401k Withdrawal
RolloverUSA.com presents some useful information regarding 401K Withdrawals, Rollover and Options after taking distribution from your 401K plan. Please visit RolloverUSA.com for on-going education and information, as well as access to local registered investment advisors who can meet with you.
401k Withdrawal Options
You can rollover an IRA from one account to another at any time, but if you are a victim of a corporate layoff, or considering changing jobs or about to retire and you are thinking of rolling over or contemplating withdrawal of funds from your 401k plan, then you have several options depending on your age, provided you are no longer working for the employer providing the 401k plan.
Your 401k withdrawal options are as follows if you are over the age of 59 ½ but under 70 ½:
-Take a lump sum distribution, in which case your 401k plan provider will write you a check for the value of your account less a 20% withholding tax mandated by the IRS. The 20% tax that is withheld will be counted against your income tax payable or will be counted towards any refund due for the tax year when you file your tax return.
-You can do nothing and leave it with your previous employer as long as the amount is greater than $5,000. Amounts less than $5,000 will usually be distributed to you regardless of you age. (check with your plan sponsor)
-Do 401k rollover into an IRA or a solo 401k (if you are planning to open your own one person business).
Your 401k withdrawal options are as follows if you are under 59 ½
-Take a lump sum distribution, in which case your 401k plan provider will write you a check for the value of your account less a 20% withholding tax mandated by the IRS, and a 10% withdrawal penalty. The 20% tax that is withheld, but NOT the 10% penalty, will be counted against your income tax payable or will be counted towards any refund due for the tax year when you file your tax return. Some 401k penalty free withdrawal exceptions are here.
-You can do nothing and leave it with your previous employer as long as the amount is greater than $5,000. Amounts less than $5,000 will usually be distributed to you, less a 20% withholding tax, regardless of you age. (Check with your plan sponsor)
-Do 401k rollover into an IRA or a solo 401k (if you are planning to open your own one person business)
Your 401k withdrawal options are as follows if you are 70 ½ or older
-Take a lump sum distribution, in which case your 401k plan provider will write you a check for the value of your account less a 20% withholding tax mandated by the IRS. The 20% tax that is withheld will be counted against your income tax payable or will be counted towards any refund due for the tax year when you file your tax return.
-Leave it with your employer 401k plan but start taking the required minimum distribution.
-You can do nothing and leave it with your previous employer as long as the amount is greater than $5,000. In this event, you will be taxed 50% of the required minimum distribution. Amounts less than $5,000 will usually be distributed to you regardless of you age. (check with your plan sponsor)
-Do 401k rollover into an IRA or a solo 401k (if you are planning to open your own one person business). You still have to take the required minimum distribution even if you roll it over to an IRA.
source: rolloveraid
TWM: 401k Advice
Total Wealth Management teaches you key concepts to managing your finances and creating a plan for your wealth. In this video, Jacob Cooper discusses 401k plans on the Fox6 News.
Recently Added Links to the AFM Blogroll
I have fallen behind on updating the AFM Blogroll.
Recent Editions:
JasonKelly.com – Author of “Financially Stupid People Are Everywhere” and “The Neatest Little Guide to Stock Market Investing.”
Smart Spending Blog – brought to you by MSN Money.
FrugalDad – the name says it all.
The Library of Economics and Liberty – excellent site for all things economics.
Question From A Reader – Refinance A Home To Pay Taxes For A Roth IRA Conversion?
I recently received a question from a reader. If you have a question, be sure to contact me.
A reader recently asked, “Do you think refinancing a home loan and using some equity to convert a 401k to a Roth IRA is a good idea?”
More Debt Always Sounds Like A Bad Idea
There are a lot of different variables involved, and you only told me a little bit of the back story. But….No, I don’t think it is a good idea. How long are you going to stay in your home? You are going to cash out some or all of your equity and pay taxes with it. You might not be able to cover your new mortgage if you wanted to or needed to sell your home very soon. It would depend on how much equity you have left in the house. Dave Ramsey always says that 100% of the homes in America that were foreclosed on had a mortgage on them. So, if your house was completely paid for, I would hate for you to go back into debt just to pay taxes to the government on a Roth conversion.
The Best Way To Pay Your Taxes
The best way to pay for the taxes when doing a Roth IRA conversion is using money from non-retirement investment accounts (stocks, mutual funds, or bonds) or in savings, money markets, or CD type of accounts. If you used proceeds from your retirement account and are not 59 ½ years old, you will have to pay taxes right away and a 10% early withdraw penalty.
What If You Cannot Pay Your Taxes
If you don’t have the money to pay the taxes just sitting idle right now, you might want to consider just diverting future money from your 401k to a Roth instead. Not the best solution, but it will get you investing in a Roth and not in your 401k if you aren’t investing in a Roth already. I don’t know your specifics but if you are choosing just one or the other, usually a Roth IRA instead of a 401k is better for individuals if they think taxes are going up in the future.
Roth IRA conversions are a great option for people this year, but only if you can afford the taxes. And, remember, the best place to find that money for your tax bill is accounts that are not earmarked for your retirement. And, of course, be careful when using your home equity for anything especially paying your taxes.
I’m always looking for new questions and will always spend you a reply back even if I don’t use you question here on the blog. If you have a question that you would like me to try and answer, please shoot me an e-mail at Hank [at] HankColeman.net.
This article written by Hank Coleman. Hank is the publisher of Own The Dollar, a personal finance blog dedicated to helping everyone learn to master their own dollars. He also writes about money topics for members of the military and their families at Military Money Might.
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Gold vs. the S&P 500 Total Return 2000 – 2009
Check out this graphic I put together using the information I found on USAGold.com:
During the first decade of the 21st Century, the price of gold has seen an average annual increase of 14.41% compared to the S&P 500 Index’s Total Return of -.95%. For those who are interested, I put together a History of Gold Prices 2000 – 2009.
This is not to be taken as a promotional for investing in gold. I think gold can drop in value just as much as any other asset. And, since I see 3 or 4 gold commercials every 30 minutes on the news networks, it makes me think a bubble may be forming. Who knows. I sure don’t.
In his book, The Little Book of Bull Moves
“The concept of inflation remains fairly elusive: Since the real rate can’t be quantified, we have to compare changes in nominal prices to price changes in a commodity, such as gold, which is a better store of value and therfore a more objective standard by which to measure prices. Ratios representing these price relationships have historically guided us in judging how much inflation is reflected in nominal prices.”
He even mentions that he thinks inflation has run closer to 8 – 10 percent per year rather than the 4 percent the government has been publishing via the CPI. Interesting…
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