Did you know that you may be allowed to take distributions from your IRA in-kind? That includes Required Minimum Distributions (RMDs).
qrp
More Clarification on Rollovers and Transfers
I’m compelled to provide an additional update to the posts I’ve provided in the past in the article Running Afoul of One Rollover Per Year Rule and its follow-up More on the One-Rollover-Per-Year Rule. This is primarily to provide clarity to a portion of this rule that I personally was unclear on when the articles were originally written. The rule is that you are restricted to one IRA rollover in a 12-month period. So let’s define a few things for the purpose of this discussion: Rollover – this is when you move money from one IRA to another, first taking possession of the funds prior to depositing the funds into the new (or the same old) IRA account. You have 60 days to complete this process. At the end of the tax year you’ll receive a 1099R from the original custodian, with a distribution code of 1 or 7 (this […]
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16 Ways to Withdraw Money From Your 401k Without Penalty
There are several ways you can withdraw money from your 401k without penalty.
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5 Options for Your Old 401k
When you move from one job to another, often there is an old 401k plan at the former employer. You have several choices for what you can do with the old 401k plan, and some options are better than others. Some of the options are dependent upon the balance in your old 401k account, as well. Cash it out. This is typically the worst option. You took advantage of tax-deferral (and company matching) when you contributed the funds to the account. If you simply cash out the old 401k, you’ll have to pay tax on the funds, and if you were under age 55 when you left the employer you will also likely be hit with a 10% penalty for the early withdrawal. In addition to the tax and penalty, when you take a withdrawal from your 401k plan there is an automatic 20% withholding requirement. You will have credit […]
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Early Withdrawal of an IRA or 401k – Medical Expenses
There are several ways to get at your IRA funds before age 59½ without having to pay the 10% penalty. In this post we’ll cover the Medical Expenses which allow for a penalty-free distribution. There are three different Medical reasons that can be used to qualify for an early withdrawal: high unreimbursed medical expenses, paying the cost of medical insurance, and disability. Disability and high unreimbursed medical expenses are also applicable reasons allowing for early withdrawal of 401k funds without penalty. We’ll cover each of these topics separately below. High Unreimbursed Medical Expenses If you are faced with high medical expenses for yourself, your spouse, or a qualified dependent, you may be eligible to withdraw some funds from your IRA or 401k penalty-free to pay for those expenses. The amount that you can withdraw is limited to the actual amount of the medical expenses you paid during the calendar year, minus 10% […]
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401k Loan versus Early Withdrawal
When you have a 401k and you need some money from the account, you have a couple of options. Depending upon your 401k plan’s options, you may be able to take a 401k loan. With some plans you also have the option to take an early, in-service withdrawal from the plan. These two options have very different outcomes for you, in terms of taxes and possible penalties. Let’s explore the differences. 401k Loan If your plan allows for a 401k loan, this can be a good option to get access to the money, for virtually any purpose. Being a loan, there is no tax impact when you take out a 401k loan. Plus you can use the money for any purpose that you need, at any age. As a loan, it must be paid back over the a five-year period (at most). You’ll pay interest on the loan, but since […]
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Taxes and the 401k Withdrawal
If you take a 401k withdrawal and the money in the 401k was deducted from your taxable income, you’ll be taxed on the funds you withdraw. Depending on the circumstances, you may also be subject to a penalty. There’s a lot of confusion about how the taxation works – and the taxation and penalties can be different depending upon the circumstances. Taxation of the 401k Withdrawal When you take a distribution of pre-tax money from a 401k plan, the amount of the 401k withdrawal that is pre-tax will be included in your income and will be taxed at your marginal income tax rate in that year. Unless you meet one of the exceptions noted in the article 16 Ways to Withdraw Money From Your 401k Without Penalty, your 401k withdrawal will also be subject to a 10% early withdrawal penalty. For example – if you have a 401k plan at […]
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What to do with an extra 1,000 dollars
I occasionally get this question – especially around the time of tax refunds. When someone comes up with an extra $1,000, they often want to know how to best use that money wisely to help out their overall financial condition. Of course this question has different answers for different situations. I’ll run through several different sets of conditions that a person might find him or herself in, and some suggestions for how you might use an extra $1,000 to best improve your financial standing. (It’s important to note that you don’t have to have an extra $1,000 lying around to use this advice – you could have an extra ten or twenty or fifty bucks a week and put it to work with the same principles.) The point is to find money that isn’t being spent on something critical, and put it to work for you! Even small steps amount to wonders. […]
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How to Take a Loan from Your 401k
You have this 401k account that you’ve been contributing to over the years, and now you’ve found yourself in need of a bit of extra cash. Maybe you need to cover the cost of a new furnace, or possibly you have some extra medical bills that need attention, and you don’t have the extra cash to cover. Whatever the reason, a loan from your 401k might be just the ticket. A 401k (or other employer-based plan like a 403b, 457, etc.) is unique from an IRA in that you are allowed to borrow against the account. An IRA can never be borrowed against, any withdrawals are immediately taxable. Before we go into the specifics of taking a loan from your 401k, since I’m a financial planner I have to put a word of warning out: Borrowing from your 401k should be considered a “last resort” option, when you’ve exhausted all […]
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Where to Start With Retirement Savings
Today, we have so many choices for our retirement savings that it can be difficult to choose which sort of account to contribute to. If you are fortunate enough (as many are) to have more than one type of retirement plan available to you, in what order should you contribute to the accounts? Right now, at the beginning of a new year, is an excellent time to start with retirement savings. Qualified Retirement Plans First of all, many folks who are employed by a company have some sort of tax-deferred, qualified, retirement savings account available. These accounts go by many names – 401(k), 403(b), 457, and deferred compensation. These accounts are collectively referred to as qualified retirement plans, or QRPs. QRPs do not include IRAs – this is another type if retirement savings account with some different rules. A QRP account is a good place to start when contributing to […]
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Five Things You Need to Know About Retirement Plans
Listen to this post: Most of you have one or more types of defined contribution retirement plans, such as a 401(k), 403(b), 457, IRA, SEP-IRA, or any of a number of other plans. Each type of plan has certain characteristics that are a little different from other plans, but most of them have the common characteristic of deductibility from current income and deferred taxation on growth. 1. Each dollar you defer is worth more than a dollar. It’s true. As you defer money into your retirement account, each dollar that you defer could be worth as much as $1.66. How, you might ask? Since you are not taxed on the dollar that has been deferred into the retirement account, your “take home” pay only reduces by the amount that is left over after taxation. For example, if you’re in the 25% bracket, generally your income will only reduce by […]
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IRS Notice 2014-54: Will This Clarify NUA Basis Allocation?
Recently the IRS issued a Notice, 2014-54, which details some information regarding the allocation of pre-tax funds from a qualified plan (such as a 401(k) plan) into a Roth IRA. This is a clarification of a question that has been on the minds of folks in the financial services industry for some time, and it’s a good result. Now the question becomes: does this help to clarify NUA basis allocation strategies? If you’d like additional detail on Notice 2014-54, you can find the actual text of the Notice by clicking this link. What I find interesting about this Notice is that this is the first time that the IRS has used this interpretation of the rules referenced specifically in IRC Section 402(c)(2), which is the code section I’ve referenced before regarding allocation of basis for Net Unrealized Appreciation (NUA) treatment for employer stock. (See more information in this most recent […]
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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.
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Roth 401(k) In-Plan Conversions
As of the beginning of 2013, a new provision became available for participants in 401(k), 403(b) and 457 deferred compensation retirement plans: the Roth 401(k) In-Plan Conversion. This provision allows current employees participating in one of these Qualified Retirement Plans to convert funds from the traditional 401(k) (or other) account into the Designated Roth Account (DRAC) that is part of the plan. This is new and different because previously the only way to convert funds from the 401(k) plan to a Roth-like account was to have left employment by the sponsoring employer.
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
A Medicare Owner’s Manual, is updated with 2020 facts and figures. This manual is available on 
Social Security for the Suddenly Single can be found on Amazon at 
Sterling’s first book, Lose Weight Save Money, can be 
An IRA Owner’s Manual, 2nd Edition is available for purchase on Amazon. Click the link to choose the 
Jim’s book – A Social Security Owner’s Manual, is now available on Amazon. Click this link for the 
And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.