Latest 401k Articles

  • 401k
  • Advantages of Making Salary Deferral 401k Contributions
  • 5 Characteristics of your 401k
  • Effects of the Pension Protection Act of 2006 on Lump Sum 401k Distributions
  • Tax Increase Prevention & Reconciliation Act of 2005 and 401k Retirement Plans
  • What Happens to your 401k when you are Divorced?
  • Risks of Investing 401k Retirement Plan Savings in Company Stock
  • Become a Millionaire with your 401k Plan
  • Roth 401k - A Look at the Final Roth 401k Rules
  • Common Files

    Categorized Archive of 401k Articles

    i) The Economic Growth and Tax Relief Reconciliation Act of 2001

    Pension Protection Act of 2006 v/s Economic Growth and Tax Relief Reconciliation Act of 2001
    The 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)>

    Effects of the The Economic Growth and Tax Relief Reconciliation Act of 2001 on 401k Plan Participants
    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)

    ii) 401k Investment Articles

    Advantages of Making Salary Deferral 401k Contributions
    Contributions 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)

    5 Characteristics of Your 401k
    If 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)

    Effects of the Pension Protection Act of 2006 on Lump Sum 401k Distributions
    Rather 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)

    Tax Increase Prevention & Reconciliation Act of 2005 and 401k Retirement Plans
    The 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)

    What Happens to your 401k when you are Divorced?
    Throughout 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)

    Risks of Investing 401k Retirement Plan Savings in Company Stock and how to Minimize that Risk
    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!

    Become a Millionaire with your 401k Retirement Plan
    In 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)

    Roth 401k - A Look at the Final Roth 401k Rules
    Starting 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 Portability
    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)

    Benefits of Having a Spouse for Individual Retirement Accounts (IRAs)
    If 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)

    How to Avoid IRS Penalties on your IRA (Individual Retirement Account) Savings
    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)

    Simple IRA (Individual Retirement Account) v/s Simple 401k Retirement Savings Accounts
    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.

    Defined Benefit Pension Plans - Retirement Planning
    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)

    401k Retirement Savings Inheritance
    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)

    401k Investment Questions
    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)

    401k Investment Options
    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)

    What is a 401k Plan? How does it work? What are the benefits of having a 401k retirement plan?
    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)

    What are the benefits of investing in a 401k retirement plan?
    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)

    What is 401k Vesting and How Does it Work?
    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)

    Sticking with your 401k Retirement Account Pays Off Long Term, study reveals
    A 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)

    iii) 401k Tax Issues

    Effect of Taxes on 401k Retirement Savings Accounts
    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)

    Saver's Credit: 401k Contributions Tax Credit for Low Income & Middle Income Consumers
    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)

    iv) 401k Rollovers

    401k and IRA Rollovers - Direct IRA Rollover Rules - 20% IRA Withholding Law
    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)

    IRA (Individual Retirement Account) Rollover v/s IRA Transfers - IRA Rollover Rules
    1) 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)

    401k Lump Sum Rollover - Should Retirees Take the Cash or Rollover to Company Stock?
    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)

    401k Rollover into IRA - Rules, Processes, Time & Fees Involved
    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)

    >v) 401k Loans & Withdrawal Rules

    401k Loans - Can You Withdraw Money from your 401k Account as a Loan?
    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)

    401k Retirement Plan Withdrawal Rules
    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)

    Withdrawing Penalty Free Distributions from your IRA (Individual Retirement Account)
    The 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)

    vi) Retirement Planning Articles

    Defined Benefit Pension Plans - Retirement Planning
    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)

    What is a 401k Plan? How does it work? What are the benefits of having a 401k retirement plan?
    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)

    What are the benefits of investing in a 401k retirement plan?
    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)


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