401k Account

Frequently Asked Questions

1. QUESTION:
   Do you have to report a 401k account if you never withdrew from it?
   My employer set up 401k accounts for us and contributed a set amount to it. As of right now, neither I or my employer contribute to this account (I just found out about it). There is approximately in the account. I am not sure how to report this or if you need to report this on Federal and state taxes (I am in NJ). I did not receive any form other then the account statement from the 401K provider.

   • ANSWER:
     A 401k isn’t taxed until you withdraw from it since it is not considered income. There is no need to claim it as such until the time you access it. Then you will pay the taxes, and if withdrawn early, you will also pay early withdrawl penalties of 10 %.

2. QUESTION:
   How to transfer the US-based 401k account balance to a 2a or 3a retirement planning account in Switzerland?
   The company I worked for in the U.S. is closing down the 401k plan. I moved back to Switzerland and would like to transfer the funds from this US-based 401k account back to a retirement planning account (so called 2a or 3a) without incurring taxes. HOW DO I DO THIS?

   • ANSWER:
     You cannot. That 401(k) is pretax money and sooner or later you will have to pay U.S. income tax on it.

3. QUESTION:
   Is it better to keep 401K accounts separate or roll them into one account?
   I have three 401K accounts from previous jobs, in addition to the one I have at my current job. Is it better to keep them separate or to roll them all into the account I have now?

   • ANSWER:
     Roll the old ones to IRA. Then you have unlimited investment choices and lower fees. Open a IRA at a low cost broker of no cost mutual fund company then have the 401K trustees write the checks to that company not to you. If they write the check to you they withhold 20% and you need to put 100% in the new account or face penalties and taxes.
     Once it is rolled over you can decide to invest in mutual funds, stocks or convert to a ROTH paying the taxes now and being tax free forever.

4. QUESTION:
   When you rollover a 401k account to an IRA at the same brokerage, can you keep the same 401k portfolio?
   When you rollover a 401k account to an IRA at the same brokerage, can you keep the same exact 401k portfolio for your IRA? Will they do this for you automatically when you ask them to roll it over to the IRA? At least for now, I would like to keep the same exact portfolio I had for my 401k for my IRA. Thank you.

   • ANSWER:
     maybe. Depends on the brokerage firm. they will not do that for you automatically you will need to contact them arrange for that to happen providing they offer the same funds and investments in the IRA account as the 401k portfolio. Keep in mind there may be fees associated with them doing that for you.

5. QUESTION:
   Can I rollover my 401k to a similar account outside US due to my job transfer?
   I am neither a US citizen nor a green card holder. I came in as resident alien (MNC) on work visa and have funds in 401k account. I have been transferred to a country where there are no income taxes. They have a similar 401k plan (however no tax). Will I be able to rollover all my US 401k funds to my new account without any tax impact in US? In my next year there will be no US income and I guess I don’t have to file return (since I am not a citizen or PR). Would it help if I withdraw or rollover next year?

   Has anyone seen this done or done for themselves? Thanks for your time and any answer.

   • ANSWER:
     When you take a distribution from the 401k, taxes will be due unless you roll it over to another plan qualified under the IRS code. Foreign retirement accounts are not qualified plans, so this transfer would not be tax deferred.

     If the amount of the distribution is small, you may not owe any income tax because of your standard deduction, but you will owe the 10% penalty. My advice would be to have that penalty withheld before you withdraw it, and then file a return for the year of withdrawal and pay the penalty.

     If the account is large, you could take partial withdrawals over several years and avoid income taxes, but not the penalty.

6. QUESTION:
   How can i get the money in my 401k account?
   How can i access the funds in my 401k account if i can’t can’t withdraw it early unless i quit my job and don’t qualify for a hardship or loan on it?

   • ANSWER:
     This depends on your company’s 401(k) plan and the type of withdrawal you are requesting. Call your plan’s toll-free number to see if you are eligible and for details on how to request a withdrawal.

     BUT:

     You don’t really want to do that unless you’re literally starving. And if you don’t qualify for a hardship withdrawal or loan, you should ask yourself if you really need it that badly — and perhaps ask yourself repeatedly until the answer is ‘No’.

     It’s a bad move financially and you will pay for it in taxes AND penalties as well.

7. QUESTION:
   How do I find an old 401k account?
   About 5 years ago my husband left his company that he had a 401k account with as well as contributed to that account from his paycheck. How do we find this account?

   • ANSWER:
     Call the HR office at the prior company. They will be able to direct you to either the contact within the company or the phone number of the organization where the 401k is housed (Fidelity, Principal, etc).

     If he thinks he knows what org it was with (not his company but the company who manages the 401k) call them directly. They can look him up by his ssn.

8. QUESTION:
   What are the taxes and penalties if I take money from a 401K account?
   I am in the middle of a divorce and do not have a job. I will get half of a 401K account but it looks like I have to use that money to pay bills and find a place to live. What are the taxes and penalties if I take the money from the 401K instead of rolling it over?

   • ANSWER:
     It will be treated like income and there will be a 10% penalty.

     Before you spend any, do a mock tax return and figure out the bill.

     The custodian will withhold 20% (1/2 for tax and 1/2 for penalty). If you have ZERO other income, you may come out okay. However, if you take too much and have no kids, you could owe when tax time rolls around. The 10% tax rate only goes up to 50 of taxable income.

9. QUESTION:
   My husband and I have a question concerning a 401k account?
   I was wondering if anyone knows how to close out a 401k account and not put more in it. We would like to reopen after the stock market gets better, but we don’t know how to do this. If anyone has a solution please help!

   • ANSWER:
     dunno darling id go into your bank though and find out as soon as you can………god ye did well for yourselfs .. fairplay!!xx

10. QUESTION:
    Should I rollover my 401k into a new account?
    I have a 401k account with one investment institution. I recently got a new job, and they have a different investment institution. I was going to roll the balance over into the new account but was thinking, is there really any reason to do so? If I can keep my original account open without any fees, shouldn’t I just leave it alone and start to add to the new account and just manage two accounts? Or would it be more beneficial to roll it over? For info purposes, it is a fairly sizable amount.

    • ANSWER:
      1. If you don’t want the hassle of doing the paperwork, and it is over 5k, you can probably leave it at your old company.
      2. If you want to keep all your retirement funds in one place, then roll it into your new plan.
      3. If you want MORE INVESTMENT OPTIONS, then roll it into an IRA at Fidelity, or Vanguard or TRowe Price.

      It just depends on what you want to do & your situation.

11. QUESTION:
    Is there a time limit in which to claim a deceased 401K account in the state of Pennsylvania?
    Hi my mother died back in July of 2005 and I just found out that I was the sole beneficary of her 401K account. She did died in Pennsylvania. Anyway I was wondering if there is a time limit to claim her 401K account or is it too late.

    • ANSWER:

12. QUESTION:
    Who do you contact when your employer is deducting 401K but it is not being put in your account?
    About every other week for 2 months, there are deductions that never seem to make it to my 401k account. Who can I report this to?

    • ANSWER:
      first your company’s 401k plan administrator. Sometimes this is a result of an honest mistake. Ask for a full accounting of your deferrals and your deposits. If you aren’t making any headway here then do the research yourself…grab your paystubs and your 401k statements and reconcile the two. If you’re missing money give the documents to the 401k plan administrator and ask for that amount PLUS interest to be put into your account (they can use the IRS interest owed amount). If they still provide you no relief then go to the US Department of Labor – EBSA division. Do not go to police – this is not theft. Do not go to state Department of Labor—they have no jurisdiction. 401k’s are part of the US tax code and are protected by ERISA which means only federal courts and federal offices have jurisdiction.

13. QUESTION:
    Can you take out money from your 401k account as a no interest loan to yourself and without tax penalty?
    Can you take out money from your 401k account as a no interest loan for yourself and without tax penalty?
    My friends mother is thinking about doing it – she says it’s taking out a loan against the 401k and her employer will be deducting pay from her check every pay period.

    • ANSWER:
      You can borrow with no tax and no penalty, but you will have to pay interest per your plan.

14. QUESTION:
    What perscentage does the government take if you close your 401K account early?
    The 401k account is in my husbands name, he will be 57 when we take it. He no longer works for the company that started it. He has another 401K account with the company he now works at.
    I will be 63 and 1/2 and am thinking of switching from disibility to Medicare retirement.
    I understand if we sell our house and one of us is retired we don’t have to pay a penalty. Is this true? If not what percentage would we have to pay the government? We want to use the money to purchase a prefab home as we can not afford to live in the home we now have as I had cancer and had to go on disibility. We have to pay 0.00 a month for my medication.

    • ANSWER:
      10% unless he takes out equal payments over his life expectancy. He could also roll it into an IRA.

15. QUESTION:
    How I can find where my 401K account is, after I left the company long ago?
    The thing is, I don’t know where is my 401K account. It was at Prudencial when I opened the account, so I called the number on the last 401K statement, but I was told that it wasn’t there. Is there any way to find where my 401K account is?
    Jeff, I couldn’t find it at the Unclaimed Property site…

    • ANSWER:
      It probably went to the unclaimed property department in the state treasury where you worked. Check with the state. Most states have free online databases you can search by your name. After a certain amount of time if they have no contact with you its required to be put into unclaimed property with the state. And thats the only place it could have gone. Contact the state treasury department personally if you cant find it in the database.

16. QUESTION:
    Why cant I start a 401k account with my company until I’m 21?
    My employer told me that due to fed. law. I cant start a 401k account until I’m 21. Is this true? If so why? I’m 18 and as a legal adult I don’t understand why I can’t start a retirement account early.

    • ANSWER:
      To save the company money. If you’re under 21 you most likely have a low income job. You are all so very likely to pull you money out or run off to another job that next week. There by costing the company money. If you’re over 21 they can’t stop you. If the companies had there way i would guess it would 25+ but they can’t.

      Over all why don’t you setup a online savings account?

17. QUESTION:
    How can i find out if i have a 401k account when the company i worked for closed down their business?
    i haven’t been receiving any notices or mail from the bank handling the 401k account but i am pretty sure that i have money in an account. i cant remember their name either. what can i do ?

    • ANSWER:
      Did you save any of the notices from the bank that was handling your 401k? If so then call them. If not you better hope you remember the bank or the banks ticker symbol (stock exchange symbol) or you may be out of luck. If you know the stock exchange symbol you can easily find out the name of the financial institutes phone number. Try calling the company you worked for and see if you can contact someone from there. Sometimes another business may have taken them over and they may have people who worked for the company you worked for are now working for the new company.

18. QUESTION:
    Does being part of a union from your employment have an effect on withdrawing money from your 401k account?
    Could the Union you participate in have restrictions on what can and can not do with your 401k account? If so, is it possible for the company that you have that account with not be aware of those restrictions. For example: A man say around the age of 75, wants to take out a hardship to help pay for the funeral costs of his wife’s death. Also, keep in mind that he already has an outstanding loan issued from his retirement fund company.

    • ANSWER:
      Is the 401(k) with your union or with your employer? Each 401(k) plan has different provisions, so you need to read YOUR plan provisions.

      A 75-year can take a distribution without any penalty. He doesn’t have to prove a “hardship.” It is, of course, taxable income.

19. QUESTION:
    Rollover a 401K and IRA into one account?
    My Mom has a 401K account from an employer where she recently left. She also has a regular IRA at a mutual fund company. We’d like to combine those into one account, can it be done and then later setup for retirement withdrawals?

    I’ve seen Rollover IRA’s but they appear to be used for holding when moving from one employer to another.

    • ANSWER:
      You can roll-over a 401k permanently into an IRA, but I would check to see if you mother is eligible to roll it all over into a Roth iRA, which has more tax advantages than a traditional IRA. Either way, there is no 20% penalty if she rolls it directly into a Roth, or Traditional IRA or to her new employer’s plan.

      Also, if she chooses to rollover into a Roth IRA first, she will only be able to roll that “roll-over IRA” into another employer’s plan. She cannot roll over a co-mingled IRA with pre and post tax dollars into an emplyer plan. She can always leave it in the IRA permanently though.

      Since your mom left her old employer already, it won’t matter, but the only downside to rolling over a 401k into an IRA is that if you leave an employer after age 55, your early withdrawls from a 401k are not subject to the 10% penalty tax. If you roll it over into an IRA, any withdrawls before age 59 1/2 are subject to the 10% penalty tax.

20. QUESTION:
    Do I need to pay taxes on the interest gained in the 401K account?
    Do I need to pay taxes on the interest gained in the 401K account, considering that I’ll withdraw dollars in there after the age of 60?

    • ANSWER:
      Yes, you’ll need to pay taxes on your 401 interest — but not until you withdraw it — presumably you’ll be in a more “favorable” tax position after retirement, when you begin drawing on your 401K.

21. QUESTION:
    Would the employer match amount gets forfeited upon a 401K roll-over to an IRA account?
    Upon retirement, a 401K account with employer & employee match amount upon direct roll-over to an IRA account shall not have the employer match amount forfeited & not included on the total match distribution. Are some employers forfeiting their match anyway & for what justification?

    • ANSWER:
      Just because you retire, doesn’t necessarily mean you get to keep the employer match. Most have a vesting schedule: 20% @ 1 yr, 40% @ 2 yrs, 60% @ 3 yrs, 80% @ 4 yrs, and 100% @ 5 yrs. Most vesting schedules go 5 years. If you’ve been with the company 5 yrs, you get 100% of the company match.

      I’ve done two 401k rollovers. I got the monies I was entitled to, per the vesting schedule.

22. QUESTION:
    My company does not offer 401k account. how can I contribute Pre-tax money to an IRA account i have in a bank?
    if my company doesn’t offer 401k plan. is it possible to contribute employee pretax money from my paycheck to my traditional IRA account that I have with the bank. how about if you are self-employed, can you deduct your IRA fund as above the line deduction to reduce your taxable income up to the limit?

    • ANSWER:
      You can contribute up to K per year (K if over 50) to an IRA as long as you have earned income for that year. You don’t contribute to an IRA through your employer – you do it on your own.

      You cannot move large amounts of savings into an IRA – the annual contribution limit always applies. IF you are self-employed, look into SEP IRAs.

23. QUESTION:
    What to do about my 401K account from previous employer.?
    I left my job and relocated, I had a 401K account from my prev employment. But I havent found another job yet. So this account has been just sitting there for almost two years. Should I move it somewhere else?

    • ANSWER:
      If the account is small – leave it.
      Eventually you can roll it over to your new employer.
      But do check up on your investments from time to time and make changes as needed.
      You should NOT have money in company stock with that company.
      Sell it if you do – just not a good idea.

      If you are talking large amounts consider a discount broker such as
      Charles Schwab or Fidelity Investments.
      They are the best of the best when it comes to discount brokers.
      You call them – and they will take it from there – they are experts at this.
      No fees of any kind.
      Worst thing to do – use your local bank for this – the fees will drain you.
      /

24. QUESTION:
    Is my employer required by law to place my non-contributory 401k funds into my account by a certain date?
    My employer provides non-contributory 401k contributions at a percentage rate of our salary. The funds I earned for 2008 have not been deposited in my 401k account yet. I’m wondering if there is a certain date when these funds are required to be deposited under federal penalties, or if the company is allowed to pretty much deposit this money whenever they want?

    • ANSWER:
      Refer to your SPD (Summary Plan Description)

25. QUESTION:
    how to roll over my 401k plan in the company’s account to my scottrade IRA account to evade the tax penalty
    Hi All,

    I just moved to another company and want to roll over the money my 401k account from the previous company to my scottrade IRA account. Is there tax penalty to do so? How to do it? Every answer will be appreciated.

    Thanks,

    • ANSWER:
      Call up Scotttrade and get the right forms. Then call up your 401(k) manager and get the right forms and tell them you want to do a DIRECT ROLLOVER. You have to do the direct roll over to avoid penalties and taxes. The 401(k) will cut a check and send it directly to Scotttrade.

      Anything other than a direct rollover incurs taxes and penalties.

26. QUESTION:
    Is the “personal rate of return” that is listed in my account summary at 401k.com accurate?
    I was looking at my online 401k stament and was wondering about the validity of the “personal rate of return” for my 401k account. For the YTD it says my rate of return was 12.7%.

    • ANSWER:
      It all depends on the EXPENSES YOU PAY in your 401K. Those expenses are not apparent unless you do a lot of digging on most 401K’s. So you don’t really know what they are since they don’t make it easy to find. So those returns may be higher in some one Else’s 401K given the same funds–depending upon how well your company purchased those funds. (expenses charged)
      Most of your funds can be found in your local paper and you can compare those results to your results.

27. QUESTION:
    Can I Rollover my 401k into my common law wifes 401k account. Is that possible? ?
    My common law wife’s 401k account is great, my company’s no good. So I want to no is it possible to roll my money over into hers. Or do the other account has to be owned by the same person?

    • ANSWER:
      It wouldn’t matter if she were your legal wife, not common law. You can’t roll your 401(k) over into someone else’s account. Since you are still employed by your company ( that is the way your question reads), you can’t roll it anywhere. You can only roll it over if you are no longer employed by the company.

28. QUESTION:
    Is there a maximum in a 401k account?
    I just wanted to know if there’s a restriction to how much money you are able to have in a 401k account. Thank you for your time and answers

    • ANSWER:
      You can only CONTRIBUTE about ,500 per year…however there is no maximum BALANCE that you can have.

29. QUESTION:
    Should I close my 401K account when I quit working for the company and has only 00 in the account?
    I have two 401K accounts form previous companies I was working for. But one of them has only 00 in it. After resigning, the account was set up by under one of the mutual company.

    I have been paying around /year for the fee for the last 5 years.
    Do you think I should close the account even though I have to pay 10 or 20% of penalty fee?

    I am not sure if it worth keeping paying the annual fee for that account when there is no money going in there and has only 00.

    Could you give me an advice?
    Thanks.

    • ANSWER:
      The best way and good thing to do is to transfer the account to a roll over IRA or roll over to a 401K that you have right now.

      The way to do it is to call the mutual fund company that takes care of your previous employer’s 401K and ask them for a Roll-Over Kit. This the term for it. The Kit will walk you through the whole process. Its not a difficult thing to do.

      It is better to open a Roll-Over IRA that you can contribute to and benefit from. Do not choose to pay a penalty unless you have to.

      Good luck!

30. QUESTION:
    How do I find the Custodian and Trustee for an old 401K account?
    I had two 401K accounts at companies which have since gone out of business. How do I go about locating these 401K accounts? I have tried the PBGC, IRS, Social Security and CA state unclaimed property office. So far, no luck. My understanding is that I need the custodian and trustee names to retrieve these lost assets. Please, someone, help me!!

    • ANSWER:
      You can try the Department of Labor, Employee Benefits Security Administration.

      http://www.dol.gov/ebsa/

      You could also look on freeerisa for the most recent 5500 filing.

      http://freeerisa.com/

      The 5500 filing has the most recent plan contact information. You may be able to find an actuary or other professional that can tell you who has the plan assets.

31. QUESTION:
    Should I sell a poor performing 401K account to pay off credit card debt?
    I have two 401K accounts. My current account with my employer had a return last year of 18 percent. The other account from my previous employer had a return last year of only 9 percent. Should I cash in this account and pay off credit card debt?

    • ANSWER:
      If you are below retirement age, withdrawing assets from a 401k will be a taxable event, and an additional penalty will be applied. This is a very bad deal for you.

      Better to borrow from the 401k to pay off the credit card. At least you wont be hit with current tax since you wont be withdrawing assets from the account presently.

32. QUESTION:
    I am thinking about taking a loan out on my 401k account,I was wondering can you repay that back into a Roth?
    account instead or do I have to pay back into the 401k?

    • ANSWER:
      No. However, if your plan allows, you can transfer the balance to an IRA. Then, after paying income tax (perhaps 15-25%) on the entire amount, transfer it to a Roth IRA.

      If you fail to repay the 401K on time, you’ll be reported to the IRS and have to income tax on any amount not repaid. Not good!

33. QUESTION:
    What happens to the 401k forfeiture account when the plan closes?
    I am closing my company’s 401k and we have 11k in the forfeiture account. What happens to that money? is it returned to the company?

    • ANSWER:

34. QUESTION:
    Can they close 401k account if you don’t pay off the 401k loan?
    If I have ,000 in a 401k, and I take out a loan for ,000, but I don’t pay it back, can they close the 401k account, and use the remaining ,000 to pay off the loan? They can’t do that, right? because it’s already my money, correct?

    • ANSWER:
      You don’t understand this, do you?

      If you fail to repay the loan, the ,000 in the account STAYS in the account. You get a 1099-R showing that you had a ,000 distribution and it’s now taxable income (plus a 10% penalty).

35. QUESTION:
    can i rollover money from two 401K accounts to one IRA account?
    I had a job change. I found that rolling over money from my earlier 401 k account to roth IRA is not profitable. I am planning to leave the money as is there. And open a new 401 K for this company. Later i would like to transfer all the oney to IRA. Is it possible to tranfer money from two 401 k account to IRA?

    • ANSWER:
      If you roll the money from a 401k which I’m assuming is tax deferred, to a Roth, which is not, you will have to pay the taxes. But then the money will grow tax deferred and tax free. Since tax rates are the lowest they’ve been in decades, you might reconsider this strategy, as Roth’s are a much better place to grow your retirement money than any other qualified account.

      If your new employer is matching in a 401k, I would advise to invest only up to the match, and then put the balance of the money you can in your Roth and pay the taxes now. If you’re a successful investor you will pay far less in overall taxes doing it this way.

      Once you leave your company, they must let you roll your 401k monies out of their plan, and to avoid taxes and penalties they must go into a tax deferred IRA type of plan. To avoid penalties, they must go into a Roth type of plan. You can consolidate multiple accounts into one account, provided they are not being administered by your company and subject to their rules.

      If you need more into, please email me.

36. QUESTION:
    Paying dividend on an IRA or 401K account?
    Do you have to report your dividends on your IRA and 401K accounts when you file taxes? Those are retirement accounts so I wasn’t sure if the same apply to them as a non retirement.

    • ANSWER:
      The dividends should stay in the account. If they do, then you must not report them until the money actually comes out of the account. If the money leaves the account and is paid to you, then you must report it only as a IRA distribution or 401K distribution, and not as interest or dividends.

37. QUESTION:
    What are some investment tips for a 401K account?
    I contribute 13% of my paycheck to my 401K. Is that enough if my salary continues to increase each year? I work in the IT industry.

    • ANSWER:
      Go with the higher risk/higher reward investments offered by your employer early in your career and then go safer later in your career when you get closer to retirement.

      And open a Roth IRA every year!

38. QUESTION:
    Can we add additional funds to a 401K account on some irregular basis ?
    Say I start with investing 10% of my income directly to 401K account via the program that my employer provides. Will I be able to occationally add additional funds to the same account on some irregular basis ?

    • ANSWER:
      You need to ask your employer. There are two sets of rules
      A. The set specified by Congress
      B. The set specified by your employer.

      The Federal rules are:
      - Total contributions may not exceed 100% of the employee’s compensation.
      - Total contributions may not exceed ,000 in 2006.
      - In 2007 and later years, total contributions will be indexed to inflation and can move up in ,000 increments. The limit was increased to ,000 in 2007.
      - In 2006, the total contribution that an employee can make on a pre-tax basis is limited to ,000. (Anything above 15,000 is contributed post-tax)
      - In 2007, the total contribution that an employee can make will be calculated using an index for inflation and can move up in 0 increments. This limit was increased to ,500 in 2007. The same rule applies in 2008.

      Your employer also has a set of rules and should have some written policy or document (often called a SPD – Summary Plan Document). These rules vary from employer to employer. They may say that you can’t contribute more than 15% of your salary. They may say that only payroll deduction is allowed (no independent contribution).

      You need to ask your employer because there is no way anybody here can give you an accurate answer without knowing who you work for and being familiar with their plan.

39. QUESTION:
    Should I start a 401K account now before the end of the year or wait until January 1st?
    I started with my company 6 months ago. They were in the middle of a merger and I wanted to wait until the merger finished and they decided which 401K program they were going to use. Now it has been decided, but I’m not sure whether to wait until Jan 1 to start contributing or just start now. Which option is best for tax purposes?

    • ANSWER:
      The sooner you start, the more money you can put into your 401k and the less taxes you will pay. Remember, all money placed into a 401k is tax deferred. Also, does your company match any contribuitions? You do not want to miss out on any of that.

40. QUESTION:
    i have an old employer 401K account that is made up of after-tax contributions. What are tax implications?
    The account statement says these are “after tax contributions”. This title is confusing since these were made pre-tax. I haven’t worked for this employer for 15 years. I’m not sure if changes in the tax code is responsible for this. The name (after tax) seems to indicate that tax was already paid on these monies. Thats why I’m confused. Any help/direction would be appreciated. I’d like to rollover into an existing rollover IRA with an different institution.

    • ANSWER:
      This is a retirement account with a basis, your after-tax contributions.

      When you roll this into an IRA, do not combine it with your existing IRA. Roll it into a separate account. File Form 8606 in the year of the rollover noting the basis of this IRA.

      Then when you take distributions from this rollover IRA, it will be possible to figure how much is taxable and how much is not taxable.

      Depending on how much of the account is after-tax, you may want to consider rolling this into a Roth IRA and paying taxes now on the earnings only, and not paying taxes on future qualified distributions from this account.

41. QUESTION:
    Can someone explain the pros and cons of borrowing from a 401K account?
    I would like to pay down my debt with a 401K loan. Is this a mistake?

    • ANSWER:
      There are no pros………..just don’t do it……..unless you want to work until you die………you will loose at least 30% in tax’s and penalties…..

42. QUESTION:
    Can I default my 401k account and receive my money, even if my company’s 401k plan states you cannot do that?
    I want to default my 401k and get my money due to hardship created by illness, I am aware of the penelties. My companys HR department states that that is against plan rules and cannot be done under any circumstances.

    • ANSWER:
      I’m afraid that you already know your answer. Bottom line, you can’t do something outside of what is explicitly stated in your contract.

      But if you were/ are genuinely ill (to a debilitating degree), you should be eligible for SSI–they might be able to help you make up for lost income, due to your inability to work (i.e. disability insurance).

43. QUESTION:
    Do you have to pay a penalty for liquidating 401k account if you are under the poverty level?
    For alI you CPA’s out there…I am recently divorced, and because of that & the economy, am facing financial hardship. I am about to receive half of my ex-husband’s 401k. I am having them withhold 20% for taxes, but am not sure if in the state of NH, and because of my income level, I will need them to withhold any for penalties. Can anyone answer this for me? Thanks!

    • ANSWER:
      The term “poverty level” means nothing in the tax code.

      One of the exemptions to the 10% penalty on a 401k withdrawal is a QDRO (Qualified Domestic Relations Order).

      http://www.401k.org/AboutPlans/GeneralInformation/401kandDivorce/tabid/66/Default.aspx

44. QUESTION:
    Is it a good idea to pay off credit card debt by taking a withdraw from a 401k account?
    Recently divorced, had to use credit card to buy furniture, household items, etc. I bought a house, but had to use the equity to purchase a new furnace this past winter and replace the windows. I have about 000 in credit card debt, and I have 000 in my 401k.
    Recently divorced, had to use credit card to buy furniture, household items, etc. I bought a house, but had to use the equity to purchase a new furnace this past winter and replace the windows. I have about 000 in credit card debt, and I have 000 in my 401k. (In response to Amanda: Excellent answer, but yes, the furniture was a necessity since I didn’t have any after my divorce! The windows were old, wood single pane and were in dire need of replacement.)

    • ANSWER:
      Well…no not really. You will pay approximately 25% of your withdrawal in penalties and taxes. Unless you “loan” the money to yourself. Some 401k’s allow this.

45. QUESTION:
    can i deposit money into my 401K account other than through a paycheck deduction? want to catch up on deductio?
    I have not taken any deductions these past few months — want to catch up by paying a lump sum into my 401K — can i do this?

    • ANSWER:
      The only thing you can do is ask your employer to up the percentage you want to put into your 401k to the maximum percentage possible.

      You can’t contribute your own money into the 401K – only money you elect to put into it before you get your pay check. it has to be deducted from your wages.

      If you feel the need to catch up then go to your bank and open up a Roth IRA and put your lump sum money into the Roth IRA.

46. QUESTION:
    We want to close out my wife’s 401k account. What kind of penalties, taxes should we expect ?
    It has only roughly 00.00 in it. She left her employer & instead of rolling it over, we want cash value. What would be a safe guesstimate on the final value in our hands ?
    Company that has 401k plan is Nationwide
    State is New York
    Thanks !

    • ANSWER:
      The ,900 is added to your ordinary income and you will pay an early withdrawal penalty to both the feds and the state. Not knowing your total taxable income there is no way to determine what portion you will see. I believe they will take 20% withholding for the feds but that will not cover your total tax liability. A good guess is that the total tax will be between 50 and 65%

47. QUESTION:
    Can a bail bondsman take lien against a 401k account?
    My friend has been charged with receiving stolen property, and for two open warrants-theft and criminal trespassing. He was arrested while while turning in copper at a recycling plant, the copper was apparently stolen and it was in his possession. He has a 000 straight bond for the RSP and 000 bond and a 00 bond, which can be reduced to 10%.
    Can a bail bondsman take lien against a 401K plan that is currently worth 000?

    • ANSWER:
      He can only claim the amount owed, not the entire amount of a 401k.

48. QUESTION:
    Can I rollover part of a past 401k account into a roth IRA?
    I would like to keep part of the money invested into my past employers 401k account since I have a vested pension and would like to keep ties with it.

    • ANSWER:
      Yes you can but be careful. Every cent you roll into a Roth IRA, you will have to pay taxes on. A wise course is to figure out how much you can stand to roll over each year without placing yourself into a higher tax bracket. Up to about 60k annually for a married couple is the 15% bracket. Try to stay under that. Then next year roll some more. And so on.

49. QUESTION:
    can i do an emergency withdrawal or liquidation of my 401k account without leaving the company?
    i want to default my 401k loans, or i want to do hardship liquidation of funds.

    • ANSWER:
      ONLY if it was done on an after tax basis.

50. QUESTION:
    Can I use my wife’s tax deferred annuity in which we no longer contribute to pay off loan on my 401K account?
    If yes, will this avoid paying taxes or penalty since the funds would move from one tax deferred account into another?

    • ANSWER:
      A 401(k) loan has to be paid back with after tax money (typically payroll deduction). So the amount of loan and interest is effectively taxed twice (the money paid back, and again when eventually withdrawn). That is only one reason a 401(k) loan is a bad idea.

      If there is a way to rollover the annuity into an IRA or your 401(k), it would be a rollover, and would NOT count towards the loan.