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
Tuesday, May 12, 2009
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Hardship withdrawals represent amounts that can be withdrawn from your 401k plan, much like a loan.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
Subscribe to:
Posts (Atom)