*Scared to open your 401K statement?
Financial Stress
*Don’t think you will ever recover from the losses?
*Too many investment choices and don’t know how to evaluate?
This ebook will help you open your statement, figure out your 401k contribution limits and gain confidence-knowing that your money is working for you- in your time frame, with your risk tolerance, and with the return you need to meet your goals.
You deserve to have confidence in choosing and maintaining the most valuable investment you own-your 401K plan.
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Check your 401K plan summary plan description for 401K rules about taking a distribution while you are working.Your employer can tell you the 401k contribution limits, when you vest, and how much you can take out. Of course 401k rules only let you do this if you are past age 59.5 or the 401K penalties are severe. But if you need to supplement a reduced paycheck due to less work hours, then take small monthly amounts out to help you. Be prepared to pay the income tax on those distributions too.
Watch out for the number of hours that you work. At some companies if your work hours fall below 1,000 hours per year, then some 401K plans will eliminate matching contributions or prevent you from participating in the 401K plan. Check the 401K rules concerning this in your 401K plan. Your employer can tell you the 401k contribution limits
Before you get all excited about the possibility of taking money out of your 401K without penalty, consider these facts:
For a loan to not be treated as a taxable distribution it has to be repaid within 5 years
and it can’t exceed the lesser of $50,000 or
the greater of 1/2 of the nonforfeitable accrued benefit in the plan or
$10,000.
You must make level payments over the term of the loan and the level payments do not apply while you are on leave without pay for up to one year.
You MUST pay off the loan before you leave employment or else the unpaid portion is a taxable distribution and subject to the premature distribution penalty (if under age 591/2 ) or a taxable distribution if over age 591/2.
If you want the maximum balance in your 401K, try not to take out a loan but if you do, follow the tips above.
Everyone talks about doing a rollover of your 401K plan assets into an IRA and the wonderful advantages of that. Why do so many people do rollovers— because the receiving firm WANTS YOUR MONEY.
But there are some times when it is appropriate to just leave it with your ex-employer. Here are 4 criteria for staying in place:
- Your former employer allows you to keep your 401K plan.
- You like the variety of investment options and the performance of what you have.
- The investment options are low cost.
- There is no annual administration fee incurred for you to stay there.
For right now, it usually is in your best interests to rollover since many people don’t get the 4 benefits above. I suspect that will change in the future when employers start to get better at picking 401k plans that are good for them and their employees.
Technorati Tags: 401k rollover
When it comes to 401K withdrawals- just say no! Step away from the 401K account and find money somewhere else. You will find that taking money out have severe penalties — not just the 10% that you hear about but also federal income taxes and state income taxes too (depending on the state that you live in. So don’t do it.
Here is an example: Sally lives in California and is 55 years old and takes $10,000 out of her 401k. Sally pays:
Federal 10% penalty tax-$1,000
CA state 2.5% penalty tax-$250
Federal income tax(28% bracket) $2200
State income tax (9% bracket) $1000
Do you think Sally made a wise decision?
Technorati Tags: 401k Contribution Limits, 401k Withdrawal
Only spouses have been able to avoid a large tax bill when they inherit a 401K. The new tax law now allows non-spouses (children and other family members) opportunities to avoid taxes on inherited 401K money.
Typically the spouse is allowed to take the lump sum distribution from a 401K and roll it over to their own IRA where it can grow tax deferred. Tax deferral allows the money to grow fast. When the spouse turns 70 1/2 years old, he/she is required to take minimum distributions from the IRA. A lot of 401K plans don’t give non-spouse beneficiaries the same option. They are forced to take the money out of the 401k plan and pay taxes on the lump sum distribution all in one year.
Starting January 1, 2010, a new law that is part of the economic-recovery package Congress approved late last year, non-spouse beneficiaries will be able to rollover their lump sum distribution from a 401k that they inherited to their own Inherited IRA. An Inherited IRA will make the named non-spouse beneficiary take distributions stretched out over their lifetime. The tax bill will be a lot less than if they had to take the lump sum. It also helps the non-spouse beneficiary which is usually the children not blow through the money as fast as if they had all of it in one year.
A lot of problems can occur when the receiving custodian usually a bank or brokerage firm does not handle the paperwork for an Inherited IRA correctly. Obviously this is something they don’t do everyday and a lot of mistakes have been made where the money was rolled over into a personal IRA instead of an Inherited IRA. Make sure the firm you work with knows and understands how to do this or else it could cost you time and unexpected taxable income or penalties.
When inheriting the proceeds from a 401K, you can avoid a large tax bill. Follow the guidelines above to stretch the money over your lifetime in order to add to your financial plan and lower your tax liability.
Technorati Tags: 401K, 401k Withdrawal
