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.
qualified retirement plan
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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To Roll or Not to Roll?
At some point in almost everyone’s lifetime they have gone through the process of changing jobs. Many times those jobs offered retirement plans such as 401(k)s 403(b)s, etc. Conventional wisdom would say that for most employees it may make sense to roll their employer sponsored plan into an IRA. Based on a request from a reader (thanks David!), I thought I would go over some of the issues to consider before rolling your employer sponsored plan to an IRA.
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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.
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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.
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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 […]
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Investment Allocation in Your 401(k) Plan
When you participate in your employer-sponsored 401(k) plan (or any type of Qualified Retirement Plan, including 403(b), 457, etc.), the first step is to determine how much money you will defer into the plan. We discussed this previously in an article about contributions to your 401(k) plan. Once you’ve determined the amount you’ll contribute, the next step is to allocate your funds within the account. This starts with an overall plan for your investment allocation – which you should take time to plan in advance. For the purposes of our illustration here, we’ll say that you have a plan to split your account 75% to stocks and 25% to bonds. Within the stock allocation, you want to split this as 1/3 each to large cap stock, small cap stock, and international stock. In the bond category you want to split this to 80% domestic bonds and 20% international bonds. Now […]
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Mechanics of 401(k) Plans – Loans
Continuing our series of articles on the mechanics of 401(k) plans, today we’ll talk about loans from the account. As with all of these articles, we’ll refer generically to the plans as 401(k) plans, although they could be just about any Qualified Retirement Plans (QRPs), including 403(b), 457, and other plans. Unlike IRAs, 401(k) plans allow for the employee-participant to take a loan from the plan. There are restrictions on these loans, but they can be useful if you need funds for a short-term period and have no other sources. 401(k) Loans If you have a balance in your 401(k) account, often your plan administrator will have a provision allowing you to take a loan of some of the funds in the account. (Not all plans allow loans – this is an optional provision, not a requirement.) Sometimes the plan administrator will place restrictions on the use of the loan […]
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Mechanics of 401(k) Plans – Distribution
For the next in our series of articles regarding the mechanics of 401(k) plans, we’ll review distributions from the plan. As with our other articles in this series, we’re referring to all sorts of qualified retirement plans (QRPs) – including 401(k), 403(b), 457, and others – generically as 401(k) plans throughout. There are several types of distributions from 401(k) plans to consider. Distributions before retirement age and after retirement age are the two primary categories which we’ll review below. Another type of distribution is a loan – which will be covered in a subsequent article. But first, we need to define retirement age. Generally speaking, retirement age for your 401(k) plan is 59½, just the same as with an IRA. However, if you leave employment at or after age 55, the operative age is 55. If you have left employment before age 55, retirement age is 59½. This means that […]
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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 […]
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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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Mechanics of 401(k) Plans – Saving/Contributing
Many folks have a 401(k) plan or other similar Qualified Retirement Plan (QRP) available from their employer. These plans have many names, including 403(b), 457, and other plans, but for clarity’s sake we’ll refer to them all as 401(k) plans in this article. This sort of retirement savings plan can be very confusing if you’re unfamiliar, but it’s a relatively straightforward savings vehicle. This is the first in a series of articles about the mechanics of your 401(k) plan – Saving/Contributing. Saving/Contributing You are allowed to make contributions to the 401(k) plan, primarily in the form of pre-tax salary deferrals. You fill out a form (online most of the time these days) to designate a particular portion of your salary to be deferred into the 401(k) plan. Then, each payday you’ll see a deduction from your paycheck showing the 401(k) plan contribution. The deduction is before income tax withholding is […]
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How Much Do I Need to Save: Part II
Last week I gave some general indications on how much someone needed to save. We used general percents and some basic numbers but this week I want to actually put those numbers to work. For example – let’s say we have a 30 year old couple that says they would like to have $3,000,000 saved at retirement (assume their both the same age and will both retire at 65). We’ll also assume that they have not started saving yet. Using a 5% compounded annual rate of return this couple would need to save about $2,640 per month for 35 years in order to hit their goal. If we assume they’ve amassed $50,000 by age 30, then they only need to save $2,388 per month. If we use the $2,388 as our savings made at 10% that means our annual income for the couple is about $286,560. Using the same amount […]
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IRA Options Between Ages 60 and 70
There are lots of articles around that speak to what you can and cannot do with your IRA before you reach age 59½, and more that address what you must or must not do with your IRA after you’ve reached age 70½. But what can you do in the interim period? Surprisingly, you have all the control you may wish for. After you’ve reached age 59½, you are free to take withdrawals from your traditional IRA with no penalties. You will have to pay tax on any withdrawal from the IRA, but otherwise there’s no downside to taking money out of the account. For a Roth IRA, of course there’s no tax on the withdrawal. You’re free to take as much as you like (or as little) at any time. Of course, these withdrawals from either type of account, Roth or traditional, will forever remove the funds from the tax-protected […]
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C’mon America! Increase your savings rate by 1% more!
This November we’re encouraging folks to increase their retirement savings rate by at least 1% more than the current rate. It’s a small step, but it will pay off for you in the long run. Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be. Thanks to everyone who has participated so far – and watch for more articles in the weeks to come! THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP
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Retirement Plan Contribution Limits for 2014
The IRS recently published the new contribution limits for various retirement plans for 2014. 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 virtually no increases for most all contribution amounts, but as usual the income limits increased for most types of account. IRAs The annual contribution limit for IRAs (both traditional and Roth) remains at $5,500 for 2014. 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 Adjusted Gross Income (AGI) must be less than $60,000 for a full deduction; phased deduction is allowed up to an AGI of $70,000. This is an increase of $1,000 over the limits for last year. For […]
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What You Can Do If Your 401(k) Has High Fees
Now that we’ve all been receiving 401(k) plan statements that include information about the fees associated with our accounts, what should you do with that information? Some 401(k) plans have fees that are upwards of 2% annually, and these fees can introduce a tremendous drag on your investment returns over a long period of time. There are two components to the overall cost of your 401(k) plan. The first, and the easiest to find, is the internal expense ratios of the investments in the plan. Recent information shows that, on average, these investment fees are something on the order of 1% to 1.4% or more. The second part of the costs is the part that has recently begun to be disclosed: the plan-level fees. These are the fees that the plan administrator has negotiated with the brokerage or third-party administrator to manage the plan. These fees can average from 1% […]
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”.