Expert Insight & Articles on 401(k) Plans, Rollovers, IRA and 401k Distributions, Contribution Limits, Company 401k Plans

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401(k) Rollover

Indirect 401(k) Rollovers – Short Term Cash Source, IRS Penalties, Important Notes to Consider
(August 14th, 2009)
Indirect rollovers work in reverse of direct rollovers where the check is made out to the financial institution that holds and maintains your 401(k) retirement account (this is also known as a direct trustee to trustee transfer). In cases of indirect rollovers, a check will be made out to your name, instead of your financial institution and 20% of it will be withheld for payment to the Internal Revenue Service. Once you receive the check in your hand, you will have 60 days to deposit the face value of the check to an Individual Retirement Account at wherever your financial institution is, examples include Fidelity, Morningstar or your local bank. If you complete the rollover within the 60 day limit, you will not be taxed and will be able to continue investing salary deferrals in to your IRA... (View Full)

Rolling your 401(k) – Trustee to Trustee Direct Rollover, Modified Adjusted Gross Income (MAGI) Income Limits for Deductible Contributions to a Traditional IRA
(July 29th, 2009)
When you leave your current job, you will have to most likely fill out the 401(k) distribution election form. The most logical thing to do with your 401(k) from a taxation perspective is to do a direct rollover (also known as a trustee-to-trustee transfer) of your money. With this type of rollover, the money goes directly from your 401k plan into another tax-deferred account, either an Individual Retirement Account (IRA) or your new employer’s 401(k) plan, 403(b) plan or 457 plan. 403(b) plans are generally for teachers, educators and non-profit employees while 457 plans are offered by local state governments. With a direct 401k rollover, you do not have to pay any taxes on the money when it comes out of your old employer’s 401(k)... (View Full)

401k Rollovers to an Individual Retirement Account (IRA) – Things to Consider Before You Rollover, Avoid Transfer Penalties, Move Employer Stock, etc.
(June 28th, 2009)
When you quit your current job and move to a new employer, and if you have maintained a 401(k) retirement plan with your past employer, the above questions posed in the title will attack you; so knowing what to do in such cases is the best way to go. Conventional investors will tell us that when you leave your job, you should rollover your 401(k) to an Individual Retirement Account (IRA). IRA rollovers allow you to continue deferring taxes and avoid early-withdrawal penalties which can be up to 240! However, if you have a really good 401k plan with your old employer, maybe you would prefer to leave your money there, or rollover the funds to your new company’s 401k plan? Here is how you can decide if a 401k rollover to an IRA is the right choice for you... (View Full)

401(k) Withdrawals & Distributions

Hardship Withdrawals and Accessing 401(k) Loans
(July 28th, 2009)
A 401(k) retirement plan is meant for your retiring years when you are no longer working and will rely on this income to support your standard of living. However, there are always circumstances in life when you have no choice but to tap your 401k account. Such a case would be termed as a '401k hardship withdrawal' and there are many rules surrounding this feature. For this reason, the government allows 401k administrators to allow investors to borrow loans from their 401k plans. Be sure to check with your 401k administrator whether a 401k loan is available, as it is not mandatory for them to provide this service... (View Full)

401(k) Lump Sum Distributions – Tax Advantages, Rollover to IRA, Tax Deferred Contributions and more
(July 24th, 2009)
A lump sum 401(k) distribution means the entire balance in your 401k account is withdrawn in a single calendar year for many reasons, some of which could be reaching age 59 and ½ years, leaving your current employer, or suffering a disability. Note that if you are less than 55 years of age, leave your current employer and take an entire cash lump sum distribution of your 401k account rather than rolling over to an IRA, you will be subject to a 10% early withdrawal penalty, which you want to avoid... (View Full)

401(k) Withdrawals – Early Withdrawal Penalties, Rollover Withdrawals, Exceptions and Tax Consequences
(June 1st, 2009)
The purpose of 401(k) retirement plans is to encourage people to save for their retirement years and not rely on the country’s broken social security and pension system. Therefore, it is the responsibility of the government to impose rules and regulations that discourage withdrawal of funds from 401(k) retirement accounts. In this article, we explore the various rules encompassing 401k withdrawals, penalties involved, exceptions that may apply to you as well as tax consequences of 401(k) withdrawals... (View Full)

401(k) Matching & Vesting

401(k) Vesting – How It Works, Vesting Schedule, Number of Years of Service
(July 26th, 2009)
Vesting refers to the numbers of years of work you must perform for a company before earning a non-forfeitable right to your 401(k) retirement money, in case you leave the company or get laid off. All the money you have contributed to your 401(k) plan + any employer matched contributions are 100% vested if you can withdraw all of it upon leaving the company; this is known as withdrawal of accrued benefits. As a rule of thumb, if you turn 65 years of age while still working for the same employer, you are 100% vested and can leave the company and take 100% of your accrued benefits... (View Full)

Organizations Reconsider 401(k) Plan Matching Contributions for Employees
(June 25th, 2009)
Due to the current economic downturn, most organizations are reconsidering their matching contributions to employees’ 401(k) plans. In fact, it is estimated that every 1 out of 4 companies have temporarily suspended matching contributions for their employees’ 401(k) plans. These companies say however once the economy improves and so does their cash flow, they will reinstate 401(k) matching contributions for all employees. This piece of news comes from a latest survey done by the Charles Schwab. Among list of companies who have suspended 401k matching include Sears Holdings, Starbucks, Kodak and Hewlett Packard (HP)... (View Full)

Investment Topics

How to Invest in Real Estate using your Individual Retirement Account (IRA)
(August 1st, 2009)
You can invest in real estate via several methods if you already have an IRA. In fact, you can invest in real estate using your 401(k), 403(b) or 457(b) plan if you invest in Type 1 below, because it is very similar to buying stocks and selling them. The 2nd type of investment we cover requires you to create a self-directed IRA where you actually buy physical real estate and not just real estate stocks/mutual funds. We discuss the investment choices available to you below... (View Full)

Losses on 401(k) Investments due to Fiduciary Breaches & Scams - Employee Retirement Income Security Act (ERISA)
(June 28th, 2009)
The US Supreme court ruled on February 20th, 2008 that those individuals who have 401(k) plans and have been subject to financial scams, fiduciary breaches that have resulted in investment losses have the right to recover their losses. This was considered a landmark ruling in favour of the 50 million Americans who have 401(k) plans and who are at high risk of abuse by mutual fund administrators & managers. In this article, we explore the rulings of the Supreme Court and how these rulings differ from past rulings, and if your 401(k) loss is protected under these new laws... (View Full)

401(k) Loans

401(k) Loan - Should You Ever Take One? Pros and Cons of Borrowing from 401k Plans
(June 30th, 2009)
You may sometimes find yourself in temporary financial hardship where expenses have sprung up such as a large medical bill, phone bill, college expense, etc and you need to immediately borrow a loan. Your options include credit card, personal loan from the bank or a 401k loan. Afterall, the money in your 401k plan is all yours, so why do you need the permission to borrow? Financial experts however advise to stay away from borrowing 401k loans as much as you can. In this article, we explore the pros and cons of borrowing from 401k plans and you can then decide for yourself whether it is worth borrowing or not... (View Full)

Tax Topics

What is Modified Adjusted Gross Income (MAGI)? Definition of Gross Income
(June 31st, 2009)
Your modified adjusted gross income for purposes of Roth IRA is your adjusted gross income shown on your tax return modified as follows:

1. Subtract the following

a. Roth IRA conversions included on IRS Form 1040 line 15(b) + Form 1040A line(11b) or Form 1040NR line16(b).
b. Minimum required distributions from IRAs (for conversions or rollovers from qualified retirement plans only).
c. Roth IRA rollovers from qualified retirement plans shown on IRS Form 1040 line(16b), Form 1040A line12(b) or Form 1040NR, line(17b)... (View Full)

Traditional & Roth IRA Topics

How is a Traditional IRA different from a Roth IRA? Comparison Chart, Questions and Answers
(July 29th, 2009)
How is a Traditional IRA different from a Roth IRA? Comparison Chart, Questions and Answers... (View Full)

General 401(k)

Retirement Accounts Rollover Chart
(August 5th, 2009)
Retirement Accounts Rollover Chart - (View comprehensive chart)

Understanding the Rules for Participating in a 401(k) Plan, Beneficiary Appointment, 401(k) Plans for High Paid Employees
(July 15th, 2009)
Self-employed business people or those employees whose employer’s do not offer a retirement plan sometimes want to know how they can “open a 401k account.” Unfortunately, it is not very simple and unlike an Individual Retirement Account (IRA) where you can open your own IRA account, a 401(k) is only available through your employer. Organizations are not required by law to offer 401(k) or any other retirement plans for that matter, but they do it just to attract and retain good talent. Also, just because your employer offers a 401(k) plan does not mean you are automatically eligible for contributions... (View Full)

Why You Should Always Contribute to Your 401k Plan...
(June 27th, 2009)
Some financial advisors recommend that during times of economic uncertainty and recession, middle and low income class people should stop contributing to their 401k plans altogether. We think this is totally misinformed and the author of such articles do not know the tax advantages of contributing to 401k plans, as well as the long term building of wealth. Here are some of the reasons why you should always contribute to a 401k plan, no matter what economic realm we are in... (View Full)