Retirement planning should be an important consideration for everyone, whether they are years away from their retirement and especially if retirement is just around the corner.
If financial topics make you feel uneasy, you still should put them on top of your learning list. Here are some easy to understand tips, regarding retirement especially for the baby boomers.
Tip #1
You should start by taking note of your current expenses, and think whether after your retirement you will want to live like you always have. If you think of retirement as travel, an expensive car and lots of days outdoors, you have to consider the expense that comes with this lifestyle. A retirement calculator is the perfect tool to help you assess this.
Tip #2
Make sure you know what benefits you will get from Social Security. This would normally sum up to be around 40% of your income before retirement. You should be receiving three statements yearly, which include a summary of the benefits you should expect when you retire.
Tip #3
Gather as much information as you can about employee benefits. Remember that information is power, and this will determine your future.
Tip #4
You should make it a point to invest in a 401k plan. This is an account that will save you lots of tax money, and which will also attract a contribution for your retirement from your employer.
Tip #5
If you do contribute funds into a plan, then no matter how bad your financial situation gets, do not make any withdrawals. This will result in you falling short, and not having the estimated sum of money when you retire.
Reference: http://freeretirementplanningadvice.com/home-and-family/5-baby-boomer-retirement-tips/
Thursday, May 28, 2009
Wednesday, May 27, 2009
Fact or Fiction?
When it comes to retirement, even though there is nowadays plenty of information available everywhere you look, people somehow still come to believe in retirement myths, as the truth.
We are therefore going to cover in this article the most publicised myths that people believe in.
Myth #1
Retirement starts after your last day at work. This is a false statement since retirement should be seen as a new phase in one’s life. Like every change, this takes some accustoming to, and it will take you as long as twelve months to adjust and change your lifestyle.
Myth #2
If you think or rather hope that someone will be generous enough to take care of you when you retire, you might want to think again. Social Security will hardly pay your monthly bills, and if you are thinking that your children will take care of you, you should consider that life has changed, and this is increasingly difficult.
Myth #3
The next myth refers to monthly expenses, since most individuals believe that after retirement their costs will be low. You should consider the drying out of Social Security funding, and the fact that the cost of goods continues to rise. Considering that we can expect to live more than 20 years after we retire, this might be a recipe for disaster.
Myth #4
Some people believe that retirement is easy- not true. This period can even give rise to depression since after their retirement, people find out that all leisure and relaxation makes for quite a boring life.
Myth #5
Retirees think that retirement is great since they will get to be with their wife all day. This in reality needs some adjusting to, since couples usually don’t spend more than 20% of their time together. This is why in analysing divorce rates we find that the highest is for couples over 55 years of age.
Reference http://freeretirementplanningadvice.com/elderly-care/busting-the-top-retirement-myths/
We are therefore going to cover in this article the most publicised myths that people believe in.
Myth #1
Retirement starts after your last day at work. This is a false statement since retirement should be seen as a new phase in one’s life. Like every change, this takes some accustoming to, and it will take you as long as twelve months to adjust and change your lifestyle.
Myth #2
If you think or rather hope that someone will be generous enough to take care of you when you retire, you might want to think again. Social Security will hardly pay your monthly bills, and if you are thinking that your children will take care of you, you should consider that life has changed, and this is increasingly difficult.
Myth #3
The next myth refers to monthly expenses, since most individuals believe that after retirement their costs will be low. You should consider the drying out of Social Security funding, and the fact that the cost of goods continues to rise. Considering that we can expect to live more than 20 years after we retire, this might be a recipe for disaster.
Myth #4
Some people believe that retirement is easy- not true. This period can even give rise to depression since after their retirement, people find out that all leisure and relaxation makes for quite a boring life.
Myth #5
Retirees think that retirement is great since they will get to be with their wife all day. This in reality needs some adjusting to, since couples usually don’t spend more than 20% of their time together. This is why in analysing divorce rates we find that the highest is for couples over 55 years of age.
Reference http://freeretirementplanningadvice.com/elderly-care/busting-the-top-retirement-myths/
Monday, May 25, 2009
Retirement Plan Fees
The American government is currently working hard to solve the lots of issues related to retirement plans and their regulations.
One of the issues being worked upon is fee disclosures to participants as well as plan sponsors. Many were expecting a regulation for the 408b plans that requires the plan provider to disclose all the fees for the sponsors. This however has not been established yet. The issue is still to be tackled well and something is still expected as regards this matter.
In fact, the two congress houses wish for a proper legislation governing fee disclosure. The Special Committee on Aging has presented the Defined Contribution Fee Disclosure Act 2009. This act would compel plan sponsors of defined contribution plans, to disclose the entire plan fees to the participants.
This legislation should make it easier for plan sponsors to negotiate fees with their participants. Participants on the other hand would be in a better position since they will know exactly what the cost of their plan is.
Of the entire proposed legislation package, the only part that did not come to the final stage was the changes to Section C of the Form 5500. If a plan has at least 100 participants, the plan needs to report implicit returns. The thing is that plan sponsors are having a hard time getting this information, in the case that his service provider did not provide it. This is still a bit of a gray area, where lot of time is used up in filling in this form, without any significant end result.
As for the advisors, it is believed that these new regulations that will stiffen the environment may encourage a trend in the industry. This trend assumes that with tightened regulations retirement plan advisors will shift to being fee-based.
Reference: http://www.planadviser.com/magazine/article.php/4242
One of the issues being worked upon is fee disclosures to participants as well as plan sponsors. Many were expecting a regulation for the 408b plans that requires the plan provider to disclose all the fees for the sponsors. This however has not been established yet. The issue is still to be tackled well and something is still expected as regards this matter.
In fact, the two congress houses wish for a proper legislation governing fee disclosure. The Special Committee on Aging has presented the Defined Contribution Fee Disclosure Act 2009. This act would compel plan sponsors of defined contribution plans, to disclose the entire plan fees to the participants.
This legislation should make it easier for plan sponsors to negotiate fees with their participants. Participants on the other hand would be in a better position since they will know exactly what the cost of their plan is.
Of the entire proposed legislation package, the only part that did not come to the final stage was the changes to Section C of the Form 5500. If a plan has at least 100 participants, the plan needs to report implicit returns. The thing is that plan sponsors are having a hard time getting this information, in the case that his service provider did not provide it. This is still a bit of a gray area, where lot of time is used up in filling in this form, without any significant end result.
As for the advisors, it is believed that these new regulations that will stiffen the environment may encourage a trend in the industry. This trend assumes that with tightened regulations retirement plan advisors will shift to being fee-based.
Reference: http://www.planadviser.com/magazine/article.php/4242
Why the 403b market is different from the 401k
The 403b plans are regulated by a set of rules, which were composed in such a way that they reinvent all the plans that attract defined contributions. These plans are given by entities which are tax-exempt as are higher education institutions, school systems and other non-profit organizations.
The growing 403b plan market represents a very good business opportunity for financial advisors. It would however be a mistake for an advisor to assume that he may simple redirect from a 401k advice practice to a 403b tax-exempt field.
The K-12 sector and the higher education market do share many similarities; however there are also many and noteworthy differences to take into account. One significant difference between the two is that some higher education institution plans which offer contributions by the employer are governed by another legislation which is the ERISA, or the Employee Retirement Income Security Act. In fact it seems that plan sponsors sometimes set up a 401k plan, in order to keep their 403b plan, from being regulated by the ERISA.
This means that at the end of the day, the advisors who would like to enter the 403b plan market, will probably be working with plan that are governed by the ERISA, as well as with plans that are not. Advisors may also choose between the two which option, best suits their expectations.
Another major difference between K-12 plans and higher education plans is the presence of a union. In the higher education segment, there is a high degree of bureaucracy, since there are deans and heads of department to deal with. These people however will not have enough authority to effect changes, as well unions in the K market.
Reference: http://www.planadviser.com/magazine/article.php/4248
The growing 403b plan market represents a very good business opportunity for financial advisors. It would however be a mistake for an advisor to assume that he may simple redirect from a 401k advice practice to a 403b tax-exempt field.
The K-12 sector and the higher education market do share many similarities; however there are also many and noteworthy differences to take into account. One significant difference between the two is that some higher education institution plans which offer contributions by the employer are governed by another legislation which is the ERISA, or the Employee Retirement Income Security Act. In fact it seems that plan sponsors sometimes set up a 401k plan, in order to keep their 403b plan, from being regulated by the ERISA.
This means that at the end of the day, the advisors who would like to enter the 403b plan market, will probably be working with plan that are governed by the ERISA, as well as with plans that are not. Advisors may also choose between the two which option, best suits their expectations.
Another major difference between K-12 plans and higher education plans is the presence of a union. In the higher education segment, there is a high degree of bureaucracy, since there are deans and heads of department to deal with. These people however will not have enough authority to effect changes, as well unions in the K market.
Reference: http://www.planadviser.com/magazine/article.php/4248
Sunday, May 24, 2009
Plan rollovers and what plan sponsors look for
With the present financial situation, plan rollovers have become a very important factor for advisors who realize that the rollover sector is a way of boosting their firm’s asset base. Potentially there are good sums of money in the pipeline, with lots of financially fit clients seeking help and advice, since they are planning on leaving the plan that is offered by their employer.
The truth is that big money is being moved to IRAs from various qualified plans, and even bigger monies are expected in the future. Plan sponsors are however apprehensive about the fact that not everyone is getting a qualified advisor. Advisors are cherry picking the high net worth clients, and leaving the rest of the participants floating on their own.
In reality according to industry experts, plan sponsors who are thinking of going for a rollover solution, are looking for advisors that can give them three important things: first that the advisors will offer the same service to all the participants, notwithstanding their financial worth; that they offer a service model that quickly and efficiently deals with the assets not on the market; an open market place for the IRA providers, in such a way that no particular IRA providers are recommended.
With some careful decision making, and good cooperation between the plan sponsor and the advisor, the rollover can act as the missing link between individual wealth management, and advisory services.
Advisors are also provided with electronic systems and programs to help them with the record keeping process, to help them handle rollovers more efficiently and effectively.
Reference: http://www.planadviser.com/magazine/article.php/4249
The truth is that big money is being moved to IRAs from various qualified plans, and even bigger monies are expected in the future. Plan sponsors are however apprehensive about the fact that not everyone is getting a qualified advisor. Advisors are cherry picking the high net worth clients, and leaving the rest of the participants floating on their own.
In reality according to industry experts, plan sponsors who are thinking of going for a rollover solution, are looking for advisors that can give them three important things: first that the advisors will offer the same service to all the participants, notwithstanding their financial worth; that they offer a service model that quickly and efficiently deals with the assets not on the market; an open market place for the IRA providers, in such a way that no particular IRA providers are recommended.
With some careful decision making, and good cooperation between the plan sponsor and the advisor, the rollover can act as the missing link between individual wealth management, and advisory services.
Advisors are also provided with electronic systems and programs to help them with the record keeping process, to help them handle rollovers more efficiently and effectively.
Reference: http://www.planadviser.com/magazine/article.php/4249
Satisfied with your advisor?
When an advisor meets up with potential clients, the first thing they normally say is that they are doing well with their present advisor and they don’t wish to change. This is until however, the new advisor discusses with these individuals, what service they should expect from their advisor.
The point is that lots of people do not know what services their advisor should provide for them. Trying to compare the service of one advisor to another is not an easy task, and currently there is no benchmark in this sector against which to compare.
There are however five indications that can be used, to gauge the level of satisfaction you are getting from the relationship with your advisor.
1. First you should determine whether the advisor you are dealing with, has set any service goals, against which, his client may assess his service. Some advisors meet up regularly with their sponsors, and discuss with them the goals to be set for the coming financial year. The advisor will then set up a calendar which contains deadlines related to compliance as well as things that he will deliver.
2. Assess whether the sponsor is satisfied, with the fiduciary protection, which the advisor is providing him. The advisor should be able to identify a cautious process for decision making, for his plan sponsors, and he should be able to collect information needed and then assis his clients in making an informed decision.
3. You should assess whether the advisor has had any positive impact on the rate of employee participation and average deferrals.
4. A plan sponsor should be given all the fee-related information from the advisor. The advisor should therefore discuss all the fees with the sponsor, in an open line of communication.
5. Some sponsors are so happy with their advisors that they are willing to serve as a reference, to new and potential clients. References coming from previous clients who are satisfied with the service serve as a good gauge for the advisor.
Reference: http://www.planadviser.com/magazine/article.php/4250
The point is that lots of people do not know what services their advisor should provide for them. Trying to compare the service of one advisor to another is not an easy task, and currently there is no benchmark in this sector against which to compare.
There are however five indications that can be used, to gauge the level of satisfaction you are getting from the relationship with your advisor.
1. First you should determine whether the advisor you are dealing with, has set any service goals, against which, his client may assess his service. Some advisors meet up regularly with their sponsors, and discuss with them the goals to be set for the coming financial year. The advisor will then set up a calendar which contains deadlines related to compliance as well as things that he will deliver.
2. Assess whether the sponsor is satisfied, with the fiduciary protection, which the advisor is providing him. The advisor should be able to identify a cautious process for decision making, for his plan sponsors, and he should be able to collect information needed and then assis his clients in making an informed decision.
3. You should assess whether the advisor has had any positive impact on the rate of employee participation and average deferrals.
4. A plan sponsor should be given all the fee-related information from the advisor. The advisor should therefore discuss all the fees with the sponsor, in an open line of communication.
5. Some sponsors are so happy with their advisors that they are willing to serve as a reference, to new and potential clients. References coming from previous clients who are satisfied with the service serve as a good gauge for the advisor.
Reference: http://www.planadviser.com/magazine/article.php/4250
Saturday, May 23, 2009
CPA Retirement Plan options
An employer can offer you many benefits however the best one of all would be a retirement plan. This is a tool that employers use to attract as well as keep, employees who are highly qualified.
A CPA is able to offer a large number of retirement plans, whose specifications and features suit the needs of both individuals, as well as businesses.
CPAs offer three types of retirement plan, being the individual retirement plan – or IRA, the Corporate Retirement Plan as well as Retirement plans for the self employed.
Corporate retirement plans can be further classified into three categories:
• A simple IRA – which is like a retirement account for an individual. These are available in various types such as are the Simple IRAs, the traditional IRA, SEP IRA as well as the Roth IRA. Employers normally establish the simple IRA, while contributions made individually by participants go to a Simple or SEP IRA.
• A Simplified Employee Pension is a retirement plan which can be set up by both employers as well as self-employed persons.
• A Qualified Plan on the other hand, is set up by an employer, to provide retirement benefits for his employees and his beneficiaries.
• Finally a 401k plan is a plan that can take contributions by both the employee as well as the employer. This is applicable only for an individual who is a sole owner of a business, and his spouse.
When it comes to Individual retirement accounts, we find the traditional and the Roth IRA. The Roth IRA is the better option for the younger individual, or for someone who things that after retirement, he will be in a higher income tax bracket.
A Self-employed Retirement Plan follows the same rules as the corporate one. The major difference is that self employed persons or those who have a partnership, pay their tax on the 1040 as opposed to the Schedule C.
Reference: http://www.theking-ofcontent.com/351/cpa-retirement-plans-2/
A CPA is able to offer a large number of retirement plans, whose specifications and features suit the needs of both individuals, as well as businesses.
CPAs offer three types of retirement plan, being the individual retirement plan – or IRA, the Corporate Retirement Plan as well as Retirement plans for the self employed.
Corporate retirement plans can be further classified into three categories:
• A simple IRA – which is like a retirement account for an individual. These are available in various types such as are the Simple IRAs, the traditional IRA, SEP IRA as well as the Roth IRA. Employers normally establish the simple IRA, while contributions made individually by participants go to a Simple or SEP IRA.
• A Simplified Employee Pension is a retirement plan which can be set up by both employers as well as self-employed persons.
• A Qualified Plan on the other hand, is set up by an employer, to provide retirement benefits for his employees and his beneficiaries.
• Finally a 401k plan is a plan that can take contributions by both the employee as well as the employer. This is applicable only for an individual who is a sole owner of a business, and his spouse.
When it comes to Individual retirement accounts, we find the traditional and the Roth IRA. The Roth IRA is the better option for the younger individual, or for someone who things that after retirement, he will be in a higher income tax bracket.
A Self-employed Retirement Plan follows the same rules as the corporate one. The major difference is that self employed persons or those who have a partnership, pay their tax on the 1040 as opposed to the Schedule C.
Reference: http://www.theking-ofcontent.com/351/cpa-retirement-plans-2/
Thursday, May 21, 2009
401k Plan or IRA?
Saving for your retirement is not an option, it’s a necessity. When it comes to the where to save for your retirement, here you have the option.
Lots of people are facing an issue when it comes to choosing between an IRA and a 401k plan. So here is some information to help you solve this puzzle for the best. As far as tax is concerned, both a company provided 401k plan as well as a traditional IRA take the contributions before tax is charged to your salary, thus lowering the balance on which tax is charged.
The 401k plan does have an advantage however. In some companies the employer will match his employees’ contribution which would mean doubling your savings money. Other companies will offer you a percentage of your pay, and this is always something that you should take advantage of, because it is free money!
IRAs come in 2 types. The traditional IRA is the one we have mentioned above, where the contribution is tax deductible. The Roth IRA however, will invest your money post-tax. In this case however, on distribution upon retirement age, no tax is paid, and this is this plan’s major advantage.
So in short, the main 401k plan advantage is the match from the employer and the Tax advantage now, while the disadvantage would be related to the limited investment options that are available for your funds.
In an IRA, you will be responsible for all the investment choices and you will have to decided how much to invest, when and where. This makes this choice very flexible. The other advantage would be that you are able to control your tax liability by diversifying your savings into a Roth IRA and saving on future tax, or else going for a traditional IRA to lower your current tax liability.
Before making your decision, always assess your needs, as well as the risk you would like to take on your funds. Whatever choice you make, is always better than not saving at all.
Reference: http://cashmoneylife.com/2008/02/14/invest-401k-traditional-roth-ira/
Lots of people are facing an issue when it comes to choosing between an IRA and a 401k plan. So here is some information to help you solve this puzzle for the best. As far as tax is concerned, both a company provided 401k plan as well as a traditional IRA take the contributions before tax is charged to your salary, thus lowering the balance on which tax is charged.
The 401k plan does have an advantage however. In some companies the employer will match his employees’ contribution which would mean doubling your savings money. Other companies will offer you a percentage of your pay, and this is always something that you should take advantage of, because it is free money!
IRAs come in 2 types. The traditional IRA is the one we have mentioned above, where the contribution is tax deductible. The Roth IRA however, will invest your money post-tax. In this case however, on distribution upon retirement age, no tax is paid, and this is this plan’s major advantage.
So in short, the main 401k plan advantage is the match from the employer and the Tax advantage now, while the disadvantage would be related to the limited investment options that are available for your funds.
In an IRA, you will be responsible for all the investment choices and you will have to decided how much to invest, when and where. This makes this choice very flexible. The other advantage would be that you are able to control your tax liability by diversifying your savings into a Roth IRA and saving on future tax, or else going for a traditional IRA to lower your current tax liability.
Before making your decision, always assess your needs, as well as the risk you would like to take on your funds. Whatever choice you make, is always better than not saving at all.
Reference: http://cashmoneylife.com/2008/02/14/invest-401k-traditional-roth-ira/
Wednesday, May 20, 2009
Cashing Out The 401k Plan
If you are thinking of cashing out the funds that you saved in your 401k plan, then I suggest you think again. You might be going through financial difficulties right now, but in reality, if you cash your plan, it is going to cost you money both now, as well as in the future.
If you are in between jobs, or just waiting around for the next job to come by, then here are your options:
• Keep the funds in your old 401k plan
• Roll the plan over into the 401k plan, which your new employer offers.
• Roll it over into an IRA
• And finally you may cash your 401k plan, and suffer the penalties.
The best thing you could do before making your decision is consult your financial advisor or accountant. Cashing out your 401k plan, should be seen as the last resort in many cases.
Keep in mind that cashing out will cost you more, than using your credit cards to manage until the end of the month. Just to get an idea, if you decide to withdraw your 401k funds, you will have to firstly pay a hefty 10 percent penalty charge, which there is no way of getting around. You will also have to pay a tax percentage which runs around the 30 to 40 percent.
You should also consider that if you withdraw your saved funds, you will have to start from scratch, saving for your retirement age. If you’re in your forties or late thirties, then you might never accumulate again the required amount to see you through your retirement appropriately.
So at the end of the day, don’t just consider the charges and penalties, but also consider the effects that this withdrawal will have on your future.
Reference: http://hubpages.com/hub/Cash-Out-401k
If you are in between jobs, or just waiting around for the next job to come by, then here are your options:
• Keep the funds in your old 401k plan
• Roll the plan over into the 401k plan, which your new employer offers.
• Roll it over into an IRA
• And finally you may cash your 401k plan, and suffer the penalties.
The best thing you could do before making your decision is consult your financial advisor or accountant. Cashing out your 401k plan, should be seen as the last resort in many cases.
Keep in mind that cashing out will cost you more, than using your credit cards to manage until the end of the month. Just to get an idea, if you decide to withdraw your 401k funds, you will have to firstly pay a hefty 10 percent penalty charge, which there is no way of getting around. You will also have to pay a tax percentage which runs around the 30 to 40 percent.
You should also consider that if you withdraw your saved funds, you will have to start from scratch, saving for your retirement age. If you’re in your forties or late thirties, then you might never accumulate again the required amount to see you through your retirement appropriately.
So at the end of the day, don’t just consider the charges and penalties, but also consider the effects that this withdrawal will have on your future.
Reference: http://hubpages.com/hub/Cash-Out-401k
Monday, May 18, 2009
Where to Rollover Your 401k Plan
If you are one of the unlucky ones who has lost your previous job or maybe changed employer, then you will have the sum of money that you were saving in your 401k plan at your disposal, and the best option for you to choose is a rollover.
This way you will be transferring your old 401k plan into a new retirement account, without paying taxes or penalties that go with withdrawals. The rollover may be into one of three accounts:
1. If your new employer offers it, then you may rollover to another 401k plan. The advantage of this option is that even though your saved balance is still low, you will still be able to invest the funds in options that might give you a better return in the long term. The disadvantages of this option are that you will loose flexibility, since your employer will make the investment choices and not you. In addition you may be subject to high fees.
2. The second option is a Brokerage IRA, which will provide you with lots of flexibility. In this account you will be able to choose from lots of investment options. You will also be able to purchase stocks and bonds individually as you desire. The disadvantage of this option is the cost, since every time you trade, you will have to pay a fee, which you wouldn’t pay in the 401k plan.
3. The final choice is a Mutual Fund IRA such as the one offered by Fidelity. This is definitely the cheapest way to invest in the options that these companies offer, and the other advantage is that if you meet some requirements, you won’t even pay an account fee! The disadvantage in this case is that you will be tied to the investment choices offered by this particular company. You will also be tied with the minimum investment amounts, which vary from one option to another, and you may end up buying in one fund, while saving to invest in another.
Reference: http://genxfinance.com/2009/01/15/how-to-roll-over-your-401k-when-you-leave-or-lose-your-job-the-401k-rollover/
This way you will be transferring your old 401k plan into a new retirement account, without paying taxes or penalties that go with withdrawals. The rollover may be into one of three accounts:
1. If your new employer offers it, then you may rollover to another 401k plan. The advantage of this option is that even though your saved balance is still low, you will still be able to invest the funds in options that might give you a better return in the long term. The disadvantages of this option are that you will loose flexibility, since your employer will make the investment choices and not you. In addition you may be subject to high fees.
2. The second option is a Brokerage IRA, which will provide you with lots of flexibility. In this account you will be able to choose from lots of investment options. You will also be able to purchase stocks and bonds individually as you desire. The disadvantage of this option is the cost, since every time you trade, you will have to pay a fee, which you wouldn’t pay in the 401k plan.
3. The final choice is a Mutual Fund IRA such as the one offered by Fidelity. This is definitely the cheapest way to invest in the options that these companies offer, and the other advantage is that if you meet some requirements, you won’t even pay an account fee! The disadvantage in this case is that you will be tied to the investment choices offered by this particular company. You will also be tied with the minimum investment amounts, which vary from one option to another, and you may end up buying in one fund, while saving to invest in another.
Reference: http://genxfinance.com/2009/01/15/how-to-roll-over-your-401k-when-you-leave-or-lose-your-job-the-401k-rollover/
Sunday, May 17, 2009
Old 401k retirement plans
We all know by now that a 401k plan is a retirement account that we have with our employer, in which we save monthly payments or contributions from our salary.
Now at the moment, there are no limits imposed by law, as to the number of 401k plans that each employee can have at a given time. This means that you can have more than one account open, however you cannot contribute in all of your accounts. In fact, you can only contribute funds into one account, which is the one you have with your current employer.
Having more than one 401k plan accounts open, may not be the best thing to do. In fact you should try and consolidate all your old 401k plans, into the one you currently have. The same goes for an IRA. This way it will be much easier for you to watch your investments, and maintain control over your accounts.
If you are not sure whether you have an account opened with a previous employer, then you should follow the following steps in order to locate this:
• First start by contacting your old employers, and ask them to look at plan records, to check whether you had participated in their 401k plan. Prepare all the information they will ask you for such as social security number and date of employment.
• If you are not able to locate an old employer, then try and find an old 401k plan statement, and see whether this has any contact address for the administrating firm.
• The US government requires that a Form 5500 is filled and filed annually. You can therefore look for your employer’s name amongst these forms, on a free website.
Reference: http://www.401khelpcenter.com/faq/faq_39.html
Now at the moment, there are no limits imposed by law, as to the number of 401k plans that each employee can have at a given time. This means that you can have more than one account open, however you cannot contribute in all of your accounts. In fact, you can only contribute funds into one account, which is the one you have with your current employer.
Having more than one 401k plan accounts open, may not be the best thing to do. In fact you should try and consolidate all your old 401k plans, into the one you currently have. The same goes for an IRA. This way it will be much easier for you to watch your investments, and maintain control over your accounts.
If you are not sure whether you have an account opened with a previous employer, then you should follow the following steps in order to locate this:
• First start by contacting your old employers, and ask them to look at plan records, to check whether you had participated in their 401k plan. Prepare all the information they will ask you for such as social security number and date of employment.
• If you are not able to locate an old employer, then try and find an old 401k plan statement, and see whether this has any contact address for the administrating firm.
• The US government requires that a Form 5500 is filled and filed annually. You can therefore look for your employer’s name amongst these forms, on a free website.
Reference: http://www.401khelpcenter.com/faq/faq_39.html
Friday, May 15, 2009
Maximum 401k plan contributions and how soon they should be credited
The 401k plan is an account in which you can save monthly contributions, which will eventually accumulate into a lump sum, that you can make use of when you retire. The amount of money that you save will be then invested in various funds, to make the best possible growth.
The amount of money that you contribute in your 401k plan is not the same for everyone, and there is a maximum amount. The maximum amount of money that you can save, or defer, actually changes every year. In 2005 for example, the limit was $14,000. In 2006 it went up to $15,000, and from that year on it will increase by $500 yearly.
When it comes to how quickly your contributions, have to be allocated to your 401k plan by your employer, there are various government regulations. These regulations basically say that the contributions made by employees into their 401k plans, should be made at the earliest day possible. These also state that in no event, should these monthly payments be credited into the 401k plans, after the 15th day of the month, following which the contribution has been paid by the employee.
This means that for no reason should the payments be allocated after the 15th. The employer cannot however, wait until the 15th day of the month, to allocate the payments. If there is a possibility that the funds go in after only two days, then the employers should do the transfers immediately. This rule is here to protect participants and not for employers to abuse, and leave the surplus funds to be shown in their books.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
The amount of money that you contribute in your 401k plan is not the same for everyone, and there is a maximum amount. The maximum amount of money that you can save, or defer, actually changes every year. In 2005 for example, the limit was $14,000. In 2006 it went up to $15,000, and from that year on it will increase by $500 yearly.
When it comes to how quickly your contributions, have to be allocated to your 401k plan by your employer, there are various government regulations. These regulations basically say that the contributions made by employees into their 401k plans, should be made at the earliest day possible. These also state that in no event, should these monthly payments be credited into the 401k plans, after the 15th day of the month, following which the contribution has been paid by the employee.
This means that for no reason should the payments be allocated after the 15th. The employer cannot however, wait until the 15th day of the month, to allocate the payments. If there is a possibility that the funds go in after only two days, then the employers should do the transfers immediately. This rule is here to protect participants and not for employers to abuse, and leave the surplus funds to be shown in their books.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
Thursday, May 14, 2009
401k plan withdrawals, charges and exceptions
The current economic turmoil that we are going through at the moment has resulted in lots of people changing employers. This in turn has aroused various questions that relate to 401k plans, and the effects that a change in employer will cause. So here are a few guidelines to help out.
If you have a 401k plan with your previous employer and you need to get cash money out of it, all you need to do is to contact your former employer, and ask him to send you the required forms to be filled in. As an ex-employee, you can ask any time, to have your 401k funds cashed out.
What you should consider is whether this is the right option or not. Unless you are over 59 and half years of age, then you will be subject to a 10% penalty over the amount of money that you withdraw. Apart from this, your ex-employer will also retain an amount of money from the lump sum you need - that amounts to 20%, and send it as a down payment on income tax to our friends at the IRA.
If you are thinking whether there is a way around the penalty charges, the reality is that there isn’t. This penalty was set in place exactly for this reason which is, in order to put off people from spending their retirement money before they reach retirement age.
There are however some exceptions. If you are 55 years of age or over, and you are retiring early from the company who is sponsoring your 401k plan, then you are able to take monthly payments from your savings with no penalty. You will however pay income tax on the monthly payments.
The other exception is substantially equal periodic payment, which allows you to withdraw a given amount of money regularly from the 401k plan, for five years or until you reach 59 and half years.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
If you have a 401k plan with your previous employer and you need to get cash money out of it, all you need to do is to contact your former employer, and ask him to send you the required forms to be filled in. As an ex-employee, you can ask any time, to have your 401k funds cashed out.
What you should consider is whether this is the right option or not. Unless you are over 59 and half years of age, then you will be subject to a 10% penalty over the amount of money that you withdraw. Apart from this, your ex-employer will also retain an amount of money from the lump sum you need - that amounts to 20%, and send it as a down payment on income tax to our friends at the IRA.
If you are thinking whether there is a way around the penalty charges, the reality is that there isn’t. This penalty was set in place exactly for this reason which is, in order to put off people from spending their retirement money before they reach retirement age.
There are however some exceptions. If you are 55 years of age or over, and you are retiring early from the company who is sponsoring your 401k plan, then you are able to take monthly payments from your savings with no penalty. You will however pay income tax on the monthly payments.
The other exception is substantially equal periodic payment, which allows you to withdraw a given amount of money regularly from the 401k plan, for five years or until you reach 59 and half years.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
Tuesday, May 12, 2009
Tax and your 401k Loans
It is a common misconception that when you start saving money in a 401k plan, you will be paying income tax twice.
This is in fact sometimes claimed to be one of the reasons why, individuals should not opt for a 401k plan, as the vehicle that will help them save money for their retirement. The claims suggest that when saving in this plan, you will be paying tax first when making loan payments into the plan, and secondly when you come to take the money out, that is when you retire.
This is not true. A loan from your 401k plan, will not incur taxes, more than any other type of loan that you may possibly take from a financial institution. If you do take a loan from your 401k plan, then you will be paying it off from income, which is after-tax. Furthermore, contributions that you make into your 401k plan, as well as all the earnings to gather throughout the years, will only be taxed once; that is when the money is withdrawn, or distributed.
In short this means that withdrawing funds from your 401k plan or from any other source will not cost you more in tax money.
In economics we have a cost which we call the opportunity cost; which is the next best opportunity which you do not choose. In this case the opportunity cost would denote the money or earning that you would have made, if you would have left the saved money in the plan, and taken a loan from another source.
Reference: http://www.401khelpcenter.com/faq/faq_29.html
This is in fact sometimes claimed to be one of the reasons why, individuals should not opt for a 401k plan, as the vehicle that will help them save money for their retirement. The claims suggest that when saving in this plan, you will be paying tax first when making loan payments into the plan, and secondly when you come to take the money out, that is when you retire.
This is not true. A loan from your 401k plan, will not incur taxes, more than any other type of loan that you may possibly take from a financial institution. If you do take a loan from your 401k plan, then you will be paying it off from income, which is after-tax. Furthermore, contributions that you make into your 401k plan, as well as all the earnings to gather throughout the years, will only be taxed once; that is when the money is withdrawn, or distributed.
In short this means that withdrawing funds from your 401k plan or from any other source will not cost you more in tax money.
In economics we have a cost which we call the opportunity cost; which is the next best opportunity which you do not choose. In this case the opportunity cost would denote the money or earning that you would have made, if you would have left the saved money in the plan, and taken a loan from another source.
Reference: http://www.401khelpcenter.com/faq/faq_29.html
Rollovers and Transfers from 401k plans
If you are one of the many employees who has been hit by the economic recession then this does not mean the end of your 401k plan.
If you have changed employer recently, and your new employer offers you a 401k plan, then you can make a transfer, without incurring any penalties. The first thing that you need to do is ask your new employer whether the 401k plan he offers, can take rollovers from other plans.
If his answer is yes, then what you need to do is ask for instructions relating to where the funds from the old 401k plan can be sent. Next you should have a word with your old employer, and ask for a form which is necessary to complete the transfer from one account to another. It is good to know that the transfer will be completed without your incurring and charges or penalties.
If you are changing employer, you may decide to keep the old 401k plan and open a new one with your new employer. The only restriction is that the amount that you keep in the old plan, should not be less than $5000. If the balance is less than that, then the plan sponsor may give you the option to transfer your saved balance into either an IRA, or the 401k plan that you will open with your new employer.
If you are not changing employer, but maybe your employer decided to trade the 401k plan he used to offer for a new one, which you don’t like you will end up a bit stuck. This is because 401k plans only allow you to make rollovers, unless you have terminated your employment.
If therefore your employer decides to switch plan, you will have to rollover the lump sum of money you have saved in the old one, into the new version.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
If you have changed employer recently, and your new employer offers you a 401k plan, then you can make a transfer, without incurring any penalties. The first thing that you need to do is ask your new employer whether the 401k plan he offers, can take rollovers from other plans.
If his answer is yes, then what you need to do is ask for instructions relating to where the funds from the old 401k plan can be sent. Next you should have a word with your old employer, and ask for a form which is necessary to complete the transfer from one account to another. It is good to know that the transfer will be completed without your incurring and charges or penalties.
If you are changing employer, you may decide to keep the old 401k plan and open a new one with your new employer. The only restriction is that the amount that you keep in the old plan, should not be less than $5000. If the balance is less than that, then the plan sponsor may give you the option to transfer your saved balance into either an IRA, or the 401k plan that you will open with your new employer.
If you are not changing employer, but maybe your employer decided to trade the 401k plan he used to offer for a new one, which you don’t like you will end up a bit stuck. This is because 401k plans only allow you to make rollovers, unless you have terminated your employment.
If therefore your employer decides to switch plan, you will have to rollover the lump sum of money you have saved in the old one, into the new version.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
Sunday, May 10, 2009
Hardship Withdrawals From Your 401k Plan
Hardship withdrawals represent amounts that can be withdrawn from your 401k plan, much like a loan. Even though this withdrawal is allowed by the law, it does not mean that your employer will allow such a withdrawal from the 401k plan that he provides. Some companies do, while others simply don’t. The first thing you have to do therefore is check with your company’s Human Resources Department whether such a withdrawal is allowed.
According to the regulations provided by the IRS with regards to 401k plans, hardship withdrawals may be allowed only in certain circumstances as follows:
• You need to withdraw, due to a serious and pressing financial need
• You do not have other means by which to meet this need
• The amount taken should not exceed, the amount that you need
• You have already taken all the non taxable loans that the 401k plan offers
• You have no means by which to contribute more funds into the 401k plan, for the six months after your withdrawal.
The IRS considers the following reasons as acceptable, for a contributor to make a hardship withdrawal:
• For the reimbursement on medically related expenses
• For the employee to purchase his main residence
• To pay for education expenses such as tuition or room cost and board, for the next 12 months.
• To make payments that will prevent you from being evicted from your home, or to prevent your property from being foreclosed
• To cover any funeral expenses, as well as to repair the main residence.
These withdrawals are always subject to income tax, as well as a penalty. Only contributors who are over 59 and a half years or age, are exempt from the 10% penalty. The amount of money that you withdraw does not have to be paid back into the account.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
According to the regulations provided by the IRS with regards to 401k plans, hardship withdrawals may be allowed only in certain circumstances as follows:
• You need to withdraw, due to a serious and pressing financial need
• You do not have other means by which to meet this need
• The amount taken should not exceed, the amount that you need
• You have already taken all the non taxable loans that the 401k plan offers
• You have no means by which to contribute more funds into the 401k plan, for the six months after your withdrawal.
The IRS considers the following reasons as acceptable, for a contributor to make a hardship withdrawal:
• For the reimbursement on medically related expenses
• For the employee to purchase his main residence
• To pay for education expenses such as tuition or room cost and board, for the next 12 months.
• To make payments that will prevent you from being evicted from your home, or to prevent your property from being foreclosed
• To cover any funeral expenses, as well as to repair the main residence.
These withdrawals are always subject to income tax, as well as a penalty. Only contributors who are over 59 and a half years or age, are exempt from the 10% penalty. The amount of money that you withdraw does not have to be paid back into the account.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
Facts about the 401k plans
A 401k plan may be defined as an investment account, into which you can save a monthly contribution out of your salary. This contribution can be then matched, or we might say doubled, by your employer.
It is good to note that the money saved in a 401k plan is not liable to income tax. The money that you will be saving monthly will be spread in various investments of your choice, in order to give you a return, which is greater than that, which a normal savings account can give you.
There are however different plans on the market, and you have to make sure you get a good deal. You should be looking for features such as:
• daily valuation of the assets
• employer’s match
• minimal fees
• ease of getting a valuation
• a good number of investment options available
• the availability of loan withdrawals.
Also make sure that the provider does not put a maximum amount of contributions that can be made into the account, and make sure that you will be given all the necessary information such as prospectus, newsletters and other informative means that will help you understand better your plan’s performance.
In the unfortunate event that you loose your job, all is not lost. You will have the option of transferring your savings into another account, such as is the IRA. Your previous employer should be able to supply you with all the necessary forms. The best way of doing this is to open the IRA account, before you close your 401k plan, since you will be able to fill in all the account details, on the provided forms.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
It is good to note that the money saved in a 401k plan is not liable to income tax. The money that you will be saving monthly will be spread in various investments of your choice, in order to give you a return, which is greater than that, which a normal savings account can give you.
There are however different plans on the market, and you have to make sure you get a good deal. You should be looking for features such as:
• daily valuation of the assets
• employer’s match
• minimal fees
• ease of getting a valuation
• a good number of investment options available
• the availability of loan withdrawals.
Also make sure that the provider does not put a maximum amount of contributions that can be made into the account, and make sure that you will be given all the necessary information such as prospectus, newsletters and other informative means that will help you understand better your plan’s performance.
In the unfortunate event that you loose your job, all is not lost. You will have the option of transferring your savings into another account, such as is the IRA. Your previous employer should be able to supply you with all the necessary forms. The best way of doing this is to open the IRA account, before you close your 401k plan, since you will be able to fill in all the account details, on the provided forms.
Reference: http://www.401khelpcenter.com/faq/faq_main.html
Friday, May 8, 2009
401k plans by Fidelity Investments
The 401k plan offered by Fidelity Investments is a type of investment account, which offers its owners a tax free environment in which they can deposit their savings.
The employer will then match a certain amount of money, to the amount deposited by the employee. An employee has the option of depositing up to 15 thousand dollars yearly, and a maximum of 20 thousand dollars yearly, in case the individual is over 50 years of age. All contributions made into this plan, can be deducted from your income tax.
401k Fidelity investment accounts are normally offered by larger companies, which will be able to get a better deal with a broker. The investment options will however be somewhat restricted. Other investment plans, such as regular brokerage accounts or IRAs do not normally have this problem.
In the event that you are offered the opportunity of contributing into a 401k plan by Fidelity Investments, then you should invest as much money as you can afford, as frequently as possible, and as early as you can manage. Don’t forget that the more money you save in this plan, the greater will be your employer’s match. This is the fastest and easiest way for you to double your investment!
You should also remember that Fidelity 401k plans are tax-free, which is the reason why some investment options may be better than others. Real estate indexes for example, can be one of the best choices for young people, since this index will generate a good amount of gain. Bonds on the other hand might be a better option for the last years of a 401k plan.
Reference: http://www.job-employment-guide.com/fidelity-investments-401k.html
The employer will then match a certain amount of money, to the amount deposited by the employee. An employee has the option of depositing up to 15 thousand dollars yearly, and a maximum of 20 thousand dollars yearly, in case the individual is over 50 years of age. All contributions made into this plan, can be deducted from your income tax.
401k Fidelity investment accounts are normally offered by larger companies, which will be able to get a better deal with a broker. The investment options will however be somewhat restricted. Other investment plans, such as regular brokerage accounts or IRAs do not normally have this problem.
In the event that you are offered the opportunity of contributing into a 401k plan by Fidelity Investments, then you should invest as much money as you can afford, as frequently as possible, and as early as you can manage. Don’t forget that the more money you save in this plan, the greater will be your employer’s match. This is the fastest and easiest way for you to double your investment!
You should also remember that Fidelity 401k plans are tax-free, which is the reason why some investment options may be better than others. Real estate indexes for example, can be one of the best choices for young people, since this index will generate a good amount of gain. Bonds on the other hand might be a better option for the last years of a 401k plan.
Reference: http://www.job-employment-guide.com/fidelity-investments-401k.html
Thursday, May 7, 2009
The 401k recession as portrayed by 60 minutes
60 minutes a popular CBS show has come up with a portrayal on 401k plans that can be defined as a bit shallow.
60 minutes portrayed a picture that shows that because of the recession people have been loosing their jobs, their retirements saving portfolios have been destroyed, and so their dreams of a relaxed retirement have to be deferred. This is sadly all true however there are ways and means of projecting this.
Steve Kroft was interviewing job seekers at a job fair, and curiously enough they happened to have their 401k plan statements with them! The whole 13 minute section did come out with some interesting points: First, people investing in 401k plans have lost money and second, there are hidden fees in the 401k plan. The 401k plan segment still did come out with some interesting learning points.
As we said people have lost money. This is not only true for 401k plans however, it is true for all the other investments. People who have lost their jobs, as well as small business owners have suffered. So it does not make sense claiming that only the 401k plans are letting down their investors.
We have also mentioned the fees issue. It is true that hidden fees are a problem within retirement plans, but 60 minutes have decided to just stop at listing them, instead of putting them in a constructive context.
The old style pensions’ popularity has been constantly declining, however these plans were better suited for the average American, since the worker would get a good idea about what money they will be getting. Employers however were eager to get them out of the way, thus reducing their costs as well as business risk.
The solution to this problem is consumer education and luckily more effort is being made to inform contributors about how their retirement plan works. If you have a 401k plan or a 403b plan, from a previous employer, then you can very easily transfer these funds without paying tax, into an IRA account. You will therefore have more control, and more choice. It is important however to consult a financial planner to assist you in choosing the right plan for you.
Reference: http://www.keyfeeonly.com/2009/04/23/60-minutes-the-401k-recession/
60 minutes portrayed a picture that shows that because of the recession people have been loosing their jobs, their retirements saving portfolios have been destroyed, and so their dreams of a relaxed retirement have to be deferred. This is sadly all true however there are ways and means of projecting this.
Steve Kroft was interviewing job seekers at a job fair, and curiously enough they happened to have their 401k plan statements with them! The whole 13 minute section did come out with some interesting points: First, people investing in 401k plans have lost money and second, there are hidden fees in the 401k plan. The 401k plan segment still did come out with some interesting learning points.
As we said people have lost money. This is not only true for 401k plans however, it is true for all the other investments. People who have lost their jobs, as well as small business owners have suffered. So it does not make sense claiming that only the 401k plans are letting down their investors.
We have also mentioned the fees issue. It is true that hidden fees are a problem within retirement plans, but 60 minutes have decided to just stop at listing them, instead of putting them in a constructive context.
The old style pensions’ popularity has been constantly declining, however these plans were better suited for the average American, since the worker would get a good idea about what money they will be getting. Employers however were eager to get them out of the way, thus reducing their costs as well as business risk.
The solution to this problem is consumer education and luckily more effort is being made to inform contributors about how their retirement plan works. If you have a 401k plan or a 403b plan, from a previous employer, then you can very easily transfer these funds without paying tax, into an IRA account. You will therefore have more control, and more choice. It is important however to consult a financial planner to assist you in choosing the right plan for you.
Reference: http://www.keyfeeonly.com/2009/04/23/60-minutes-the-401k-recession/
Tuesday, May 5, 2009
Retirement Planning or Guess Work?
Planning for your retirement is a very important matter that should be handled with extreme caution. Your retirement plan will determine the standard of living that you will be enjoying, when you retire.
Unfortunately it seems that most people don’t realize the importance of retirement planning, and instead of asking a qualified financial planner, to determine how much money they will need to save to retire, they just guess.
Yes you heard right; as much as 44% of the total number of American employees, just guess the amount of money they need to save until they retire. 26% say that they work on an estimate by themselves, while 18% ask for advice from a financial planner. Other workers totaling around 9% try to read up as much information as they can to make an informed guess, and others use online tools that help them calculate this sum.
The survey that came up with the above mentioned percentages also revealed that employer retirement plans are considered as a main resource for retirement income.
In fact, as much as 4 employees in 10, say that they contribute money in an employee-sponsored retirement plan, and they expect that the money that they would have accumulated, will provide their main source of income when they retire.
Workers, who have been saving for their retirement in a retirement plan, IRA or other pension plan, expect to receive major returns from their savings, in the form of retirement income. Non-savers on the other hand, mention social security, and also employment as their major source of income, after they retire.
Reference: http://www.planadviser.com/article.php/4188
Unfortunately it seems that most people don’t realize the importance of retirement planning, and instead of asking a qualified financial planner, to determine how much money they will need to save to retire, they just guess.
Yes you heard right; as much as 44% of the total number of American employees, just guess the amount of money they need to save until they retire. 26% say that they work on an estimate by themselves, while 18% ask for advice from a financial planner. Other workers totaling around 9% try to read up as much information as they can to make an informed guess, and others use online tools that help them calculate this sum.
The survey that came up with the above mentioned percentages also revealed that employer retirement plans are considered as a main resource for retirement income.
In fact, as much as 4 employees in 10, say that they contribute money in an employee-sponsored retirement plan, and they expect that the money that they would have accumulated, will provide their main source of income when they retire.
Workers, who have been saving for their retirement in a retirement plan, IRA or other pension plan, expect to receive major returns from their savings, in the form of retirement income. Non-savers on the other hand, mention social security, and also employment as their major source of income, after they retire.
Reference: http://www.planadviser.com/article.php/4188
Monday, May 4, 2009
Laid Off? Don’t Give Up On Your Retirement Plan
We all know that the world’s economy is far away from showing signs of recovery. Sales are low, and unemployment keeps rising, even from big corporations.
If you are one of the unlucky individuals who has lost his job to this recession, and are left with only your 401k plan as your savings, then you should aim at keeping this savings amount. Here’s how:
If you were employed by a big corporation who used to sponsor your retirement plan and have been laid off, the company who has terminated your employment might allow you to keep your 401k plan. Your former employer would have hired a plan administrator, who may retain your saved funds, such that your total savings may continue growing. Make sure you check with the administrator for the plan restrictions.
You also have another option, which is to roll over your saved funds, into a new IRA or a Roth IRA. Furthermore your new employer may be able to rollover your saved funds into a new 401k plan account. Obviously your new employer would need to sponsor your new 401k plan for this option.
Now in the case that your 401k plan had less than $5000 balance, the plan administrator would be legally required to issue you with a check that covers the account balance. When you receive this check, you would have up to 60 days, to transfer the money into a new 401k plan, or else a personal IRA, thus avoiding tax consequences.
All the above are worthwhile options that you can easily adopt. Whatever happens, closing your 401k plan should be the last option that comes to mind. Remember that the funds that you saved in the 401k plan, including the match that your employer provided you are all tax-free funds.
If you still want to cash your 401k plan, keep in mind that early withdrawal attracts heavy penalties, and your income tax rate may increase up to around 25%. The best option is always to keep the funds in the account, and when you are in a better financial position, you may continue where you left off, instead of having to start saving for your retirement from scratch.
Reference: http://howtobuystockonline.com/how-to-manage-your-retirement-plan-after-a-layoff
If you are one of the unlucky individuals who has lost his job to this recession, and are left with only your 401k plan as your savings, then you should aim at keeping this savings amount. Here’s how:
If you were employed by a big corporation who used to sponsor your retirement plan and have been laid off, the company who has terminated your employment might allow you to keep your 401k plan. Your former employer would have hired a plan administrator, who may retain your saved funds, such that your total savings may continue growing. Make sure you check with the administrator for the plan restrictions.
You also have another option, which is to roll over your saved funds, into a new IRA or a Roth IRA. Furthermore your new employer may be able to rollover your saved funds into a new 401k plan account. Obviously your new employer would need to sponsor your new 401k plan for this option.
Now in the case that your 401k plan had less than $5000 balance, the plan administrator would be legally required to issue you with a check that covers the account balance. When you receive this check, you would have up to 60 days, to transfer the money into a new 401k plan, or else a personal IRA, thus avoiding tax consequences.
All the above are worthwhile options that you can easily adopt. Whatever happens, closing your 401k plan should be the last option that comes to mind. Remember that the funds that you saved in the 401k plan, including the match that your employer provided you are all tax-free funds.
If you still want to cash your 401k plan, keep in mind that early withdrawal attracts heavy penalties, and your income tax rate may increase up to around 25%. The best option is always to keep the funds in the account, and when you are in a better financial position, you may continue where you left off, instead of having to start saving for your retirement from scratch.
Reference: http://howtobuystockonline.com/how-to-manage-your-retirement-plan-after-a-layoff
Friday, May 1, 2009
The Various CPA Retirement Plans
A retirement plan is one of the most beneficial allowances that is offered by employers, which helps in attracting as well as maintaining employees that are considered to be highly qualified.
CPA offers a number of retirement plans that vary in specifications, to positively satisfy the needs of both individuals as well as businesses. Retirements can be split into 3 categories: 1. Retirement plans for corporations; 2. IRAs; 3. Retirement plans for the self-employed.
Corporate Retirement plans
Corporate Retirement Plans can be further split into 4 types:
The Simple IRA – These retirement plans are set up by employers and they come in various types like Roth IRAs, traditional IRAs or SEP IRAs. On this retirement plan individuals make their own monthly contribution, the maximum amount of which is $10,000 yearly. Individuals who are 50 years old or more, may also make additional contributions, called catch-up contributions.
SEP- The Simplified Employee Pension is a retirement plan which is also set up by the employer, and can also include individuals who are self-employed. This plan is a good retirement vehicle since employers are able to save money for their retirement, apart from that saved for the employees.
Qualified Plan – This plan differs from the above mentioned types, and is not even subject to the same set of rules. This plan may be a defined contribution or a defined benefit plan and enables employers to make tax deductions for the plan contributions. The maximum amount of money that can be contributed into this plan is $42,000.
The Individual 401k plan – This plan accepts contributions both from the employee as well as the employer. This plan may only be set up for a business owner and his spouse.
Individual Retirement Accounts
A person who is in a high earning tax bracket should go for a traditional IRA, while the Roth IRA is better for younger individuals, or individuals who think that after retirement, they will be in a higher tax bracket.
Self Employed Retirement Plans
This plan is driven by the same rules as the corporate plan, with however, one difference. The owner’s contribution is not on partnership tax return or schedule C, but on 1040.
Reference: http://www.deskscript.com/104/cpa-retirement-plans-2/
CPA offers a number of retirement plans that vary in specifications, to positively satisfy the needs of both individuals as well as businesses. Retirements can be split into 3 categories: 1. Retirement plans for corporations; 2. IRAs; 3. Retirement plans for the self-employed.
Corporate Retirement plans
Corporate Retirement Plans can be further split into 4 types:
The Simple IRA – These retirement plans are set up by employers and they come in various types like Roth IRAs, traditional IRAs or SEP IRAs. On this retirement plan individuals make their own monthly contribution, the maximum amount of which is $10,000 yearly. Individuals who are 50 years old or more, may also make additional contributions, called catch-up contributions.
SEP- The Simplified Employee Pension is a retirement plan which is also set up by the employer, and can also include individuals who are self-employed. This plan is a good retirement vehicle since employers are able to save money for their retirement, apart from that saved for the employees.
Qualified Plan – This plan differs from the above mentioned types, and is not even subject to the same set of rules. This plan may be a defined contribution or a defined benefit plan and enables employers to make tax deductions for the plan contributions. The maximum amount of money that can be contributed into this plan is $42,000.
The Individual 401k plan – This plan accepts contributions both from the employee as well as the employer. This plan may only be set up for a business owner and his spouse.
Individual Retirement Accounts
A person who is in a high earning tax bracket should go for a traditional IRA, while the Roth IRA is better for younger individuals, or individuals who think that after retirement, they will be in a higher tax bracket.
Self Employed Retirement Plans
This plan is driven by the same rules as the corporate plan, with however, one difference. The owner’s contribution is not on partnership tax return or schedule C, but on 1040.
Reference: http://www.deskscript.com/104/cpa-retirement-plans-2/
Public or Private Sector Retirement Plan
The recession and the deep economic recession that the United States is facing, has aroused many doubts in people minds regarding various sectors of the economy. This includes the pension sector.
Many people are in fact arguing that the private sector should not be trusted with important things such as managing retirement plans. This people claim that the government would do a far better job in managing these important issues, which will have a long-term effect on the economy, as well as people’s lives.
The Social Security however lectures against this belief. The Financial Times has compared, is association with Megan McArdle, the financial support of the pension plans of the private sector, to the pensions that are provided to the employees who work in the public sector.
Megan McArdle indicates that the Pension Benefit Guaranty Corporation – regulating and insuring pensions – states that private plans have a total deficit, read around $10 billion, and covered as much as thirty four million workers. These figures are as at September 2008. Since this date the figure has most probably multiplied. In fact to date the underfunding that is covering a number of workers, in the region of 22 million, reads something that is very close, if not more than a trillion dollars.
This is a very big deficit, that when calculated would result in an underfunding of $295 for each employee. As you can probably guess, this is not a good thing. Things however could get a lot worse. If you compare this deficit to plans that are provided by the public sector, it turns out that a private sector employee is better off. Employee deficits in the public sector read $45,500 for each employee.
Reference: http://andrewgbiggs.blogspot.com/2009/04/public-versus-private-pension.html
Many people are in fact arguing that the private sector should not be trusted with important things such as managing retirement plans. This people claim that the government would do a far better job in managing these important issues, which will have a long-term effect on the economy, as well as people’s lives.
The Social Security however lectures against this belief. The Financial Times has compared, is association with Megan McArdle, the financial support of the pension plans of the private sector, to the pensions that are provided to the employees who work in the public sector.
Megan McArdle indicates that the Pension Benefit Guaranty Corporation – regulating and insuring pensions – states that private plans have a total deficit, read around $10 billion, and covered as much as thirty four million workers. These figures are as at September 2008. Since this date the figure has most probably multiplied. In fact to date the underfunding that is covering a number of workers, in the region of 22 million, reads something that is very close, if not more than a trillion dollars.
This is a very big deficit, that when calculated would result in an underfunding of $295 for each employee. As you can probably guess, this is not a good thing. Things however could get a lot worse. If you compare this deficit to plans that are provided by the public sector, it turns out that a private sector employee is better off. Employee deficits in the public sector read $45,500 for each employee.
Reference: http://andrewgbiggs.blogspot.com/2009/04/public-versus-private-pension.html
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