401(K) Plans: Vesting and Amp - Withdrawals

In this three-part articles series on 401(k) plans, we've covered the basics of what a 401(k) plan is and what types of contributions can be made. In addition, there are other rules and guidelines that participants should be familiar with.

Vesting

Vesting is a term used to describe the point at which a 401(k) plan participant is entitled to 100% of the employer matching contributions in his or her retirement account. The participant is, of course, always entitled to 100% of his or her own contributions, but employer matching contributions are typically subject to a vesting schedule, ranging from three to seven years. The purpose for the vesting schedule is to encourage employees to remain with the employer. The 401(k) plan document and your employer can tell you what your plan's vesting schedule is.

Here's a brief example. Let's say Suzy Smith contributes to her 401(k) plan and her employer matches her contributions up to 50%. The employer has selected a 5 year vesting schedule for the plan, with Suzy being vested 20% each year. Her vesting would look like this:

After year 1: 20% vested in employer matching contributions After year 2: 40% vested in employer matching contributions After year 3: 60% vested in employer matching contributions After year 4: 80% vested in employer matching contributions After year 5: 100% vested in employer matching contributions

401(k) Withdrawals

Before contributing to a 401(k) plan, you want to be familiar with the ways in which you can withdraw your money. To an extent, those conditions will be dictated by your 401(k) plan document. Here are the acceptable withdrawal methods:

- Loans - Hardship withdrawals - Termination of employment - Retirement - Disability - Death

401(k) Loans

Not all 401(k) plans allow loans, but those that do will require repayment. Loan payments, including interest and principal, are repaid directly to the employee's 401(k) account. The plan document will specify if the plan allows loans, and if so, what conditions apply.

401(k) Hardship Withdrawals

Some 401(k) plans have provisions for hardship withdrawals, allowing a participant to withdraw contributions within certain limits and for specific reasons. Those reasons typically include medical expenses, the purchase of a home, college tuition for the next 12 months or to prevent eviction or foreclosure from the employee's primary residence. Again, the plan document will specify any rules that apply.

Termination of Employment

When a 401(k) plan participant leaves an employer by quitting or being fired, he or she is entitled to the vested balance in his or her 401(k) account. The plan document will specify how and when this withdrawal takes place. To avoid adverse tax consequences, the participant should speak with his or her financial advisor to determine if a rollover to another retirement plan like an IRA is appropriate.

Retirement Distributions

401(k) withdrawals made at retirement age are called distributions. Before age 59 1/2, distributions are taxable and generally subject to a 10% penalty. After age 59 1/2, lump sum distributions will be taxed and current income tax rates, but the distributions may be eligible for special 10-year averaging tax treatment. Money can also be withdrawn and rolled over to another qualified plan, IRA, 403(b) or 457 plan. For additional information about these options, participants should talk to their financial and tax advisors.

We've covered a lot of 401(k) info. in the last three articles, but there is still so much more to know. If you are investing in a 401(k) plan, or are considering it, and have questions, please contact your financial and tax advisors for recommendations based on your financial situation.

Simple 401(K) Asset Allocation Options   401K Investment Advice   How Do I Choose the Best Retirement Investment?   Provident Fund Withdrawal - Duties of the Regional PF Commissioner   The Rules of a 401k Rollover   Borrowing Money From Your 401k   

Is My IRA Income Safe If The Market Goes Down?

Is your IRA income safe if the market were to take a tumble? The answer is maybe. Are you worried about the market going down again? Would you have enough income if you had to reduce your monthly withdrawals by 25% or more? Is your IRA income safe?

With all of the economic turbulence in the world right now asking the question about safety is the right thing to be doing. How do you tell if your IRA income is safe? It has to do with your underlying investments and how you generate IRA income.

Bonds

If your income is coming from bonds you are probably safe. You just need to make sure the issuer of the bonds is doing OK financially. How do you do this? One way is to check your statement, if you bond value is down it is worth looking into further for sure. Google your issuer name and see if there is any bad news associated with the company or government. Call your broker and discuss your options. You can sell bonds but if it looks like temporary problems or just general bond market problems you not need to sell.

Stocks and Mutual Funds

If your IRA income is coming from equity investments then you have more to worry about. Bonds going down in value do not affect your IRA income stream but the market going down most definitely can. How do you make sure your equity investments are safe? Stocks should be researched individually and discussed with a broker. Even though you can't be certain, you can be reasonably sure the company will not go out of business if you will do the proper research and make sure it is fact and not just you hoping the company is doing OK. The stock being down does not necessarily mean the business is in financial trouble.

For mutual funds you need to research the fund but also the fund manager and fund company. If you still believe in the company and the manager after doing your research then you will probably be OK.

Annuities

Variable annuities should be researched basically like mutual funds. Except that for all kinds of annuities you need to check the financial health of the annuity company. Look for their current ratings and how the current ratings have changed over the last 5 years or so. You might have to call the insurance company for the ratings information.

Fixed annuities are different in that the value will not go down. The insurance company's ratings are still important to know.

These are all ways to check on your investments to make sure the underlying investment is sound but your IRA may still be volatile. A better question to ask may have been, Is my IRA income going to still be there when I need it even though the market is so volatile and interest rates are up and down? It is a long question but more accurate.

The answer is still maybe! Bonds are usually OK if the company checks out. Fixed annuities are almost always OK.

If you are in the market or variable annuities and your investments are going down in value then pay close attention.

Basic retirement planning practices are to take out a certain percentage of your investments each year as your IRA income and leave the rest in to grow your account value. If your investments are not growing at that percentage or more, you need to lower the percentage you are taking out each month or year. If you decided that 5% was a good number to withdraw each year then you must make certain that you earn 5% or more each year to break even.

Is your IRA income safe? As long as you don't take out more than you earn, the underlying company that issued the investment is sound, and you have checked out the insurance company if it is an annuity your IRA income should be safe.

Unfortunately since there are no absolutes in the investment arena and the lack of information or the ability to read the massive amounts of financial information you need to use your best judgment. You also need to seek the help of a competent financial advisor to help with the research and consult with before making any changes to your investments.

Simple 401(K) Asset Allocation Options   401K Investment Advice   How Do I Choose the Best Retirement Investment?   Provident Fund Withdrawal - Duties of the Regional PF Commissioner   

Roth IRA and Its Advantages

Planning your retirement is a very important step. You need to balance and stabilize your financial future. Many have questions about different retirement plans that you hear about quite often. One of the best options is to open an IRA, which is an Individual Retirement Account or Arrangement. It allows individuals to set aside money annually with tax-deferred earnings till the onset of the withdrawals which begin generally at the age of 59 ½ years. These IRAs can be established at banks, mutual funds or stock brokerages.

A Roth IRA is a special type of IRA, which flourished under the Tax payer Relief Act of 1997, under the tax laws of the United States government. It is named after its Chief legislative sponsor and late senator of Delaware, William V Roth, Jr. It can be an individual retirement account or a joined one or even can be an annuity contract purchased from a life insurance company. It is acceptable for a Roth IRA to have investments in securities or stocks, bonds, Real estate and mutual funds etc.

Even though, very much similar to IRAs in general, a Roth IRA has few benefits.

One benefit is the after-tax money or dollar system that is particular only to a Roth IRA. The tax for the money being contributed is deducted at that time itself is not left for later deductions and hence, the withdrawals are totally tax-free under the conditions that you are above 59 and ½ years old and that your account has been established at least five years before the year of withdrawal. In short, you will not be taxed for the money or investments after you cross the age of 59 and ½ years.

Another benefit of this system is that you can make withdrawals at any time you want without being taxed for it. And, there are no mandatory minimum withdrawals from the age of 70 and ½ which is a common feature of most of the other IRAs. This means that you do not have to pay early distribution penalty on withdrawals and can save more at the same time. This also means that your investments or earnings grow tax-free. It makes it easier for you to save your money and take it out any time you need it. And one more plus point of a Roth IRA is that there is absolutely no age limits, neither for contribution nor for distribution or withdrawals.

Anyone who has an income within the limits of an IRA is eligible to open and use a Roth IRA. The limit is actually calculated and set on your modified adjusted gross income. Your outside incomes like dividends and interest rental properties etc cannot be considered and used as funds for a Roth IRA. You might not be able to enrol if your income crosses the limit.

Opening a Roth IRA will be a decision that turns your financial future around. Also to take control of that future, it is best to open a Roth IRA and start saving for retirement.

Simple 401(K) Asset Allocation Options   401K Investment Advice   How Do I Choose the Best Retirement Investment?   Provident Fund Withdrawal - Duties of the Regional PF Commissioner   Why Investing In Silver Is The Way To Go   

Real Estate in a Self Directed IRA: Transferring Real Estate

Although most investors are looking forward to a wealthy retirement, some of them are not aware if their retirement plans are diversified. The assets that can be invested in traditional IRAs are limited to mutual funds, bonds and stocks which is the main reason why this retirement plan investment is unstable and volatile. However, investing into real estate in a self directed IRA is an excellent move provided that the investor is going to rollover his traditional IRA to a self directed IRA.

Real estate in a self directed IRAshould give the investor a passive yet steady income for his retirement. Even if the funds are locked up in the IRA account, an investor can still purchase a property. Having a self directed IRA account will help the investor to own a property. However, there is a limitation here because the investor can purchase a property but he cannot use the property for his personal use. The best thing that he can do is to rent out his property to someone that is not within his family or closely related to him. This is to avoid any self dealing that comes with a heavy penalty or even worst.

Besides the plain investor, an employee can also invest real estate in a self directed IRA. However, he should possess an existing employer's retirement account or a 401K account before he can do this. All he needs to do is to rollover his 401K plan to a self directed IRA and invest in a property. He can perform this provided that he left or lost his job. This is extremely beneficial on the investor's part because he can transfer all funds that have been invested in his 401K plan. A IRA rollover is the best option for the employee if he has invested his 401K funds in a property. Aside from the funds that he will be transferring into his new IRA account, he will be able to transfer his real estate as well.

Importance of a Custodian

Education plays an important role when having a real estate IRA rollover. The new account owner should have knowledge about the transaction at hand in order to make the most of the prime opportunities. To be able to do this, he will need the service of a custodian. A custodian will ensure that all rules and regulations are followed. In addition, he will provide assistance to the employee in completing the paperwork comprehensively and on time. Most investors who invest in a real estate in a self directed IRA look for the services of a reputable custodian to guarantee their funds' safety.

Using the funds in a retirement plan is the easiest way to have a property. An employee can have a real estate IRA rollover to access the funds he has invested in his 401K retirement plan. If an investor wants to have a profitable retirement asset then he must invest in his real estate in a self directed IRA. Even with the economic struggles, there are no reasons why the investor or the employee won't have a dollar to spend the rest of their retirement years.

Simple 401(K) Asset Allocation Options   401K Investment Advice   How Do I Choose the Best Retirement Investment?   Provident Fund Withdrawal - Duties of the Regional PF Commissioner   Rules and Regulations For a Self-Directed IRA   Planning Your Retirement Investment   

Tips for a Peaceful Retirement Life

While today seems so blissful, we often forget the tomorrow that comes with aging issues and retirement. After living the youth peacefully with no financial tension, retirement comes with its own stress, as there is no income in the end of the month to look forward to. Therefore, if you are looking forward to make your retirement life as peaceful and stress free as youth was, you must have a retirement plan charted out and prepared well in advance. The earlier you plan, the better off you can be.

Here are a few tips that will help you live a peaceful retirement life.

1. Start your retirement life planning early- like we discussed before the earlier you plan the safer and better is the life ahead. There are a number of retirement plans that are specifically designed so that you have a steady income by the end of your working career. These involve regular savings from your income which grows steadily to be the back bone support when all other sources of income cease to exist. Realizing that retirement is a phase that one cannot escape is always better, the earlier you realize, the faster can you begin your savings.

2. Invest your money in Traditional IRA or Roth IRA to reap retirement benefits. Both these plans are designed for the benefit of the retiring person. Though not very different in their aim, the mode of functioning is a little different. In traditional IRA, one does not have to pay tax while saving the amount, but on withdrawal after retirement, the sum is subjected to tax. Besides, in traditional, the rules are rigid, and do not allow withdrawal up to 59 ½ years old. Where as in Roth IRA, which is a more recently introduced retirement plan, the account owner can withdraw his saved sum before maturity, if he is in dire requirement of money. Besides, after a few pre-conditions, if fulfilled, he can withdraw without paying a penalty or tax. But, in Roth IRA, the account holder makes the first savings after paying his income tax. Thus the money saved does not belong to the taxable sum. On withdrawal post retirement, he can enjoy the entire tax free sum.

3. If you are someone keen to have a career or a small time businesses plan early. You can always set up the pre-requisites before, and once you are free and no other engagement, you can start your new career. Many retirees find the retirement phase lively and energetic. The entire life was spent on earning to make a living, and shouldering a lot of responsibilities. With all the responsibilities now done with, this phase is the time many spend for themselves, fulfilling ones own desires.

4. Many people start consulting services in their retirement period. With the amount of knowledge and experience they have gathered over their entire career can be put to use by starting consulting and counseling service. Besides being a service, it also gives a satisfaction to be the rolling stone!

Simple 401(K) Asset Allocation Options   401K Investment Advice   How Do I Choose the Best Retirement Investment?   Provident Fund Withdrawal - Duties of the Regional PF Commissioner   

Roth IRA Account Is Better Than Traditional Accounts

You should consider investing in the Roth IRA funds because of several benefits. If you have already made investments in other traditional IRAs, you may think in the term of considering the change or conversion to the Roth IRA accounts. If you are enjoying a different retirement benefit plan sponsored by your employers, you can also plan to accept another investment through Roth IRA due to its advantages.

There may be other reasons of not being satisfied with the represent investments elsewhere or the present IRA investments and you need to provide value to your financial savings in a better manner. You are trying to accommodate alternatives in the fields of investments; Roth IRA is the ideal channel to make savings for the retirement in a great way. Before considering the participation in the Roth IRA funds, you should make it clear to understand several points regarding the same so that you know the real findings of making investments in the Roth IRA funds.

The Individual retirement account or IRA is a proper medium, which is capable of acquiring tax relief on the investments that are made for retirement benefits. Such provision of tax relief is offered by the government to citizens to enjoy on the investment made through IRAs. This group of citizens has been able to come out of the government pension structure and enjoy all the tax relief programs and is not dependent of any kind of government pensions. Citizens are allowed to make contributions to such funds through the money, which is able to enjoy the tax relief. It means that citizens are not charged income tax on the money and take the advantage of tax holiday on investments.

In the case of the conventional IRA plans, citizens are allowed to invest tax-free money in the scheme and hence they enjoy the tax relief on income tax of the contribution amount. It gives the advantage of investing the gross money in the particular form of IRA. The money develops into a large sum of money with the addition of compound interest and saves the income tax amount of the citizen year after year. In this system, the withdrawal of money becomes taxable as the amount is withdrawn for the retirement needs. Such forms of investments are managed by administrators as required under government laws and rules.

Certain regulations are extremely strict regarding the contributions or minimum distributions of the amount for the fund and administrators are to run the fund according to set guidelines of the government. All appointments of custodians and rules must be authorized by the government. It is generally observed that traditional IRAs are run with the custodian being a bank and the investment amount is used to finance products of the particular bank, which are not always in the interest of the investor and bring forth reduced returns. In a Roth IRA account, your contributions are tax-paid amount and the final distribution is entirely tax free. You are able to save a chunk of money from the advantage.

Simple 401(K) Asset Allocation Options   401K Investment Advice   How Do I Choose the Best Retirement Investment?   Provident Fund Withdrawal - Duties of the Regional PF Commissioner