Published
on: November 3rd, 2006The Pension
Protection Act of 2006 became law on August 17th, 2006
and is the biggest pension and retirement reform brought
about since the Employee Retirement Income Security Act
of 1974 (ERISA). Apart from affecting Pension Plans, the
Pension Protection Act of 2006 has various effects on
Individual Retirement Account (IRAs) as well as Defined
Contribution Plans.
(Read Full)
Published
on: September 8th, 2006
Effects of the The Economic
Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
brings about new reforms that allows 401k plan participants
to be able to save more for retirement now. From 2004,
the maximum 401k contribution limit increases to $13,000
and rises to $15,000 by the year 2006. Furthermore, workers
over the age of 59.5 are now allowed to make "catch-up"
contributions of $3000 more in 2004, with this amount
rising to $5000 in the year 2006... (Read
Full)
Published
on: February 2nd, 2007Contributions
towards an employer sponsored 401k retirement plan are
made in before-tax dollars. This means your current taxable
income for the year is reduced by the total amount of
contribution you have made. For example, you might be
single and earn $50,000 this fiscal year. However, if
you make a $4000 contribution towards a 401k retirement
plan this year, your current taxable income for the year
will be reduced to $50,000 - $4000 = $46,000. (Read
Full)
Published
on: January 28th, 2007If
you quit your current employer while your 401k balance
is less than $5000, you should roll it over to an IRA
or your new employer's 401k administered plan. This is
because the old employer will not allow you to keep a
balance of less than $5000 in his 401k plan. If you quit
your employer with a balance of less than $5000, here
are the steps to follow: (Read
Full)
Published
on: January 23rd, 2007Rather
than receiving a monthly check upon retirement (annuity
payments), many people think of taking out a lump sum
distribution (a one time distribution) of their retirement
assets. If you do decide to take out a lump sum distribution
of your 401k assets, consider the Pension Protection Act
of 2006 which could severely reduce the amount of money
you actually withdraw from your lump sum payment. (Read
Full)
Published
on: January 16th, 2007The Tax Increase Prevention
& Reconciliation Act (TIPRA) of 2005 was signed into
law by President Bush on May 17, 2006. TIPRA includes
a provision that facilitates the conversion of Traditional
IRAs to Roth IRAs. If you read the article on Roth
IRA Rules, you will know that if your Modified Adjusted
Gross Income (MAGI) exceeds $100,000, you are NOT eligible
for a Roth IRA conversion. Why would you want to do a
Roth IRA conversion? Tax-deferred growth of earnings,
tax-free distributions and no minimum required distributions
(RMD) are some of the reasons. (Read
Full)
Published
on: January 7th, 2007Throughout your working
years, you have built up a huge nest egg of retirement
savings, probably a joint account with your spouse. However,
what happens to this 401k plan if you go through a divorce?
If you undergo a divorce, your spouse and any dependents
are eligible for a share of your 401k retirement savings.
The court settling your divorce will issue a statement
called Qualified Domestic Relations Order (QDRO) that
will clearly state how much of your 401k nest egg will
be given out, when it will be paid out and how the division
of retirement assets will occur. (Read
Full)
Published
on: December 17th, 2006
Many Corporations have learned
from the fraud cases of Enron and WorldCom that they have
to minimize their risk when most of their employees' retirement
savings are invested in company stock. What happens when
the stock takes a deep plunge and employees lose a big
chunk of their retirement savings? Million dollar lawsuits!
Published
on: December 1st, 2006In
the year 2004, the average household savings in USA averaged
0.8% of disposable income (income after all your expenses
have been paid off). This rate has been the lowest since
the Great Depression and the past 3 decades have seen
savings rates of over 7%. Why is this 0.8% rate so low?
Is it because Americans are just bad at saving money,
or too much of our disposable income is going towards
paying off our homes? In order to reach your goal of having
$1 million upon retirement, here are a few suggestions:
(Read
Full)
Published
on: December 1st, 2006Starting
December 30th, 2005, the US Treasury Department issued
and confirmed the Roth 401k Rules for 401k retirement
plan savers. These Rules come into effect starting January
3rd, 2006 and we will look indepth at some of these Roth
401k rules.
Roth 401k Retirement assets (cash, mutual fund
investments, etc) can be rolled over to other Roth 401(k)s,
Roth 403(b)s, and Roth IRA(s). These rollovers can be
done via Direct 401k
Rollovers. (Read
Full)
Published
on: November 22nd, 2006If
you have a spouse and are married, your federal tax rate
could actually be lower than that of a bachelor working
full time. This is because the US Tax System favours married
couples more than unmarried individuals when it comes
to taxation and retirement 401k plans. This article will
summarize some of the extra benefits available to married
couples when it comes to 401k retirement plans.(Read
Full)
Published
on: October 25th , 2006
If you withdraw money prematurely from your IRA
(if you are less than 59.5 years of age), this is known
as an Early IRA Distribution. You will be assessed a 10%
early distribution penalty on this withdrawal (on the
gross amount). The IRS however does allow you to withdraw
money prematurely from your IRA on special circumstances.
For more on this, see Withdrawing
Penalty Free Distributions from your IRA (Individual Retirement
Account) If you fall under any of these cirumstances,
be sure to have your IRA custodian or administrator sign
and initial your Distribution Report.
(Read Full)
Published on: October
20th , 2006
The following table shows the yearly contribution
limits that an employee can make towards both his Simple
IRA and Simple 401k account. On top of the normal contributions,
employers are allowed to make Employer-Matched Contributions
of upto 3% of the Employee's Compensation. For example,
if an employee makes $50,000 a year, the employer is allowed
to make an extra $1500 (3% x $50,000) contributions on
behalf of the employee.
Published
on: October 19th , 2006
Defined Benefit Pension Plans are the traditional
pension plans where both you and your employer withhold
a certain amount of your gross wage, manage it until retirement
and this guarantees you a specified monthly income for
life, upon your official retirement. The total monthly
payment you will receive depends on how long you have
worked, and how big your pension nest egg is.
(Read Full)
Published
on: October 5th , 2006
Each 401k plan has its own set of complex rules.
For example, some 401k plans will allow you to store up
your 401k inheritance treasure for years (without any
withdrawals and any taxes being charged on them). However,
other 401k plans will want you to withdraw this inheritance
within a certain period of time, after which you may be
assessed a penalty of 10% or more. If you inherit someone
else's 401k, be sure to thoroughly read the Summary of
the 401k Document and all its details to find out what
tax rules apply to your instance of 401k inheritance.
Usually, there are a special set of rules if the deceased
401k saver was your spouse and you are the beneficiary
of your spouse's 401k retirement savings. (Read
Full)
If you
invest in a 401k or are planning to do so, then you must
read our section on the different types of 401k
investment options. Each investment option has its
own level of risk. The best way to minimize this risk
is to diversify your portfolio of investments into both
low and high risk. Here is a summary of 3 different types
of investors and their profiles: (Read
Full)
Published on: September
10th, 2006
In general, there are 8 investment options available to
most 401k plan retirees. You can diversify your portfolio
into high risk and low risk investments and this will
determine your total nest egg upon retirement. If you
want a safe secured income upon retirement, we suggest
investing in low risk securities.
1) Stock Mutual Funds: Stock mutual funds
are invested in various stocks traded in the public. The
value of stock mutual funds fluctuates highly from day
to day but over a longer term, they are known to have
better returns than some of the other above investments
example US Treasury Bills, Government Bonds, etc. (Read
Full)
A 401k
is a company/employer sponsored retirement plan that allows
workers to take out a portion of money from their daily
paycheques, store it on a retirement plan account and
earn interest tax-deferred. Tax-deferred means this saved
income is not taxable until you withdraw it at the age
of 65 or more... (Read Full)
Published
on: August 24th, 2006
Your 401k contributions grow tax-deferred
up until you withdraw them (upon retirement). This means
your dollars grow quicker and tax-deferred. The net effect
is that you will have more real dollars working for you.
- You have full control over your retirement savings.
You can choose to invest in stocks, bonds, short term
money market instruments, etc. This is unlike a pension
plan where you are limited in choosing what type of investments
best suit you. (Read
Full)
Published
on: August 19th, 2006
Vesting is a type of security feature
for companies to retain talented and hardworking employees
for the longer term. 401k Vesting is the amount of time
you MUST work for a company to fully accrue your 401k
savings and not forfeit them (if you quit your job prematurely).
Thus, when you are "fully vested", this means
you have accrued your 401k retirement savings fully and
can rollover into an IRA incase you quit working for the
company. (Read
Full)
Published
on: September 17th, 2006A study
carried out by 2 Washington DC state organizations revealed
that 401k participants who contributed payments towards
their employer sponsored 401k retirement plans over the
past 7 years have seen growth rates of over 50%. This
is inspite of the tech boom bust of 2000 and market declines
in 2002.. (Read Full)
Published on: September
8th, 2006
1) Your current taxable income is lowered. For example,
if you earn $10,000 per month, and contribute 10% of it
towards a 401k retirement savings account, then your current
taxable income is lowered to 90% x $10,000 = $9000. Instead
of paying taxes on the $10,000, you will be paying taxes
only on the $9000!
2) You could thus put this $1000 into a savings account
and let it earn you interest! (Read
Full)
Published
on: September 13th, 2006
If you fall in the category
of low income savers, you may be eligible for a tax credit
of $1000 on contributions made to 401k retirement plans,
403b plans, 457 government plans, IRA (Individual Retirement
Account) or Roth IRA. This new legislation called the
"Saver's Credit" went into effect in 2002 (thanks
to the Economic Growth and Tax Relief Reconciliation Act
of 2001) and is a reduction to your Gross Income (so that
you have a less taxable income). It cannot be used as
a $1000 refund for extra cash flow... (Read
Full)
Published
on: October 11th , 2006
What is a Direct IRA Rollover?
A Direct IRA
Rollover is when your 401k retirement savings (or 401k
distributions) are transferred directly from your old
employer's account to your own Individual Retirement Account
through a trustee-to-trustee transfer. This means the
money never actually reaches your hands, it is wired from
your old 401k administrator to your new one. With this
method, no taxes are withheld and you will NOT have to
pay any penalties. (Read
Full)
Published
on: September 31st, 20061)
From One IRA to Another
All retirement savings from the old IRA account are withdrawn
by the retiree and the IRA Custodian writes a check to
the retiree. The retiree then stores this money in his
checking account for a maximum of 60 days. Within these
60 days, the retiree must rollover these savings to a
new IRA account with a new broker such as Charles Schwab.
This type of a rollover is limited to once every 12 months...
(Read Full)
If you
are nearing your retirement or changing your employers,
should you take the 401k cash distribution and roll it
over to an IRA (individual retirement account)? Read more
about rolling over your 401k
to an IRA here. Apart from that, there is another
attractive option, and it is making a lump sum rollover
to your company's stock. (Read
Full)
Published
on: August 15th, 2006
You can do a 401k rollover under 3 circumstances
only:
- You reach the age of 59.5 and want your money
- You quit your current employer and want to rollover
into an Individual Retirement Account (IRA)
- You officially retire (age of 65)
If you meet any of the above characteristics, you can
inform your employer by filling out a 401k election form.
This will inform the employer whether you are:
- Carrying out a lump-sum 401k rollover
- Desiring regular 401k distributions (more like monthly
income payments)
- Rolling the money into another 401k plan or an IRA (Read
Full)
401k
retirement plans are meant to grow tax-deferred continuously
(without any withdrawals) up until you hit retirement
age. However, we don't live in a financially perfect world.
Things may come up in your life that require you to have
immediate emergency funds for example death of spouse,
big medical bill, etc. In such an event, yes you can withdraw
money from your 401k retirement account. (Read
Full)
Published
on: August 21st, 2006
Most 401k retirement plans do not allow
you to withdraw money unless you are facing some kind
of a financial hardship. This is why some 401k withdrawals
are also known as "401k hardship withdrawals."
The above mentioned reasons such as death of a spouse
(which is beyond human control) or a large medical bill
are valid financial hardships. (Read
Full)
Published
on: September 23rd, 2006The annual
pre-tax or after-tax contributions you make towards a
401k retirement savings plan is meant to help you have
sufficient income upon your retirement. However, there
might be immediate times when you desperately need the
money, examples include huge medical bills, death of spouse,
disability, etc. If you withdraw money from your IRA account
before the age of 59 and 1/2, you will be subject to a
10% early-distribution penalty as well as local and federal
state taxes. (Read Full)
Published
on: October 19th , 2006
Defined Benefit Pension Plans are the traditional
pension plans where both you and your employer withhold
a certain amount of your gross wage, manage it until retirement
and this guarantees you a specified monthly income for
life, upon your official retirement. The total monthly
payment you will receive depends on how long you have
worked, and how big your pension nest egg is.
(Read Full)
A 401k
is a company/employer sponsored retirement plan that allows
workers to take out a portion of money from their daily
paycheques, store it on a retirement plan account and
earn interest tax-deferred. Tax-deferred means this saved
income is not taxable until you withdraw it at the age
of 65 or more... (Read Full)
Published
on: July 14th, 2006
Your 401k contributions grow tax-deferred
up until you withdraw them (upon retirement). This means
your dollars grow quicker and tax-deferred. The net effect
is that you will have more real dollars working for you.
- You have full control over your retirement savings.
You can choose to invest in stocks, bonds, short term
money market instruments, etc. This is unlike a pension
plan where you are limited in choosing what type of investments
best suit you. (Read
Full)
