401k
401k Information

401k Limits 2011

Avoid the Wall Street Wizards

Prudent 401k Investing Advice

The 401k’s great advantage comes from your control over where and how to invest the funds. Most 401k plans give you a fairly broad array of preferred stocks and sound mutual funds from which to choose. Although your employer may amatcha some of your cash contributions with shares of the company’s stock, the majority of your 401k assets may go into the investment instruments you prefer.

In the spring of 2009, however, as the economy goes into a deadly tail-spin, most people have no good, reas 00004000 suring plan for choosing the right investments. During the fall of 2008, 401k’s lost considerable value no matter where or how people had investeda”yes, some more than others, but sharp declines across the board. Pressed to give sound investing advice, the so-called aexpertsa shrug and suggest, aHang on to your job, and keep trying to save your moneyasomehow.a

Giving more practical 401k investing advice, shrewd, prudent investors say that, especially in bad times, you should stick to the most basic common-sense rules of sound investing.

Good 401k Investing Advice

Buy and hold. Do not move your money around every day, every month, or every year, trying to catch the quick surge or atimea the market. Instead, choose investments with proven track records, and stick with them. Do your homework, looking for recession-proof funds or companies. But once you make a choice, commit to the choice and stay with it. Over twenty years, almost all stocks and mutual funds outperform more conservative investments like government bonds and certificates of deposit.

Better 401k Investing Advice

Set your risk-tolerance at amoderate.a Some market sectors and cutting-edge companies seem apoised for explosive growth.a Poised doesn’t work nearly as well as proven. If a major corporation has begun expanding its global markets, the corporation and its investors incur some risk; but the same products and principals that have driven the company to industry leadership will sustain it as it goes global. That’s a amoderatea risk. Learn a lesson from sad aBluetootha investors: Although it was poised for explosive growth, the company that originated and patented the universal technology has not returned more than 2%-3% since it revolutionized wireless communications.

Best 401k Investing Advice

Diversify. Anyone who ever risked putting all his eggs in one basket probably ended-up with omelets. Study the market, looking for those companies, sectors, and funds that have held steady while everything else tanked. Put most of your assets in those stable places-plural. Then assess which few companies have grown even while the others have lost. Put a few of your funds there, too.

Although you probably feel discouraged and disheartened that your 401k has lost value in the economic downturn, keep in mind that you still have all the tax advantages from your contributions, and you still have lots of time. Offering their professional 401k investing advice, experienced investors stress that market contractions evanesce. The markets keep growing. The veterans generally suggest you maintain or even increase your 401k contributions; if you have passed fifty, take advantage of your catch-up contributions, and keep getting your 401k investing advice from the people who do not work on Wall Street.

Frequently Asked Questions

  1. QUESTION:
    If the 2011 401k contribution limit is 500, does that apply to my employer contribution as well?
    If the 2011 401k contribution limit is 500, does that apply to my employer contribution as well? Am I allowed to put in 16500 which is at the limit and then my employer adds in 5000 as an example? Or am I supposed to take my contribution and add my employers contribution and the combined total must be under ,500? Thanks in advance for the answers.

    • ANSWER:

  2. QUESTION:
    Can I open and contribute to Roth IRA for 2011?
    I make about 0,000 and self employed for 2010. I’ll be salaried starting in 2011 making about the same.

    I need to roll over my 401K account that I currently have. Only about ,000 in it.

    I’ll be able to contribute to my 401A (,000) and 403B (,000) for 2011.

    Question is, can I still open a Roth IRA for ,000 and roll over my current 401K in 2011?

    Does the income limit exclusion apply still for 2011 for opening a Roth IRA?

    • ANSWER:
      The rollover is a separate issue from new contributions. Yes, you can roll over your 401(k) into an IRA.

      There are still income limits for Roth IRA contributions – they depend on whether you are single or married.

  3. QUESTION:
    Can I open an Roth IRA and roll over my 401K?
    I’d like to open a Roth IRA with an initial investment of ,000 before the 2010 year is up (money I saved while working). I already have a 401K with my employer, but I am being laid off December 23rd. Will I still be able to rollover the 401K (I assume it doesn’t factor into the contribution limit) this year? And if I wait until next year to rollover, will I still be able to add an additional ,000 for 2011? My 401K has a little over ,000.

    If I go another route.. can I just open a Roth IRA at the same time I rollover my 401K? And if so, can I also add the additional ,000 I saved from working this year?

    Lastly, I will be receiving a severance package. Do I have to wait until after I receive this to rollover my 401K? Since you can’t close/rollover an account until technically unemployed (although my “termination date” is Dec 27).

    Thanks!
    I’m not worried about money while I’m unemployed. I will have more than enough to get me by for a year of unemployment (or longer). I am a very frugal saver. But thank you.

    • ANSWER:
      You should be able to do both. The rollover and the ROTH are independent of each other. If opening a ROTH, then your income for the year has to be greater than the amount you will be opening the ROTH with. You may have to check for income restrictions where if you made over a certain amount, you may be limited to the amount for the ROTH in 2010. You cannot contribute in 2011 if you do not have taxable compensation. See http://www.irs.gov/publications/p590/index.html

      Call up Vanguard, Fidelity, or your favorite fund family or discount broker and ask for an IRA rollover kit. That would explain a lot. Start your rollover after you receive your severence and are no longer employed to make sure that no more is being deposited in your 401K and that it can be rollover as whole. Rollover directly from administrator to administrator to prevent any tax withholding.

  4. QUESTION:
    When is the limit to contribute to contribute to 401K: 12/31/2010 or another date?
    I never contributed to my 401K before and I would like to start contributing.
    I know the limit for 2010 is ,500 but I would like to know when the limit is to contribute
    this amount for the year 2010. Is it the end of current year 12/31/2010 or a different date such as when I have to file my income taxes (4/15/2011) ?

    Thank you

    • ANSWER:
      12/31/2010 – contributions can only be made in the form of salary deferrals on your part.

      The 4/15 deadline applies to IRAs – not 401(k) plans.

  5. QUESTION:
    Adjusted Gross Income Question?
    What is included in calculating AGI? I recently fully funded my Roth IRA for 2011. Now I want to sell some stock but I am afraid that may put me over the limit for qualifying for the Roth. My wife and I have made significant contributions to out 401k funds at work so if that is included I should be ok. I also contributed to FSA accounts for dependant care and medical. Also, what about pre taxed medical insurance premiums?

    • ANSWER:
      All pretax contributions/payroll expenses serve to reduce your reportable income and, accordingly, reduce your AGI. Net capital gains, of course, increase your AGI.

      Itemized/standard deductions and personal exemption deductions are “below the line” deductions and do not affect your AGI.

      Hope that helps.

      PLEASE VOTE to avoid a TIE. On behalf of all of your responders, who take the time and effort to help questioners in this free Yahoo! community, THANK YOU in advance for taking the time to choose your “Best” Answer. We really appreciate it.

      DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual, nor shall it be considered a solicitation for business. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

      Bradley Mann, CFP®, EA, BCE, CFS, AAMS
      Certified Financial Planner™ Practitioner
      Enrolled Agent | Admitted to Practice before the IRS
      Board Certified in Estate Planning

  6. QUESTION:
    so I got my first K-1 (form 1065)?
    I received a K-1 yesterday for a stock investment, the day after I filed my taxes. I need to ammend my return, that much is clear. I never received a K-1 in the past (I did not even know such a thing existed) so I did not know to expect one. Otherwise, I would have held off on filing.

    The thing of it is that I never intended to get involved in a limited partnership, I was just purchasing/selling a stock that I discovered and began to like. I figured it was like any other of the dozens of stocks I invest in.

    After posting a few questions here on Yahoo relating to tax liability and how to ammend my return, someone commented on the fact that I invested in something that “I knew nothing about”.

    1) While that much is true, how could I have known what I was getting into? It seemed like a normal publicly traded stock with a ticker symbol.

    2) Are there any other type of unusual investments that tend to blend in with traditional stock trading that I should avoid (because they tend to complicate tax returns)?

    3) I no longer own any shares of this company (remaining shares were sold in Jan 2011). Did I at any point (then or now) have anything more than a tax liability that I need to report on my return?

    4) I still don’t understand why I have any additional income/loss to report on top of my capital gains/losses. I purchased a certain amount of shares, sold a certain amount of shares, realized gains/losses in the process, and reporting them on my 1040. I received no dividends or distributions. How is it possible to generate/lose income other than from the purchase and subsequent sale of company stock?

    5) I invested my kids’ UTMA accounts in the same company as well, resulting in separate K-1s. I assume this is just the same as a standard non-retirement brokerage account for an adult. I need to ammend their returns as well because they were already filed.

    6) At first I received (in error) a consolidated K-1 for my 401K share activity and my non-retirement brokerage account share activity. Once I called the company responsible for administering the K-1, they corrected the situation by creating a new separate account and migrating the respective share activity over to the new account resulting in two new K-1s replacing the original K-1. Does it even matter that I now have a K-1 for the activity in my 401K? I assume that this does not get reported regardless of if its a gain or loss.

    7) I think its kind of silly that the K-1 came so (relatively) late. My 1099s came in early February. Are there any other types of forms one should expect this late in the tax season?
    mrreliable 3599, some follow-ups:

    1. You mention income from several states. I see a STATE SCHEDULE in the K-1. There are four states included, none of them being my home state. All four contain ordinary losses in Column 1, and positive values for the respective AMT Depreciation Adjustment and Gross Receipts columns. Do I need to file with those states? If so, will Turbo Tax know to do that if I import the corresponding .txf file?

    4. I checked my transaction history and do not see any income being credited to my capital account. Is this figure present somewhere on my K-1? In fact, my Box 1 value is a loss in all of my K-1s. Does that mean that I have no income to report?

    6. How do I verify that my 401K money is in a qualified account? I don’t understand what you mean by that. I have a 401K that provides a Self-Directed Brokerage Account feature via Hewitt Financial Services. I purchase shares of stock using the SDBA account in much the same fashion that I do for my non-retirement b
    (repost since it seems something got cut-off)…

    mrreliable 3599, some follow-ups:

    1. You mention income from several states. I see a STATE SCHEDULE in the K-1. There are four states included, none of them being my home state. All four contain ordinary losses in Column 1, and positive values for the respective AMT Depreciation Adjustment and Gross Receipts columns. Do I need to file with those states? If so, will Turbo Tax know to do that if I import the corresponding .txf file?

    4. I checked my transaction history and do not see any income being credited to my capital account. Is this figure present somewhere on my K-1? In fact, my Box 1 value is a loss in all of my K-1s. Does that mean that I have no income to report?

    6. How do I verify that my 401K money is in a qualified account? I don’t understand what you mean by that. I have a 401K that provides a Self-Directed Brokerage Account feature via Hewitt Financial Services. I purchase shares of stock using the SDBA account in much
    don’t know why #6 and beyond are being cut-off
    mrreliable 3599, some follow-ups:

    6. How do I verify that my 401K money is in a qualified account? I don’t understand what you mean by that. I have a 401K that provides a Self-Directed Brokerage Account feature via Hewitt Financial Services. I purchase shares of stock using the SDBA account in much the same fashion that I do for my non-retirement brokerage account. I don’t see how any money was mingled. Each transaction in the K-1 transaction history had one of two Broker IDs so they were able to separate them easily and once they did, the K-1 information for each was automatically updated. It sounds reasonable to assume that there is no issue.

    Is there a way to find out if there is an easy way out of this whole K-1 situation? In other words, if doing ALL THIS WORK will result in a very small refund, do I need to pursue the application of the K-1 against my already-filed return? This may be more work than it is worth, especially if I end

    • ANSWER:
      1. I see lots of people bring in K-1s with no idea they were invested in a partnership. Their financial planners invested the money, but did not address the complicated filing that would be necessary. Many of these have income from several states, which requires a complicated tangle of state filings. Having said that, many of these investments seem to do well in earnings.

      2. Probably.

      3. If you were a limited partner or member of a limited liability company, and you had zero involvement other than your investment, you shouldn’t have any additional liability.

      4. Any income (income is operating income separate from capital gains) should have been credited to your capital account. When reporting the sale, you should add the amount of income you’ve paid tax on to your cost basis. Essentially the income you reported will lower the capital gains.

      5. Kiddie tax. More complication. Options to report on your return or file a separate return. All the returns have tentacles to the others.

      6. Troubling. Make dang sure your 401(k) money is in a qualified account. Simply issuing a new statement does not mean anything. If your 401(k) money has been mingled with your taxable accounts, the whole thing could be deemed distributed and taxable.

      7. Your K-1 came early. Most K-1s don’t come til later. A K-1 is from a partnership, S corporation, or an LLC. The due date for those returns is March 15. IF the company files its return on time, most companies don’t issue K-1s until late March.