Introducing the age 55 exception for a withdrawal from a 401(k) plan. Penalty free, with some restrictions applied.
qualified retirement plan
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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Avoid the Overweight Retirement Plan
While it’s generally a good idea to defer as much income as possible into your available IRAs, 401(k)s and Roth accounts, as with everything else in life, too much of a good thing can be a problem as well. When you have the bulk of your financial assets in retirement plans, you might accidentally expose yourself to some risks that you haven’t thought about… since retirement plan assets are much more likely to be impacted by changes to legislation – as we have seen in the past. In these days when Congress is looking for money just about everywhere, it’s not a stretch to imagine new legislation coming down the pike to tax retirement plan assets (like the excess plan accumulation tax that has been proposed). Other possibilities include accelerating required minimum distributions to achieve a faster payout taxation of the plan and eliminating the “stretch” provisions (this has already […]
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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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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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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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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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A New-Hire Checklist
Starting a new job can be very overwhelming. Often, new-hires go through a barrage of training, information overload and multiple booklets covering procedures, processes and application. Somewhere in that mix is the benefit package. Here is where the new employee can sign up for important health insurance coverage, retirement savings plans, and other benefits such as life insurance and disability. In the stress and whirlwind of the on-boarding process, sometimes benefits can get pushed to the side, and then after time, forgotten about. Here’s a checklist of what a new employee can do to make sure they sign up for these precious benefits and some information on how to move forward. Select the appropriate health coverage. Some employers have one carrier that provides coverage with different options from that carrier. Options may include HMO, PPO or HSA plans. The premiums the employee pays will depend on the deductibles in the […]
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Mandatory Retirement Plans
A few weeks ago I finished a paper arguing for mandatory retirement contributions from both employers and employees. Though arguably the paper will not come close to changing public policy on retirement plans, it did raise some arguments in favor of the United States adopting a mandatory savings plan. In the paper I explained that research has shown that individuals risk not having enough saved for retirement. This could be due to employees not having a retirement plan through work or because employees face an abundance of mutual fund options in the plan that they don’t know where to begin. Some of these employees choose the default option or simply go with what a colleague recommends. Another problem the paper addresses is the declination of defined benefit pensions. Such pensions are employer sponsored and funded, thus removing funding an investment risk from the employee. At retirement the employee receives a […]
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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.
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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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What is a QLAC?
In July of 2014 the IRS issued final regulations regarding the allowance of qualified longevity annuity contracts in employer sponsored plans such as 401ks, 403bs and 457b plans as well as IRAs. What it Means and What it Means to You QLAC stands for qualified longevity annuity contract. This means that a person is allowed to take up to 25% of their overall account balance but not more than $125,000 in their retirement plan and use that money as premium to fund a longevity annuity contract. Additionally, the annuitant must start the annuity by no later than the first day of the month following the attainment of age 85. They can however, start earlier. In a 401k, 403b or 457b plan a QLAC can be purchased up to the maximum of $125,000 across all accounts (IRAs included), but not more than 25% of the account balance per plan.
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”.