When moving funds from a 401(k) plan to an IRA or to another qualified plan, a direct rollover solves some potential problems.
401 k
Contingent Beneficiary Designation
Designating a contingent beneficiary can be an important part of your overall wealth distribution plan. Learn more here.
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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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Don’t Leave Money On The Table!
Many individuals are offered an employer-sponsored savings plan though work such as a 401(k) or 403(b). Employers who offer these plans may provide a company match. This means that the employer will add money to the employee’s account, if the employee saves a certain percentage of income. Some employers will even provide money even if the employee is not saving. If you’re employer offers a match on your contributions, take full advantage of it. Don’t leave money on the table! This is free money – and it’s unwise to not take it. Let’s look at an example. Sam and Betty (both age 45) have a 401(k) and their employer offers a 50% match on employee contributions up to 5% of their salary. They both earn $80,000 annually. Sam decides to save 1% of his salary and Betty decides to save the maximum she can for 2019 of $19,000. Since the […]
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Roth or Pre-Tax 401(k)?
As an employee of a company you may have access to a 401(k). A 401(k) is an employer-sponsored (offered) retirement plan that allows you to save money for retirement. Sometimes your employer may provide a match based on a percentage of your contributions. Your employer may give you the option of saving to a pre-tax account or a Roth account. A pre-tax contribution means that your contributions are made to your account before federal and state taxes are applied to your paycheck. A Roth contribution means that taxes are taken first, then the contribution goes to your account. This is also known as an after-tax contribution. If you make pre-tax contributions, you avoid tax now, but then are taxed when withdrawals are made in retirement. If you make Roth contributions now, you’re taxed today, but withdrawals in retirement are tax-free. It can make a lot of sense to contribute to […]
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2017 Retirement Plan Contribution Limits
The IRS recently published the new contribution limits for various retirement plans for 2017. 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 for the third year in a row we saw virtually no increases contribution amounts, and the income limits increased for slightly as they did for 2016. IRAs The annual contribution limit for IRAs (both traditional and Roth) remains at $5,500 for 2017 (third year without an increase). The “catch up” contribution amount, for folks age 50 or over, also remains at $1,000. The income limits for traditional (deductible) IRAs increased slightly from last year: for singles covered by a retirement plan, your Modified Adjusted Gross Income (MAGI) must be less than $62,000 for a full deduction; phased deduction is allowed up to a MAGI of $72,000. This is an […]
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Roth 401k – Is It Right for You?
Many employers are now offering a Roth 401k option in addition to the traditional 401k option. And with this new choice comes many questions: What is the benefit? Is a Roth 401k a good idea for me? How can I choose between the traditional 401k and the Roth? Benefits of Roth 401k Much like a Roth IRA, the Roth 401k can provide you with tax-free income when you retire. This benefit comes to you in exchange for no tax deduction when you contribute your funds to the Roth account. Contributing money to a traditional 401k account results in a reduction from your income for the year. Then when you withdraw money from the account in your retirement, you will have to pay tax on the money withdrawn. This is the primary difference between the traditional 401k and the Roth. Another benefit of the Roth 401k is that when you retire […]
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Qualified Plan Rollovers
Combining and rolling over various retirement accounts is a decision that many individuals will face during their working career and in retirement. For individuals that are already retired, they may consider combining accounts to make required minimum distributions a bit easier (less paperwork, companies to deal with, etc.). Individuals that are still working may consider combining accounts as they switch jobs in an effort to consolidate plans from various employers to their IRA, Roth IRA or current employer plan. What follows are some considerations as well as a handy guide form the IRS regarding what rollovers and consolidations are allowed and specifics for each plan type. Be sure to check the fees of the plan you’re coming from to the plan you’re considering moving to. While consolidation may make sense, it may be a bad idea if the expenses of the plan and funds are higher in the plan you’re […]
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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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5 Secrets About Your 401k Plan
Many folks have a 401k plan – it’s the most common sort of retirement savings vehicle that employers offer these days. But there are things about your 401k plan that you probably don’t know – and these secrets can be important to know! The 401k plan is, for many, the only retirement savings you’ll have when you reach your golden years. Used properly, with steady contributions over time, a 401k plan can generate a much-needed addition to your Social Security benefits. But you have to make contributions to the 401k plan for it to work, and invest those contributions wisely. So how much do you know about your 401k plan? Below are 5 secrets that you probably don’t know about your 401k plan. Check with your 401k plan administrator to see if these provisions are available – some plans are more restrictive than others. Secrets You Don’t Know About Your […]
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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 […]
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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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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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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 […]
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