401k Catch Up

Frequently Asked Questions

1. QUESTION:
   401K catch up contributions, can I use savings rather than current year earned income to make the contribution?
   I am maxing out the employee allowable contribution but I still don’t max out the IRS allowable contribution. Can I move savings into 401K and lower my taxable income?

   • ANSWER:
     Yes. It is not uncommon for people to put the money they intend to go to their 401(k) into a regular savings account and then make one single contribution to the 401(k) at the end of the year by moving it from their savings to their 401(k).

     You cannot contribute more to your 401(k) than you have earned during the year, but you can contribute up to your 401(k) contribution maximum so long as it is not more than 100% of your annual earnings.

2. QUESTION:
   What are the rules for 401K catch up plan?

   • ANSWER:
     Here are the limits for your 401k and catch up for 2007

     Elective deferrals 401(k), ,500

     Catch-up contribution,000

     Hope this helps

3. QUESTION:
   Payroll – 401k Catch-up Plan?
   We have an employee who’s max out of her reg 401k and now is asking to be set up with 401k catch-up (she is over 50).
   We do not have a deduction set up for Catch-up.
   I was told to set her back up with the reg. 401k and continue deducted at the amount given until the employee reaches her max for Catch-up wich is an extra ,500
   My question is… Is that correct? Can we do that?
   Won’t this be in the same bucket as her max reg. 401k
   How will this be aknowledged at the end of the year???

   • ANSWER:
     the limitations on maximum contribution have been set by IRS(Congress) and it applies to almost all retirement programs,
     if she has reached her 401 k max, that is it for the year for that plan
     she might take out an IRA for herself separately and depending on her income status etc. some or all of it may be tax exempt
     if the ‘catch-up’ because of her age is 0, since your program will probably not let you enter any more for the 401, just withhold the 0 over a period of payrolls, and pay it into her 401 fund
     your W-2 should show the 00 in the regular box for this type of deduction, you may have to hand change it
     I was not aware that the ‘catch up’ applied to anything but IRA’s, I will have research this one

4. QUESTION:
   Make 401K “catch up” provisions or pay down mtg?
   If over 50, is it generally preferable to make extra payments on a mortgage or “catch up” deposits to a 401K?

   • ANSWER:

5. 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.

6. QUESTION:
   i wanted to use my 401k to pay backpayment on my house and get the payments caught up will I be penalized?
   I want to keep my house but haven’t been able to make a payment since September of 2009 I wanted to use my 401k to catch up the payments and save my house.

   • ANSWER:

7. QUESTION:
   401k Catch-up Contributions ?
   can anyone tell me what this plan consists of?

   • ANSWER:
     Catchup contributions are not considered a plan. Catchup contributions is a source of money that individuals can contribute to an existing 401k plan. If you are 50 or above or turning 50 this year (if your plan has adopted this provision under the IRS regs within pension simplification) you are allowed to contribute an additional ,500 over the normal pretax contribution this year (2009 limits) of ,500. So someone turning 50 this year or are 50 or above may contribute a total of ,000 (this provision does not include the highly compensated with the company, they many have other limits).

8. QUESTION:
   Should I take money out of my 401K to catch up a mortgage on an investment property?
   I had lost my job and found another job in another state. We found renters for our house but have had to use their rent for the last couple months to live off of because we depleted our savings trying to stay up on the mortgage. Their rent is about 0 short of the payment, when you factor in property taxes about 0 short. We have eliminated expenses and lowered our monthly bills over the last several months. The thought is refinancing our now investment property to try and get a positive cash flow. The alternative will more than likely be us ending up foreclosing on it or a short sell, because of our current financial situation. We are currently 3 months behind.

   Or does it make more sense to cut our losses and take the hit on our credit? We are currently renting and would like at some point get into another mortgage so we don’t feel like we are throwing away our money to someone else. But we can stay renters in our current house for as long as we may need to.

   • ANSWER:
     I don’t know where to begin to help you.
     But keep in mind that Bobama might extend that 8K tax credit.
     It might be 15K for everyone, not just first time home buyers.
     This may pass as soon as January.
     Hopefully you’ll be able to sell your old house.

     Myself: I would never take money out of a 401K.
     If you do, set aside 40% for tax time in April – you’ll have to write a big fat check to the IRS for that 10% penalty and whatever your tax bracket is.
     /

9. QUESTION:
   why does your over 50 catch up contributions go into a seperate 401k account?

   • ANSWER:
     It doesn’t, or at least I have never heard of a company doing it this way. The Feds certainly don’t require it. Are you sure that it doesn’t just show up as a separate line item but in the same account?

10. QUESTION:
    would you recommend taking a 401k loan to catch up on house payments and car payments before filing bankruptcy

    • ANSWER:
      ABSOLUTELY!

      You should do everything possible to avoid bankruptcy. It may seem like the only way out now, but it will cause major credit headaches in the future.
      You will have a very difficult time getting a loan for anything (credit card, auto loan, mortgage). You may not be thinking about getting a new car or a new house now, but someday you will (your car won’t last forever).
      Even if you get approved – with a bankruptcy in your past, your interest rate will be very high, making your payments very high.

      If you can avoid bankruptcy now, your credit situation will be much better in the future.

      Also, contact your mortgage lender. They may work out a payment plan with you to catch up on house payments. It won’t look great on your credit, but it will look alot better than a bankruptcy.

11. QUESTION:
    401k & Simple IRA Maximum-Poss catch-up contribution?
    My wife & I own a small retail business with one employee & we have a simple IRA plan. My primary job is with another employer with a 401k plan & I have maxed out that contribution for 08 @ 15,500, I am over 50 but did not withhold any catch up contributions. My understanding is that this must be done with salary reduction so it is too late for 08 with the 401K. Since I have reached my maximum IRS allowable deferral amount I don’t think I can contribute to the simple IRA as a regular contribution. I did notice the simple allows 2500 for a catch-up, could I designate a 2500 contribution to the simple IRA as a catch-up & get the income reduction?

    • ANSWER:

12. QUESTION:
    If I need money to make home repairs and catch up my mortgage is there any way to use my 401k money?

    • ANSWER:
      You will need to check with your HR dept. or benefits coordinator. Some plans allow you to borrow money from your 401k, but you will have to pay it back, with interest. Others don’t allow you to touch the 401k while still employed. For instance, I can borrow up to a certain percentage of my 401k at 10% interest, and string the payments out for as long as 5 years. My catch is that the only way to have full access to my 401k contributions is to quit.

13. QUESTION:
    The IRS allows a maximum annual contribution to 401k plans, with a “catch-up” feature if you’re over 50;
    but tell me, does the dollar amount they set include matching funds from your employer, or is the limit just on what the employee contributes?

    • ANSWER:
      the employee contribution limit is called the 402(g) limit and is currently ,500. It is indexed and goes up almost annually. However it will only go up in 0 amounts. So if the index rises only slightly there may not be an increase in this limit. As stated earlier, this only includes employee contributions.

      In addition to that 402(g) limit of ,500, each account is also subject to another limit called the 415 limit. This amount includes ALL contributions being made to a persons account. This limit is currently ,000. It too is indexed but in 00 increments instead of 0.

      Each of the above figures does not inlcude the “catch-up” amounts and can be increased accordingly.

14. QUESTION:
    Could I ask my emloyer to put away a chunk of money into my 401K?
    Can I say take my whole 2 weeks pay and drop it into my 401K to catch up?

    I havent been investing enough, and would like to take the tax advantage.

    • ANSWER:
      That will depends on the limits that your 401k administrator puts on you. Some plans will only allow 25% of your gross pay to be put in. Ask your employer this question as it pertains to THEM.

15. QUESTION:
    Should we rollover our 401-K or catch up on our mortgage?
    My husband was laid off this summer and we’re behind on our mortgage. Not enough to be in jeopardy, in fact, only by one month. It is causing an additional late fee each month, but we just cannot get caught up. He has since found a new job and we are now struggling with whether or not we should rollover his 401K with the new employer, or should we take the money and catch up on our mortgage?

    • ANSWER:
      i always recommend catching up on any debt before starting to save/invest…it’s only logical to think that way. plus, it’ll give you some peace of mind.

16. QUESTION:
    I pulled money out of my 401k to get caught up.?
    I work on commision and well, I’m hurting…People arean’t buying..
    So a few months ago I pulled some money out of my 401k to get caught up…I payed off a credit card and half of my car…
    When I pulled the money out, about 30% was held back for taxes..
    I haven’t gotten my w2 yeat and was wondering…Is that going to be on there ? Do I have to contact the company that handles my 401k and get some paperwork from them or is it taken care of ?
    Someone at work told me that it will already be on my w2 and that the amount held back has already gone to the irs…Is this true ? Am I worrying about something for no reason ? My 401k is held out pretax by the way..And will this put me into a higher tax bracket ?
    Someone tell me how this works…Please ?

    • ANSWER:
      Generally, the only information on your W-2 is payroll information. You may see how much is taken out for your retirement plan, but not distributions. Those come on a different form – the 1099-R.

      When you pull money out of your retirement plan without a special exemption reason (first time home purchase, college, severe medical need, death.. etc) – you will be hit with a 10% penalty from the IRS, and possibly a smaller penalty from your state – sometimes around 2% depending on the state.

      You also have to include all the money in your taxable income – since its the first time you used the “earned income”. So depending on your tax rate, that could be 10%, 15%, 25% – or so on.

      You need to include the income on your 1099-R with your taxes. You can learn about it on the IRS website, or hire a local CPA or tax preparation agency – there are quite a few in most cities.

      Yes, the money is sent to the IRS (and, if it was designated, the state tax boards) already. If you withheld 30% – you’ll probably done just fine, although that’s a serious penalty and worse – most IRAs and 401(k)s have already dropped 30-50% in value due to the faltering economy. Over the “long run” – you’ve taken a pretty serious hit.

      Good luck!

17. QUESTION:
    How can I reduce the tax I have to pay for the dividends I received in 2006 from stocks?Catch up on IRA?
    Instead of re-investing the dividends in the stock I have, I requested and got them to pay me the dividends to supplement my income. I took early retirement and worked part-time in 2006. I did not put any money into IRA for 2006. In my parttime job, I had put ~K into a 401K account. My total AGI for 2006 is ~K. My preliminary tax return showed that I have to pay taxes for the dividends that I did not pay taxes in 2006. I have to pay a penalty also. In order for me to reduce taxes, can I still put money into IRA for 2006? What is the maximum amount for 55 year old and above? Are there other things I can do to reduce the taxes and hence the penalty I have to pay Uncle Sam?

    • ANSWER:
      By the way, if this stock was held in a non-retirement account, you would have had to pay tax on the dividends every year, reinvested or not.

      Yes, you have until 4/17 to get up to 00 into a traditional IRA to reduce your taxes. Since you were covered by a retirement plan (the 401K), it will not be deductible if you are single. If you are married filing jointly, you would have a deduction. See the work sheet on page 22 of the instructions for form 1040.

18. QUESTION:
    Error on 401K deduction, employer won’t fix?
    In Jan. 2007 I notified my company that I wanted to take advantage of the 401K catch-up contribution which allowed me to have more money deducted than the standard ,500. I reminded the business owner and our payroll person of this prior to the last pay period when it was going to kick in because of a bonus. On my last pay statement and W-2 I discovered they had not done so and about K was not deducted for the 401K. I notified my employer and he is refusing to correct this as it will cost him about 0 in payroll expenses. But, he admits it was the company’s error, Do I have any legal recourse to force him to fix this? Our plan documents allow the catch-up contribution, but they didn’t notify the payroll service that this was a catch-up contribution so the final pay deductions weren’t coded correctly. Initially my boss claimed that I hadn’t requested the deduction in writing, then when I showed proof that I had, he claimed I waited too long to say there was a problem.
    And, FWIW, I’m already actively looking for a new job since this isn’t the only issue I have with my boss.

    • ANSWER:
      legally it has to be fixed. And legally he needs to do it whether you want him to or not. However, you have to ask yourself if it’s worth it. He will be required to adjust your pay (ie you’ll have to pay him $$…redo the books…redo the w-2′s…and account for interest that you’ve missed out on (which likely is zero but the calculations have to be made anyways. Is that 3k worth it to annoy your boss to the point that you suddenly become the black sheep with a target on your back?

      If you haven’t maxed your IRA and can do so I’d go to your boss and say look, you missed my catch up calculations. I’ll fund an IRA for the 3k if you’ll pay me 0.00 in interest losses and we’ll call it good. I’m sure he’d go for that.

      If you already have funded your IRA then I’d go to the non-deductible contribution route and ask for more to account for the inability to offset my taxes.

      But…if you want to push this then the DOL is who you would want to call. Do everything you possibly can to avoid this as your plan likely has other issues and the DOL will search for and find all of them and your boss will be on the hook for penalties…and he won’t be happy.

      Edit: if you’re actively looking then make them fix it. This may even fall under the provisions that require them to put the money in FOR you. I’m not sure on that though because you weren’t unfairly excluded from deferring entirely, just excluded from making the catch up. This could be a long process…just a warning.

19. QUESTION:
    Would allowing a one time limited amount withdrawal from 401k plans without penalties be helpful to economy?
    In the present economy, what would be the impact of allowing folk a one time withdrawal from their 401k plans without the penalties to pay down debt, catch up behind payments, do home repair or to make targeted purchases to help stimultate the economy. I’m thinking a maximun of 20% of their present balance. And write into law that this can only be done during national emergencies and only in 10 year time spans.

    • ANSWER:
      Doesn’t that just delay the problem – so instead of not having any money now, you don’t have any money for later in life? The problem I see with it is that it does not force people to take responsibility for their finances now. If you are living beyond your means, you need to come up with a plan and budget to live with the money you make. People are so used to having everything that sacrifice, work, and budgeting are forgotten concepts. It may not be easy now, but if everyone who are having these issues addresses the probelm and takes responsibility, it will only help in the long run. Bailing people out in the short term does no good.

20. QUESTION:
    Can I dump savings into a new 401k to boost my company contribution?
    I qualify for my company’s matching contribution in November and am wondering if it’s possible to dump some of my savings into the 401k initially as a means of increasing the amount of money I get from my company. I’m under 50, so I know I don’t qualify for the “catch up” contribution. Thanks for all answers!

    • ANSWER:
      It depends. It’s possible to get the savings in there by changing your deferral percentage to 100%. However, the match is based upon your eligible compensation multiplied by the matching percentage. They then compare that result with your own contributions and take the lessor amount. So, while you may be able to jack up your own contributions, you’re still limited to the calculated contribution amount. This is determined by the eligible compensation variable. Most plans limit compensation to only compensation earned while eligible. For you that would be compensation earned during November and December. Now, if your plan document has no such limitation???? Then yes, you can front load and maximize a match using your entire years compensation.

      works like this…

      Jan – Oct Comp = 10,000
      Nov – Dec Comp = 2,000
      Match =100% up to 6% of eligible comp.

      Eligible comp calc’d only on comp earned while eligible = 6% of 2000 or 120. So anything contributed over 0 is unmatched.

      Eligible comp = annual compensation with no limitation = 6% of 12,000 or 0.

      That being said, I’ve only seen 1 plan in 15 years that didn’t have the limitation and that plan was mostly family of owner of company.

      Check your plan document to see what it says.

21. QUESTION:
    Maxed employer 401k – Can I contribute to a tax-advantaged IRA, as well?
    Our combined AGI is less than 160K and we both contribute the maximum of 14% to our respective company’s 401K plan. I will be 50 this year and my wife is 40. What amounts, if any, can we contribute to additional tax-advantaged accounts? Also, do our employers have to accept catch-up payments to their 401K plans?

    • ANSWER:
      Yes you can as long as you meet the AGI requirements. he amount depends on your AGI.

      Check out the link to the IRS website below. There is a lot of good information about retirement account contributions.

22. QUESTION:
    how do i close my 401k account?
    how do i go about closing my 401k account? right now I’m in a little of a financial strain and i need the money out of my 401k account in order to catch up on my bills. I’m also trying to help my mom financially.

    • ANSWER:
      Shawn

      If it is a standard 401k you just can’t close it and take out the money. It is a retirement account. Some 401k accounts offer a loan option, but it it for a small percentage of the total balance, The only 401l that I know that allows withdrawls form the account is a Roth 401K, which only began being offered in the past year.

      You can contact your plan administrator to verify.

      Soccerref

23. QUESTION:
    My employer is taking my 401k cont out of my pay but not putting it in my 401k acct. What whould I do?
    My 401k is through John Hancock and they are not willing to do anything about it. My employer at the beginning of the year changed 401k providers and has not said anything about the previous 401k program and if and when it would be caught up. This is all my money, taken from my check, the 401k match is another issue but the money taken from my check is my biggest concern.. Thoughts!!!!

    • ANSWER:
      Jackie has it right…if your employer changed 401k providers at the beginning of the year then you are in a blackout period where they are basically reconciling the accounts. Blackout period is typically 30-45 days. You probably (it’s legally required) received a blackout notice that explains all of this. Many people get these and simply toss it in garbage without reading it or understanding it.

      And reporting your employer to the DOL should be the absolute last step you should take. The time and expense required to respond to DOL audits or even requests is enough to piss off anyone; especially an employer that is going by the books and is actually doing nothing wrong. Check with your employer to make sure that it’s in blackout. If it is…wait until the blackout period is over THEN decide if you need to investigate further.

24. QUESTION:
    Is it a good idea to roll over a 401k to an Ira if we are financially strapped?
    We are close to foreclosure and getting our utilities shut off and unemployment barley covers food expenses and fuel, or any other living expenses.T his would be the only way we can get some money to catch up on the never ending bills.

    • ANSWER:
      It would be better to first check with the plan administrator of the 401k whether it allows for hardship distributions. If it does, you would have to satisfy their definition of a hardship distribution and prove extreme financial need. In this case, you could take a distribution and the 10% penalty would be waived.

      If the plan doesn’t allow it, but you are eligible for a rollover, you can roll it over into an IRA. If you’re under 59 1/2 though, the 10% penalty would still apply. But to avoid it, you could sign up for the 72t service in which you are required to take out specific amounts each year until you turn 59 1/2 and the distributions would be penalty-free.

25. QUESTION:
    Withdrawing funds from my 401k plan that was rolled into a IRA?
    I’m in a pretty bad place financially and my only option is to withdraw the funds in a IRA that I rolled my 401k into. I know this is not a smart move but at this time my family only has 1 income and my credit is starting to suffer. I’ve had perfect credit until now and I just can’t afford to let it get worse. I have faith that things will get better I just need to stay caught up with my financial obligations. Thanks for any advice.

    • ANSWER:
      Not knowing how dire your situation actually is, I can only give one piece of advice:

      Be sure you are keeping a realistic perspective on what you situation is and what the implications are.

      Many people put pride in keeping a credit score of over 700 and being able to pay their bills on-time or ahead of time every month with more than the minimum payment. Therefore, making ONLY the minimum payment or something similar can seem catastophic.

      Keep in mind – your retirement savings are protected. They are providing security for the future. If you take money out of this fund, you are robbing yourself and potentially creating more problems for your future.

      1) If you are paying more than the minimum balance on your bills, STOP. But note that this is a short-term solution to get you through your current situation.
      2) Eliminate any unnecessary expenses. People consider all sorts of things ESSENTIAL that are really not. Examples: cable television, name brand foods, bottled water. You can reevaluate your phone calling plans (perhaps downgrade).

26. QUESTION:
    While working in ’06 I had a 401k, but left end of July. Which can I continue to fund IRA or ROTH IRA?
    401k already rolled over into an qualifed IRA and I did not max out the amount I could have put into the 401k in ’06. Worked for self last part of year. Gross income approx ,000. Don’t know how to calc AGI. Am over 50 so I am aware of the catch up payments permitted.

    • ANSWER:
      If you worked for yourself part of the year then your company (you if it’s a sole proprietorship) can start up a SEP-IRA and put in 20% of the income that you earned by working for yourself. So, if your gross of your self employment income was 20k then you can put 4k into the SEP which does the same thing as putting it into a traditional IRA. Careful though if you had employees because you may have to contribute for them too.

27. QUESTION:
    A former employer went public and I would like to take the procceds from that 401K to pay off 17.5 % car loan?
    I made k on one day in my old 401 k. In the same week, my car was repossesed. I paid the back payments to get caught up, but I struggle to make the 4.00 payment. I owe just over k on the car worth k.
    I have had my electricity turned off twice in the past 8 months due to non payment..
    Does it make sense to take money out of the 401k to pay off the car? My currently employer puts 15% into my 401(b) account, and I have a fixed benefit pension from a long ago employer. Even with paying off this car from the 401k that just went public, I will have about 12k in that account when I am done (assuming I take out 35% withholding to cover the penalties and normal income tax from the withdrawal).
    I am a single dad paying rent, child support and I do not live extravagantly at all. I have a medically fragile child with some medical bills even after insurance.
    I am 46 years old and plan to work till I drop dead!

    • ANSWER:
      Normally I’d say no, don’t take the money from your 401K, but it sounds like you’re in a pretty deep hole financially, so even with the 10% penalty you’d pay, it might make sense for you to do that. If you have 35% withheld, it should cover your tax liability unless you’re in a high bracket.

      See first if you can take a loan against your 401K, if you’d be able to make the payments. But if you just can’t do it, then taking money out, if it’s allowed, might make sense. If you have to take the whole amount out, be sure to roll anything you don’t need into a rollover IRA so you don’t have to pay any more tax than necessary.

      Good luck.

28. QUESTION:
    can i take money out of 401k on temporary layoff?
    If I get caught up in a temporary layoff. Can I withdraw from my 401k Plan?

    • ANSWER:
      You can take the money out but you will pay income tax plus an additional 10% tax which is an early withdrawal penalty.

29. QUESTION:
    Is maximum roth plus 401k for 2008 ,500?
    I am 55 so if I see it right, I can put ,500 + 00 catch-up into my 401K and I can contribute 00 plus 00 (over 50) to a ROTH. That all comes to ,500. But I have read that toal contributions to 401k plus roth is ,500. So what is the deal?

    • ANSWER:
      Your first answer is correct provided that your income does not exceed the IRA income limit.

30. QUESTION:
    Pay off house early versus contributing to 401K?
    I would like to know the pros and cons of putting money into my 401K versus paying off my house early. I am 49 and contribute 15% into a 401K. If I used that money to make double payments on my house, it would be paid off in less than 6 years. At that point, I could contribute from age of 55 until retirement my 15%, 5% catch up contributions and put additional savings in an IRA. Using 401K calculators it appears I would end up with about the same amount of money in my 401K at retirement.

    • ANSWER:
      I think you’re forgetting the tax implications.

      The IRS would love you — it’s a double whammy from a tax perspective. If you’re paying more toward your mortgage, you’re taking away one of the best ways to reduce your tax bill (by paying off the interest faster and faster) while you’re also losing your tax-free contributions to your 401k (since that’s where the extra cash is coming from.)

      So, basically, you start paying taxes on more money because it isn’t going into the 401k PLUS, you’re losing your tax breaks on the interest you’re paying toward your mortgage.

      You’d have to crunch the numbers to be sure (or check with a financial advisor), but as a general rule, it’s a bad idea in my opinion.

31. QUESTION:
    Can I take an tradtional IRA deduction even though I max out my 401k?
    I am over 50 and will max out payroll pre-tax at ,500 plus ,000 catch up

    • ANSWER:
      Yes you can make a contribution, but the contribution to the traditional IRA will not be tax deductible. This is typically not the best use of your available investment dollars. As mentioned a Roth IRA might be a better solution (there are maximum income restrictions which depend on tax filing status), it is not deductible, but not taxed when withdrawn in retirement.

      If you contribute to a traditional IRA while contributing to a 401k it will be with after tax dollars (because they are not tax deductible) and when removed in retirement will be taxed again as normal income. This double taxation is why it is not a good idea.

      If you don’t qualify for a Roth IRA a taxable (non-retirement account) may be a better alternative.

32. QUESTION:
    401k and taxes ???? 20 characters..there.?
    So I work on commision…I’m down 25% for the year 2008..
    Anyone who says we’re not in a recession needs to look at my paycheck !
    Anyway…In august I pullled money out of my 401k to get caught up on bills…I payed off half my car and half a credit card..
    When I drew the money out, the site held back about 1/3 for taxes…My 401 is pretax…
    Will the held back amount be enough to pay all of the taxes ?
    I’m really worried here…I took out a big chunk of my 401k, not really knowing what I was doing and it was out of desperation…Will I get a tax refund or will I owe money ? I ask because if I end up oweing, I[m totally screwed…

    • ANSWER:
      No way to know without all of the details of your tax situation.

      Federal taxes are withheld at 20%. Your state may require state taxes to be withheld as well. The distribution is taxed as ordinary income, plus a 10% penalty if you were under age 59 1/2 when you took the distribution. If your tax bracket is 15% or higher, the 20% withheld will not cover the total tax liability. Depending upon the amount of tax withheld from your regular pay it’s very possible that you may owe when you file this year.

33. QUESTION:
    Is now a good time to start a 401K? ?
    I am 30 and have never been able to afford to contribute to a 401k. I know I obviously have a lot of catching up to do. Is now the right time to start one up with the economy the way it is, or am I better off waiting until things improve?

    • ANSWER:
      Yes, and yes. And you should have started ages ago – but nothing you can do about that now…

      Magic number: 15% of paycheck. That’s usually the maximum a company will allow you to put into a “corporate savings plan”, and always take advantage of any corporate matching. Unless your 401K plan isn’t affiliated with a company, or with a company that allows contribution matching. 100% of 6% is a GREAT matching rate, however your typical company will match 100% of the first 3% of your contribution, and 50% of an additional 3%. Since you’re still young, invest in riskier funds, funds with greater historical fluctuation (7-14%), and since everything’s in the crapper right now, you get to buy cheap. The market will make a solid rebound in 15 years (assuming no one mucks up the recovery – I’m looking at you, Obama!), and by that time you’ll be 45-50, you’ll want to shift your contributions and investments to lower-risk, more moderate performance funds (like, literally, selling your shares of higher risk and reinvesting those funds in lower risk).

      It’s never too late, the sooner the better. But since you’re a good 10 years behind, if you can put in more than 15%…I’d strongly suggest it.

34. QUESTION:
    401k and tax debt question?
    I cashed out some of my 401k to help me get caught up on bills that I unexpectedly had to deal with. I heard there are a few reasons that the IRS will allow you to not be taxed or to be taxed less than what they normally do. Any links to where I can find information about it will help. Thanks in advance

    • ANSWER:
      To be exempt from the 10% penalty, you need to file form 5329 and qualify for one of the exemption codes on page 3 at: http://www.irs.gov/pub/irs-pdf/i5329.pdf

      If your bills were, for example, medical bills or to pay medical insurance premiums in some cases, you may qualify.

35. QUESTION:
    I left a 401k behind at a former employer and just moved on. I just focused on re-employment; its been 2 yrs.?
    This former employer doesnt return my calls. How do I catch up with it; What happen to it?

    • ANSWER:

36. QUESTION:
    I have a loan against my 401K but I am going through some financial woes and need advice?
    If I could stop my 401K distributions and increase my take home temporarily I would be able to catch up. 1st-Can I cancel my 401K anytime I want too? Would they take the amount I owe on the loan if I cancel? Can I restart the 401K anytime?
    I am 31 years old. I plan on continuing to contribute after a while but let say I have 32,000 and my loan is for 19,000. Can they go ahead and take the amount I owe and leave the rest alone?

    • ANSWER:
      I’m not certain I completely understand what you are saying. Do you mean you want to (temporarily) stop the contribution that goes to your 401k from each paycheck?

      If that is what you mean, yes, that can be done. Whether you can start/stop the contribution ANY TIME depends upon how your employers plan guidelines work.

      Some employers do allow you to make changes any time. Others allow this only on a quarterly or other period basis. This is a question that should be easily answered by your HR department.

      I assume you aren’t talking about taking the money out of the 401k, just stopping your current contribution for a period of time.

      If that is the case, they would not take the amount you owe for the loan just because you aren’t contributing any additional money into the plan. This is the reason many employers limit the amount of a loan you can take against your 401k to a certain percentage of what you already have in it.

      You should be able to start the 401k again once you want to…again, within the employers guidelines, whether that be on a monthly, quarterly or other schedule.

      Bear in mind, most loans on 401k’s do become fully due and payable if you leave employment with the employer. Failure to pay back the loan will make it become a taxable distribution, subject to taxes and penalties….ouch!

      Your HR department is your best place to get answers to your questions. Don’t forget to ask them for a summary plan description on your 401k, it is a guidebook for lack of a better term that explains your particular 401k policies and rules.

      I hope this helps.

      Additional info in regard to your additional info: It is doubtful that the employer would even be willing to do this, but if they did and they took a distribution to pay off the loan, it would cost you a lot more than the 19,000 you owe. This is because the 19,000 would become a taxable distribution. You would owe tax on it. (Tax is deferred on money put into a 401k, that’s the purpose of this set up). You would also owe a penalty for the early withdrawal.

      I don’t know your situation, but if you are in need of more money in your pocket, you might consider stopping your contribution for a time, or if that isn’t enough, perhaps the loan could be refinanced, through the 401k to bring it to a lower payment. For instance, if you took it out previously and it was 25,000 to be paid back over 5 years. Then say, you paid on it for 2 years so it is now 19,000. Then perhaps they would let you refi the 19,000 for another 5 years, making the payment lower.

      Finally, bear in mind, sometimes when a loan or distribution is taken, there is a period of time where you are not allowed to contribute anything to the 401k.

      I would advise against taking any sort of taxable distribution unless you have absolutely no other choice. It really eats into all you’ve been doing to try to save money for your retirement…which is so important these days.

      Good Luck…

37. QUESTION:
    Why is there a ,500.00 limit for 401k’s each year?
    It seems to me we should be able to allocate more and was wondering the reasoning behind this. I know each year it generally increases slightly but still, not enough if you are getting a late start to catch up.

    • ANSWER:
      Government has decided that people need to save a reasonable amount for retirement. But at the same time they need to keep tax money rolling in….And if you’re late starting ie age 50 then you can put in an extra 5k. So in the next 17 years (hey- you’re late starting you shouldn’t be able to retire early!) you can save well over 0,000 including interest..easily enough to pay you over ,000 a month for rest of your life.

38. QUESTION:
    I want to take some money out of my 401k..like 700? Would that be ok?
    Hello! Thank you in advance for your help. I wanted to pay some bills and was wondering if I could withdraw some money from my 401k. Roughly about 700 dollars. I make about 2k a month and I really don’t want it to catch up with me,

    • ANSWER:

39. QUESTION:
    loan against 401k . off work for medical condition. and unable to make payments to 401k loan .?
    was notified it was in default. due to my situation and lack of funds default was not a bad thing. upon returning to work i was told i owe the company for them paying my benefits while i was off. they also said they were going to get my loan out of default and i would be required to play catch up on the payments via payroll deduction. the way it stands i will be taking home less than 1,000 a month .can they do this to me?

    • ANSWER:
      i believe they can. the next time that you are out of work for any reason, notify your carrier and get your loan suspended until you can start back making payments

40. QUESTION:
    How best to supplement a 58 year old retiree’s 401k/IRA?
    *Mom’s IRA is now entirely cash. Had been in previous employers’ 401k funds, but she no longer contributes (as she’s no longer working) and thus there is no benefit to staying with the 401k (as opposed to investing in the funds ourselves).

    *She has minimal cash flow needs (she’s retired already) as she receives monthly installments from her late husband’s dividend-paying partnership units at a large accounting firm.

    What do I need to know about 401k contributions (i’ve heard of ‘catch-up’ contributions) or IRA investment restrictions so as to best prepare her for age 65 (when the partnership cash flow stream will cease)?

    Thank you in advance!

    • ANSWER:
      If your mother is no longer employed, she can no longer contribute to a 401K plan. Regular or catch up. She also can no longer contribute to an IRA as she has no earned income. Unless she finds another job. My suggestion is to leave the 401K in place until the partnership payments cease so her 401K withdrawals will be taxed in a lower tax bracket. With 7 more years to go to 65, she should still have some of her retirement account(s) in stocks, but not too much.

41. QUESTION:
    How much can my parents put into their ROTH IRA’s?
    Both my parents are over 55, my dad is retired but my mom is still working. They are under the AGI limit but i’m not sure how much can be put into each of their accounts.

    Even though my dad is retired my mom can fund his account and based on their age they can both have 5,000 put in for 2007.

    My problem is that after pretax deductions like 401ks, 401k catch ups and health insurance my moms took home ,000. Does that mean that the total contributed to their ROTHs cant exceed that amount even though she earned well over that amount?
    For example if my mom made ,000 and put ,000 into her 401k that means she only got taxed on ,000. So as far as a ROTH IRA is concerned how much was her income for the past year?

    • ANSWER:
      Contribution Limits

      Year Age Under 50 Age Over 50
      2007 00 00
      2008 and thereafter 005 00

42. QUESTION:
    May be forced to retire real soon. Will get 13 months severance. Want to max out 401k pretax & company match.?
    I’m set up to go for full pre-tax 401k contribution of ,500, so am only half way as of May. Catch-up of 00 is done for year. I’m expecting 13 months pay severence so marginal tax will be %33 this year. My company still does %3 match on 401k. In the past I found that if I accelerated my 401k contribution I did not get full match, although I fixed it in time and never really found out the formula. Here are my questions:

    1) Verify you can’t contribute to 401k after retirement?
    2) Can severance pay be direction to fill unused 401k pre-tax contribution for year?
    3) If so, can I expect company match?
    3) If 1 is true, and 2 is false, then I will turn on 401k spicket full blast (50% of pay) for next two months to fill my 401k quota. This should work to max out my contribution. Does anyone know how I can get a full year company match? I suspect I won’t under this scheme.

    • ANSWER:
      1) you must be employed
      2) Likely yes
      3) Likely yes
      4) Do it anyway
      5) Start looking for a job, but be sure there are no numbers on your resume.

43. QUESTION:
    Where can i get a loan loan of 00 and will pay in 10months?
    i can repay in 10 months, i just need it now for day care and debt consolidation so we can catch up on debts. i can borrow from my 401k in 10months so it’s a sure repayment.

    • ANSWER:
      I had a good link but misplaced it. Will look for it though.

44. QUESTION:
    How much can I put into retirement accounts, 401k, Trad and Roth IRA, each year?
    I am 42 so I want to put a lot away over the next 10 years to catch up. I have about k in IRAs and a 401k account. Can I max out (put in the full amount for the current or deferred tax deduction) both a Traditional and a Roth IRAs (assuming my income qualifies). Then can I also max out my 401k? Given the current limits (401k 15500, IRAs k each) that would suggest a max contribution of 25500 (I get no employer contribution). Is there a way to save more in some tax deferred account?
    As a corollary question, at the end of the year can I take all the money out of the 401k and roll it over into a Trad IRA thereby effectively having 20500 in a Trad IRA that year?

    • ANSWER:
      For people under 50, the max is ,500.

      ,500 in to your 401k; and,

      00 in to your IRA.

      Though there are different types of IRAs, your total contributions to all IRAs are limited to 00 for the year.

      Any remainder that you have to invest would go in to taxable accounts. One option would be to invest in Municipal Bonds. They are exempt from Federal Income Taxes and may be exempt from state income taxes also.

45. QUESTION:
    What should I do with my 401k?
    I have a dilemma. I am 27 years old and have been contributing 7% of my income plus a 3% match to my 401K for about 1 1/2 years now. I messed up about 3 years ago because I had been contributing to my 401K since I was 19 but cashed it out because I was going through a divorce. What a mistake that was! Either way, I’ve learned my lesson and am trying to catch up but now with the market and all, I was wondering if I should continue to contribute the same amount and as aggressively as I have been. I am in an aggressive profile with my 401K. I can change it but am unsure whether I should do that because I know that when there is a decline in the market, you buy stock cheaper and that is how you can make money later when the market recuperates. I was also considering raising my contribution half of my raise every year until it reaches the maximum. I know now that it probably will not make up for the 00.00 that I had in the original (cashed out) 401K but at least it is something. At this point, I am making ,500.00 a year. If you were in my shoes, what would you do? There was approximately 00.00 in my 401K before the crash and now there is about 00.00 in there now. Is there any financial experts out there that would be willing to help me out? Any information would be beneficial. Thanks!
    I like where this is going….very good responses…but another thing I was wondering is if I should put it into a more moderate conservative account instead of aggressive…or is aggressive the way to make money?

    • ANSWER:
      Stay in the risky stock fund. The stock market will recover eventually and right now you just have losses on paper. But, if you transfer the funds to a money market or something, then the losses are real.

      Keep putting money into the 401k. If you can designate where the new contributions go (in a separate fund from the existing ones), put that into a money market fund for at least a few months until the market stabilizes. Then, early next year, put it all into a riskier, high-yield stock fund. By then, the stock market will have no where to go but up.

      I did this in 2002, when I rolled over a K 401k from a previous employer into a high-risk, high-yield stock fund. By March of last year, I had 0K. When the market hiccuped (Dow lost 350 points in one day), I got a feeling of impending doom and transferred all of the money to a money market fund. It’s now up to about 0K (3% annual yield). And, the stock fund I was in lost 40% over the last 9 months.

46. QUESTION:
    How can I get my money?
    I have a 401K with Fidelity with a little over ,600. I am so far behind on my bills that I can’t catch up. They tell me that there are only four ways to get my money. They are:

    1. About to be evicted or foreclosed.
    2. Upcoming education expenses.
    3. Medical expenses
    4. Down payment on a house

    I have told them to close my account, deduct their fees and taxes, and give me the rest, and they said NO. I don’t know what else to do as I already have a loan out on my 401K.

    Any help would be appreciated.

    • ANSWER:
      start by living within you means this means 33% of takehome pay for housing, 13% for a vehicle, 10% in retirement saving(401k) 20% for elec,heat,phone. 15% for food, 5% for emergencys..feel free to blow the last 4%

47. QUESTION:
    401K advice Needed?
    Hello, I’m a 40 year old professional, with a wife and 2 year old son. The early years of my marriage, in particular the desire to keep my wife at home during the first years of our child’s lives, have led us to empty out a 401K from a previous employer. I’m essentially starting over again with my new 401K. I’m also having to think about saving for my children’s college education.

    My current asset allocation in my new 401K is: 20% in an S&P500 index fund, 20% in a small cap growth fund, 20% in a large cap growth fund, 20% in a bond fund, 15% in an asset allocation fund, and 5% in a money market account.

    Can you offer any tips/advice for getting my retirement savings where they need to be? Is my asset allocation strategy appropriate for my age? What % should I be contributing at this point in order to catch up? Thank you for any advice you can give.

    • ANSWER:
      You have an very specific situation that a financial advisor will have to work carefully with you in that your retirement and your son’s college education are so close together.

      As a point of reference as to your portfolio mix for retirement I just looked up the mix for Fidelity Freedom 2035 fund. This fund is designed to rebalance more conservative as the investors reach retirement age – targeted for people retiring in around the year 2035. It is unlikely this single fund is available in your 401K I used them simply as a professionally picked example of a portfolio mix. 66% U.S. equities, 16 % Non- US equities, 10% investment grade bonds, 7.5% High Yeild bonds, and .1% money market/other. (numbers rounded). Your portfolio listed above is actually really close to that already – super! Check to see if the Asset Allocation fund has some foreign exposure. If not, it may just be duplicating some of the other funds and could be changed over.

      Next part is make your retirement budget: Start by figuring between 60 – 80% of your pre-retirement income in order to live in retirement. This income will likely come from 1) Social Security 2) Pensions 3) investment income/ savings and 4) IRA/ 401K proceeds.

      You can request a statement from Social Security that will show your estimated benefit paid to you if you retire at age 65. That can go up if you work longer, and down if you file earlier – anyway, that plus if your wife is eligible for SSI, can be part of your income – if you are starting a new job now, the lieklyhood of a traditional pension is low, and in my opinion, any additional savings will go toward college for the little one.

      So you will need enough in your 401K / IRA vehicles to get you to 60-80% of your pre-retirement income -minus – your expectations from Social Security.

      Once you figure that out, figure that income figure is about 6 percent of the total that should be in that account on retirement day. Divide that by the amount of time you have left, (use a retirement calculator from online that can figure in the growth during your accumulation phase (there is one at Wachovia.com) and there lies the answer to your question above.

48. QUESTION:
    Hardship withdrawals from my fidelity 401k account.?
    I took a hardship withdrawal from my account a couple of months ago to catch up on my house payment after being laid off for a couple of months. I am laid off again and was wondering if they would let me take out another hardship withdrawal? Anyone know if I can take out 2 hardship withdrawals in about 5 months apart?

    • ANSWER:
      If they don’t (for any reason), tell them you want to close out the account, and request them to send you a check.
      Sounds like you are in a mess, so I won’t warn you about the huge mistake you’ll be making.
      Just be ready to pay about 40% of what you get at tax time in April.
      Keep some money set aside.
      Sam is going to be one happy uncle.
      /

49. QUESTION:
    defaulted 401k and having to pay back for benefits?
    Loan against 401k . off work for medical condition. and unable to make payments to 401k loan .?
    was notified it was in default. due to my situation and lack of funds default was not a bad thing. upon returning to work i was told i owe the company for them paying my benefits while i was off. they also said they were going to get my loan out of default and i would be required to play catch up on the payments via payroll deduction. the way it stands i will be taking home less than 1,000 a month .can they do this to me?

    • ANSWER:
      Tell them you want to close your 401K account and liquidate the assets.

      Human Resources is so gun ho on you saving that sometimes they forget this is your money and you can do with it what you want.

      If you want to take the money out, It’s yours.
      You know the penalties and taxes – if not other answers will tell you.
      /

50. QUESTION:
    What should I expect if I’m pulling out my 401k early?
    I’m 30 yrs old in a financial situation where I’m unemployed and have approx. 20 grand in a 401k. I want to pull out enough money to cover 5 grand to catch up on my mortgage and pay down some debts to make my household monthly expenses including a wage garnishment of 20% lower by 850 bucks a month.Is this right the answer to my problem or should I use the money more wisely? How long does it take from the time I request the money till the time I receive it? What penalties and taxes should I expect? If I need 5000 how much over that do I need to pull out? As you can tell I’m not remotely financially smart, so any help will be greatly appreciated!
    Thanks!!!

    • ANSWER:

      If you withdraw money from your 401K you will pay a 10% early withdraw penalty, which will be taken right out of the amount you get–so you will get 00 instead of 00. Additionally, when it comes time to file your income taxes, you’re going to owe tax on 00 (not 00!) MORE income than you would have had. This can cause your refund to dwindle considerably or disappear altogether, depending on your situation.

      Usually you get your money within 2-4 weeks when you intiate a withdrawal. This largely depends on the plan, however, and how much business they have, how busy they are, etc.

      Yes, it is a good idea to use this money to pay down debt and to catch up your mortgage. Since you’re unemployed, however, you won’t be able to catch this withdrawal up later. You should keep your expenses as low as possible while you’re unemployed and this is one way you can do it.

      The benefits outweigh the penalties in your case.