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Remember Your 2016 RMD

It’s hard to believe that 2016 is coming closer to an end. For some individuals that are required to take required minimum distributions (RMDs) from their retirement plans, it may be a good idea to double check to make sure that happens. If it doesn’t the penalties are harsh. According to the IRS the penalty for not taking and RMD or not taking the full RMD is 50% of the amount not withdrawn.  This can lead to significant losses to a retiree that must take RMDs.  Generally, most financial planners and or custodians we’ll be able to help the individual and remind them that they have and RMD and how much that amount needs to be. If an individual finds themselves in the precarious position of having forgotten to take the RMD or did not take out enough, there is a remedy.  The IRS allows an individual to file form […]

Information on 457(b) Plans

The 457(b) plan, sometimes known as a deferred compensation plan is a retirement plan that is generally set up by states, municipalities, colleges and universities for their employees. These plans have some similarities to their 401(k) and 403(b) counterparts, but they also have some differences that individuals with access to these plans may find advantageous. First, let’s look at the similarities. The 457(b) allows the same deferral limits as a 401(k) or 403(b). These limits for 2016 are $18,000 annually for those under age 50. For those age 50 and over, the deferral limit is $18,000 plus an additional $6,000 catch-up for a total of $24,000 annually. 457(b) plans may allow for pre-tax or Roth contributions. Individuals can choose among a variety of funds that the plan offers. At age 70 ½ the plans will require RMDs (unless still employed). At retirement or separation from service, individuals are generally allowed […]

Information on the 403(b)

As many of our readers know, employees that work for a school district, hospital, university or other non-profit organization may have access to a retirement plan called the 403(b). Similar to its cousin the 401(k), the 403(b) works very similar in that it allows employee contributions, and the employer may or may not match a percentage of those contributions. The 403(b) is also subject to the maximum contribution rules. In other words, an employee is allowed to contribute up to $18,000 annually if they’re under age 50 and those aged 50 and older are allowed an additional $6,000 catch-up contribution. Many of these plans also allow Roth contributions for their employees. A unique aspect of the 403(b) that readers may not be aware of is the 15-year rule for contributions. Generally, the 15-year rule allows an employee with at least 15 years of service (and their plan allows it) to […]


The Required Minimum Distribution method for calculating your Series of Substantially Equal Periodic Payments (under §72(t)(2)(A)(iv)) calculates the specific amount that you must withdraw from your IRA, 401k, or other retirement plan each year, based upon your account balance at the end of the previous year. The balance is then divided by the life expectancy factor from either the Single Life Expectancy table or the Joint Life and Last Survivor Expectancy table, using the age(s) you have reached (or will reach) by the end of the current calendar year. This annual amount will be different each year, since the balance at the end of the previous year will be different, and your age factor will be different as well. Which table you use is based upon your circumstances. If you are single, or married and your spouse is less than 10 years younger than you, you will use the Single Life Expectancy […]

SOSEPP – Fixed Amortization Method

When calculating your Series of Substantially Equal Periodic Payments (SOSEPP), provided for under §72(t)(2)(A)(iv) of the Internal Revenue Code, one of your choices is the Fixed Amortization method. Calculating your annual payment under this method requires you to have the balance of your IRA account. With this balance you then create an amortization schedule over a specified number of years equal to your life expectancy factor from either the Single Life Expectancy table or the Joint Life and Last Survivor Expectancy table, using the age(s) you have reached (or will reach) for that calendar year. The amortization table must use a rate of interest of your choice, but the chosen rate cannot be more than 120% of the federal mid-term rate published by regularly the IRS in an Internal Revenue Bulletin (IRB). Which table you use is based upon your circumstances. If you are single, or married and your spouse is less than […]

Early Withdrawal of an IRA or 401(k) – SOSEPP

This particular section of the Internal Revenue Code – specifically §72(t)(2)(A)(iv) – is the most famous of the 72(t) provisions. This is mostly due to the fact that it seems to be the ultimate answer to the age-old question “How can I take money out of my IRA or 401(k) without penalty?” While it’s true that this particular code section provides a method for getting at your retirement funds without penalty (and without special circumstances like first-time home purchase or medical issues), this code section is very complicated. With this complication comes a huge potential for costly mistakes – and the IRS does NOT forgive and forget! A Series of Substantially Equal Periodic Payments, or SOSEPP is just what it sounds like. You withdraw a specified amount from your IRA or 401(k) every year. The specified amount is not always the same (hence “substantially” equal) but the method for determining the […]

Should You Invest Dollars or Percentages?

In many employer sponsored plans such as a 401k, 403b, 457, or SIMPLE employees are generally given the option of deferring a fixed dollar amount or fixed percentage of their income. The question becomes which category to choose when initially enrolling in the plan and whether or not to change the original decision. Generally, the wiser decision is to choose (or switch to) the fixed percentage. The reason is that by choosing a percentage, you really never have to worry about increasing your contributions. For example, an individual starts a job earning $50,000 annually and decides to contribute 10% annually to his retirement plan which is $5,000 per year.

What Plans Can I Rollover My Retirement Plan To?

When you have a retirement plan, or many different types of retirement plan, you may be faced with decision-points when it would be helpful to rollover one plan into another plan. But do you know which type of plan I can rollover my retirement plan into? What follows is a description of the types of accounts that you can rollover each particular source account into, along with the restrictions for some of those accounts. The IRS also has a handy rollover chart which describes these rollovers in a matrix.  

Important Tax Numbers for 2015

For 2015 the IRS has given the new limits regarding retirement contributions as well as estate and gift tax exemptions. Regarding retirement contributions employees may now defer $18,000 annually to their employer sponsored plan including a 401k, 403b, and 457 plans. This is an increase from last year’s $17,500 amount. Additionally, employees age 50 or older can now make an age based catch-up contribution of $6,000 which is a $500 increase from last year’s $5,500 amount.

2015 Contribution Limits for Retirement Plans

The IRS recently published the new contribution limits for various retirement plans for 2015.  These limits are indexed to inflation, and as such sometimes they do not increase much year over year, and sometimes they don’t increase at all. This year we saw a few increases for some contribution amounts, and the income limits increased for most types of accounts after virtually no changes to the contribution amounts in 2014.

16 Ways to Withdraw Money From Your 401k Without Penalty

When you have a 401k plan and hard times befall you, you may wonder if there is a way to get your hands on the money. In some cases you can get to the funds for a hardship withdrawal, but if you’re under age 59½ you will likely owe the 10% early withdrawal penalty. (The term 401k is used throughout this article, but these options apply to all qualified plans, including 403b, 457, etc.) Generally it’s difficult to withdraw money from your 401k, that’s part of the value of a 401k plan – a sort of forced discipline that requires you to leave your savings alone until retirement or face some significant penalties. Many 401k plans have options available to get your hands on the money, but most have substantial qualifications that are tough to meet. Your withdrawal of money from the 401k plan will result in taxation of the […]

RMD Avoidance Scheme: Birthdate Makes All The Difference

As you may recall from this previous article, it is possible to use a rollover into an active 401(k) plan as an RMD avoidance scheme. Of course, this will only work as long as you’re employed by the employer sponsoring the 401(k) plan and you’re not a 5% or greater owner of the company. In addition, the rollover must be done in a timely fashion, prior to the year that you will reach age 70 1/2 in order to avoid RMD. An example of where timing worked against a taxpayer (at least temporarily) recently came to me via the ol’ mailbag: 

Why You Should Participate in a 401(k)

We all know that we should save money for a rainy day, a message we’ve received since we were little ones, but this article covers some more reasons why you should participate in a 401(k) plan, if you have one available. It’s on you Back in the olden days when the earth was still cooling, employees could count on (or at least thought they could count on) a pension benefit from their employer upon retirement.  This pension plan provided a safety net that allowed the employee to go into retirement with relatively little concern about whether there would be enough money to live on.

Roth 401(k) Rules

If your employer has a 401(k) plan available for you to participate in, you may also have a Roth 401(k) option available as a part of the plan. (We’re referring to 401(k) plans by name here, but unless noted the rules we’re discussing also apply to other Qualified Retirement Plans (QRPs) such as 403(b) or 457 plans.)  Roth 401(k) plans are not required when a 401(k) plan is offered, but many employers offer this option these days. The Roth 401(k) option, also known as a Designated Roth Account or DRAC, first became available with the passage of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, with the first accounts available effective January 1, 2006.  The Roth 401(k) was designed to provide similar features present in a Roth IRA to the employer-provided 401(k)-type plans. Similar to traditional 401(k) Certain features of the Roth 401(k) are similar to the traditional […]

Mechanics of 401(k) Plans – Vesting

In this article in our series on the mechanics of 401(k) plans, we’ll be covering the concept of vesting.  As with the other articles in the series, we’ll refer specifically to 401(k) plans throughout, but most of the provisions apply to all types of Qualified Retirement Plans (QRPs), which go by many names: 401(k), 403(b), 457, etc.. Vesting refers to the process by which the employer-contributed amounts in the 401(k) plan become the unencumbered property of the employee-participant in the plan.  Vesting is based upon the tenure of the participant as an employee of the employer-sponsor of the plan. Generally, when an employee first begins employment there is a period of time when the employer wishes to protect itself from the circumstance of the new employee’s leaving employment within a relatively short period of time.  Vesting is one way that the employer can protect itself from handing over employer-matching funds […]

Mechanics of 401(k) Plans – Employer Contributions

This is the second post in a series of posts that explain the mechanics of a 401(k) plan.  As mentioned previously, there are many types of Qualified Retirement Plans (collectively called QRPs) that share common characteristics.  Some of these plans are called 401(k), 403(b), and 457.  In these articles we’ll simply refer to 401(k) plans to address common characteristics of all of these QRPs. Employer Contributions Many companies provide a matching contribution to the 401(k) plan – and sometimes there is a contribution made to a QRP on your behalf no matter if you have contributed your own deferred salary or not. Most of the time these matching contributions are stated as x% of the first y% of contributions to the account.  An example would be “50% of the first 6%”, meaning if you contribute 6% of your salary to the plan, the company will match that contribution with 3% […]

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