more than 7.5 percent of your adjusted gross income 3. A 401k retirement account is structured to take care of you during your life after work but, it might be a life saver sooner than you expected. 1. Check with your HR personnel because this loan amount can be returned to your retirement account through regular repayments designated by your employer without a penalty which could be a better choice if available. Funeral expenses and repair of a primary residence . Do not forget that an IRA has a $10,000 lifetime withdrawal exemption for a residence without a penalty.

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26 Oct 11 If not, it won’t grow.

By law, your employer has to withhold 20% of it because you aren’t making a trustee-to-trustee transfer with the funds. The evidence is not merely anecdotal. The publisher is not engaged in rendering legal, accounting or other professional services. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process. Okay, let’s say you are able to take a hardship withdrawal. ·You can’t pay the money back. The money is considered a retirement plan distribution. Recently, you may have heard about a spike in 401(k) withdrawals. If you get laid off or leave your job and you have an outstanding 401(k) loan, guess what – you usually have just 60 days to pay it all back, 60 days without income from work. That’s an all-too-common occurrence right now.

Citations. · What will you do with the money? The opinions expressed are solely those of the author and may or may not be a representative opinion of The Retirement Group or John Jastremski. Here’s another thing few people realize about 401(k) loans: when you pay the money back, you pay it back with after-tax dollars. The compelling case against hardship withdrawals. Please consult your Financial Advisor for further information or call 800-900-5867. ·The terms of a 401(k) loan are less than ideal. · What if you lose your job? Hardship withdrawals can only be made to pay medical expenses that are more than 7.5% of your adjusted gross income, to pay qualified tuition expenses, to pay funeral/burial costs, to buy a home, to make home repairs, or to stop eviction or foreclosure on a primary residence. Regardless of your age, the amount you withdraw will be taxed as ordinary income. Talk to a financial services professional – you may be pleasantly surprised to learn what other options might be available. Knowing all this, would you still consider these moves? This does not constitute an endorsement by John Jastremski, The Retirement Group or the author of the book. There are alternatives.

So besides the potential subtractions above, you’ll lose even more of the lump sum you pull out to income taxes. Well, here are the reasons that you might want to look elsewhere for the money. Many do, but you will have to satisfy some IRS rules. Is it worth it to possibly do harm to your retirement savings potential? Only in very rare cases can you get a hardship withdrawal without penalty (court order, total disability). ·You may not be able to get a hardship withdrawal. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. When you take a 401(k) loan and use the money for an expense, you are forfeiting its potential for growth and compounding. Beyond those IRS requirements, the company you work for might have its own stipulations.

If you borrow from your 401(k), you are opening the door to some big risks (perhaps not immediately evident to you) and you may pay some severe opportunity costs. Are you younger than 59½? This information should not be construed as investment advice. Well, what if you don’t pay it all back? We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Sometimes these are made in worst-case scenarios – someone is being evicted or foreclosed on, or needs money to pay medical bills. If so, you may be hit with an additional 10% tax penalty for early withdrawal. This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Philip Catalan, Brent Wolf, Andy Starostecki and The Retirement Group or QA3 Financial Corp. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The persuasive argument against a 401(k) loan. Fidelity Investments recently issued its 2010 overview of the 401(k) accounts it administers and found that 22% of participants had outstanding loans from these retirement savings plans, with the average loan at $8,650. You can’t deduct interest on a 401(k) loan, and that interest is typically one or two points above the prime rate. Sometimes people think hardship withdrawals are “good debt” – they make these withdrawals in order to pay college costs or buy a house. It would be nice if you could, but you can’t. Some 401(k) plans don’t allow them. The outstanding loan balance may be recharacterized as a 401(k) withdrawal.

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26 Oct 11 A 401K is a retirement plan sponsored by your employer.

These catch up contributions are limited to $5,500 in 2009. In addition to the available loan, 401K plans will not suffer the 10% withdrawal fee if the contributor dies, is disabled or cannot work any longer. The employees eligible must have received at least $5,000 in pay from the company in the last year. Possibility of additional contributions from employers Cons: Withdrawal penalties of 10% with certain exceptions. If your new employer does not offer a 401K plan, it can be transferred to an IRA at another institution or the old employer may charge a fee to keep the 401K managed through them. The income is then paid back and added to the 401K account but does not get the tax deferred treatment that regular deposits get.

Types of 401K plans All of the above information was in reference to a traditional 401K plan, the following is a list of non-traditional 401K plans available and how they differ from the traditional plan. 401K accounts are popular because of two main reasons. Withdrawing Funds from a 401K The current age requirement to begin withdrawing funds from a 401K is set at 59 ½. Although a 401K is an employer provided benefit, if you were to change employers and your new employer has a 401K plan, you can transfer your old 401K plan to the new employer. One difference is that the SIMPLE 401K has a lower limit of $11,500 contribution per year in contrast to the $16,400 limit in a traditional 401K. Deposit Limits 401K contributions are limited to a maximum of $16,500 a year in 2009. Some plans may allow the employee to take a loan out from their 401K plan.

At this point withdrawals can freely be made with no penalty, but an income tax must still be paid. As a retirement investment, the 401K has both advantages and disadvantages: Pros: Tax deferred until withdrawal. SIMPLE 401K This is a type of 401K plan available to companies with 100 or fewer employees. There are a few exceptions to this rule. Roth 401K A Roth 401K differs from a traditional 401K primarily in that it is does not have a tax-deferred contribution. It is important when planning for retirement to understand the different options available and fitting them to your personal preferences. Lack of liquidity if the contributor needs the money for another purpose. Second, employers may offer a matching contribution giving you a strong incentive to deposit into the 401K account because of the increase in assets gained if employers match the deposit. If withdrawals are made before this point, there is a 10% tax added on to the income tax for the withdrawal.

The $16,500 limit is imposed on a combination of traditional and Roth 401K that an employee may have so they cannot invest $16,500 in two separate accounts. If upon leaving the employer which holds the plan, the employee cannot find another plan to transfer the funds to such as an IRA or a new 401K, the funds can be distributed without penalty. A further comparison of a 401K plan with other investments can be found here. These limits are also imposed if more than one 401K (such as a traditional and Roth) are owned by the same person, there can be no more than $16,500 contributed to both accounts combined. The money deposited in a 401K is distributed among a variety of assets that could include stocks, bonds, mutual funds, money market funds and others.

401K plans are popular among employees and are the major source of retirement income for 44% of all workers. Traditional 401K plans have a requirement for the employer to test whether the higher compensated employees in the company are being treated as equally as lower paid employees. There are additional restrictions associated with a Roth 401K. Loan conditions can vary greatly based on individual plans offered by employers but won’t exceed 5 years and will be a reasonable income rate. The SIMPLE 401K eliminates those testing requirements so allows small businesses to provide retirement benefits to their employees without high costs. It is a defined contribution plan where you contribute a certain portion of your income into the account.

On the other hand, the benefits upon withdrawal once you’ve retired are taxed as income. Benefits of a 401K First they are a tax deferred plan, as an example let’s say you put $4,000 dollars into the account over a year and earned $54,000 that year, only $50,000 would have to be claimed as income. This means that an income tax is paid on all income before the contribution is made but at the time of withdrawal, no income tax is paid.

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25 Oct 11 401K accounts are popular because of two main reasons.

On the other hand, the benefits upon withdrawal once you’ve retired are taxed as income. It is important when planning for retirement to understand the different options available and fitting them to your personal preferences. The employees eligible must have received at least $5,000 in pay from the company in the last year. Traditional 401K plans have a requirement for the employer to test whether the higher compensated employees in the company are being treated as equally as lower paid employees. One difference is that the SIMPLE 401K has a lower limit of $11,500 contribution per year in contrast to the $16,400 limit in a traditional 401K. If withdrawals are made before this point, there is a 10% tax added on to the income tax for the withdrawal. A further comparison of a 401K plan with other investments can be found here.

Loan conditions can vary greatly based on individual plans offered by employers but won’t exceed 5 years and will be a reasonable income rate. The SIMPLE 401K eliminates those testing requirements so allows small businesses to provide retirement benefits to their employees without high costs. People age 50 or older are allowed an exception to this limit in the form of “catch-up” contributions. The tax deferment option can be advantageous because retirees generally require fewer expenses than during their career so can live off of a smaller yearly income. The money deposited in a 401K is distributed among a variety of assets that could include stocks, bonds, mutual funds, money market funds and others. Roth 401K A Roth 401K differs from a traditional 401K primarily in that it is does not have a tax-deferred contribution.

This means that an income tax is paid on all income before the contribution is made but at the time of withdrawal, no income tax is paid. 401K plans are popular among employees and are the major source of retirement income for 44% of all workers. Deposit Limits 401K contributions are limited to a maximum of $16,500 a year in 2009. Withdrawing Funds from a 401K The current age requirement to begin withdrawing funds from a 401K is set at 59 ½. Types of 401K plans All of the above information was in reference to a traditional 401K plan, the following is a list of non-traditional 401K plans available and how they differ from the traditional plan.

As a retirement investment, the 401K has both advantages and disadvantages: Pros: Tax deferred until withdrawal. There are additional restrictions associated with a Roth 401K. It is a defined contribution plan where you contribute a certain portion of your income into the account. The income is then paid back and added to the 401K account but does not get the tax deferred treatment that regular deposits get. At this point withdrawals can freely be made with no penalty, but an income tax must still be paid. These catch up contributions are limited to $5,500 in 2009. In addition to the available loan, 401K plans will not suffer the 10% withdrawal fee if the contributor dies, is disabled or cannot work any longer.

These limits are set by the IRS and can differ from the limits set by your employer’s plan which may limit it based on a % of yearly income. Some plans may allow the employee to take a loan out from their 401K plan. These limits are also imposed if more than one 401K (such as a traditional and Roth) are owned by the same person, there can be no more than $16,500 contributed to both accounts combined. Although a 401K is an employer provided benefit, if you were to change employers and your new employer has a 401K plan, you can transfer your old 401K plan to the new employer. This drives them to a lower tax bracket so they have to pay less on the withdrawals from their 401K than they would have paid during their working years.

A 401K is a retirement plan sponsored by your employer. SIMPLE 401K This is a type of 401K plan available to companies with 100 or fewer employees. Lack of liquidity if the contributor needs the money for another purpose. Benefits of a 401K First they are a tax deferred plan, as an example let’s say you put $4,000 dollars into the account over a year and earned $54,000 that year, only $50,000 would have to be claimed as income. Second, employers may offer a matching contribution giving you a strong incentive to deposit into the 401K account because of the increase in assets gained if employers match the deposit. If your new employer does not offer a 401K plan, it can be transferred to an IRA at another institution or the old employer may charge a fee to keep the 401K managed through them. If upon leaving the employer which holds the plan, the employee cannot find another plan to transfer the funds to such as an IRA or a new 401K, the funds can be distributed without penalty. There are a few exceptions to this rule.

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25 Oct 11 401K Advice

  Good 401k Investing Advice Buy and hold.  Do not move your money around every day, every month, or every year, trying to catch the quick surge or “time” the market.  Instead, choose investments with proven track records, and stick with them.  Do your homework, looking for recession-proof funds or companies.  But once you make a choice, commit to the choice and stay with it.  Over twenty years, almost all stocks and mutual funds outperform more conservative investments like government bonds and certificates of deposit.   Although you probably feel discouraged and disheartened that your 401k has lost value in the economic downturn, keep in mind that you still have all the tax advantages from your contributions, and you still have lots of time.  Offering their professional 401k investing advice, experienced investors stress that market contractions evanesce.  The markets keep growing.  The veterans generally suggest you maintain or even increase your 401k contributions; if you have passed fifty, take advantage of your catch-up contributions, and keep getting your 401k investing advice from the people who do not work on Wall Street.

  In the spring of 2009, however, as the economy goes into a deadly tail-spin, most people have no good, reassuring plan for choosing the right investments.  During the fall of 2008, 401k’s lost considerable value no matter where or how people had invested—yes, some more than others, but sharp declines across the board.  Pressed to give sound investing advice, the so-called “experts” shrug and suggest, “Hang on to your job, and keep trying to save your money…somehow.”   Giving more practical 401k investing advice, shrewd, prudent investors say that, especially in bad times, you should stick to the most basic common-sense rules of sound investing.   Better 401k Investing Advice Set your risk-tolerance at “moderate.”  Some market sectors and cutting-edge companies seem “poised for explosive growth.”  Poised doesn’t work nearly as well as proven.  If a major corporation has begun expanding its global markets, the corporation and its investors incur some risk; but the same products and principals that have driven the company to industry leadership will sustain it as it goes global.  That’s a “moderate” risk.  Learn a lesson from sad “Bluetooth” investors: Although it was poised for explosive growth, the company that originated and patented the universal technology has not returned more than 2%-3% since it revolutionized wireless communications.   Best 401k Investing Advice Diversify.  Anyone who ever risked putting all his eggs in one basket probably ended-up with omelets.  Study the market, looking for those companies, sectors, and funds that have held steady while everything else tanked.  Put most of your assets in those stable places–plural.   Then assess which few companies have grown even while the others have lost.  Put a few of your funds there, too.

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