My 401k Plan

Frequently Asked Questions

1. QUESTION:
   Can I have an IRA and also a 401K plan at the sametime?
   Can I have an IRA and also a 401K plan at the sametime?

   I am planning on getting a Traditional IRA plan so I can put away 00 tax free for this year. However, my company may possibly introduce a 401K plan soon.

   If I invest 00 in an IRA account this year, and if my company introduces a 401K plan a little later this year, am I allowed to contribute to both IRA & 401K plans in the same year?

   FYI, my filing status is married filing jointly and my wife has a 401K plan at her work place.

   Would appreciate any guidance here. Thanks.

   • ANSWER:
     If you participate in your employers 401k or pension plan, the box labeled “RP” on your W-2 will be marked. Why is this important? If this box is marked on your W-2, then it is possible that some or all of your contributions to your Trad IRA will not lower your taxable income. You will still be allowed to make the IRA contribution, but you will not be able to deduct it on your taxes. The contribution will be called “post-tax” and you’ll have to fill out a form 8606 when you do your tax return. When you ultimately pull money out of your IRA when you retire, the amount you contributed “post-tax” will not be taxed again…only the gains will be taxed.

     Since the gains will be taxed, you are better off (as stated by another answerer) to put the money into a Roth IRA (if you are able). The Roth IRA also lets you put money in post-tax, but all money taken out in retirement is not taxed…including the gains.

     1) You and your spouse can put ,000 into your respective Traditional IRAs regardless of income or boxes on W-2s. You can put in ,000 if you are 50 or older. You can NOT put in more money than you earned…so if you only earned ,300, you can only put in ,300 in your IRA. You can include your spouses income to determine the minimum amount. For example, if you earned ,000 and she earned ,000, together, your ,000 far exceeds the ,000 maximum, so you will be able to put in the maximum. Just because you earned less than ,000 is irrevalant.

     2) Whether or not you can deduct your Trad IRA contributions depends on several things.

     3) If neither of you have any “RP” boxes checked on any of your W-2s, then you can deduct the entire contribution you both made to your respective Trad IRAs.

     4) If you do have boxes checked, then there is a complex formula you need to use to determine how much if any of either of your contributions are deductable. Please refer to Publication 590 from the IRS (see link below). If, for 2007, your combind AGI is ,000 or less, you can both deduct any Trad IRA contribution. If your combind AGI is greater than 6,000, then neither of you can deduct your contribution. Between these two numbers, you must refer to the publication or contact your tax preparer.

     5) If your contributions will not be deductable, try to put money into a Roth IRA instead. If you are not allowed to put money into the Roth, the non-deductable contribution to the Traditional IRA is your only recourse. Please max out your 401k before making non-deductable Trad IRA contributions.

2. QUESTION:
   What happens to my 401k plan if I decide to leave USA and go back to Indonesia?
   What happens to my 401k plan if I decide to leave USA and go back to Indonesia. I have my 401k plan for about 5 yrs. What are the consequences and how should I save from getting penalised ? I am resident in USA and 35 yrs of age.

   • ANSWER:
     uncle get his money up front — if you take a payout the tax man get his the same time you get your payment!!!!

3. QUESTION:
   I have a 401K plan at work. It gives me the option to select contribution percentages for both?
   PRE-tax and AFTER-tax dollars.

   If I contribute $$ using AFTER-tax dollars, would that have the same principals as the ROTH IRA or other ROTH plans in general?

   Would my AFTER-tax contributions into my 401K plan grow tax free and also be TAX free when I go to withdraw it?

   Thank you.

   • ANSWER:
     No. Any AFTER tax contributions to a 401k or traditional IRA are taxable at time of withdrawal the same as pre-tax contributions. You can’t get two different tax treatments in the same account. The benefit is that dividends and capital gains distributions are tax exempt while the funds are still in the account. So no tax bill at the end of the year.

4. QUESTION:
   What happens to a 401k plan if the person passes away before retirement?
   My mother passed away 4 years ago, and I just remembered that she had a 401k plan because it was listed on her paycheck statement (I’m assuming she had the plan, why else would it be on there with an amount next to it right?). Well what happens to that saved up money? Does the company keep it or they just let it float around? I only ask because if anything it’s still my mothers money and technically would belong to her family…so how would one go about claiming it?

   • ANSWER:
     You mother SHOULD have named a beneficiary of the account. The plan custodian should have contacted that named beneficiary to begin the process of transfer the money to the beneficiary.

     Contact your mother’s former employer and ask what firm was the custodian. Then contact the custodian. Have account numbers ready.

     This all should have taken place shortly after her death and certainly by the time her estate was settled. Perhaps you mother had debts to pay (hospital bills) and the money went for those expenses as directed by the probate court.

     Check with the executor of your mother’s estate too.

     Good Luck

5. QUESTION:
   Why is my company renaming my 401k plan to a Retirement Savings Plan?
   After a recent merger, my company is renaming my 401k plan to a Retirement Savings Plan. It seems a little odd. What kinds of legal issues, protections, ect. do I need to consider?

   • ANSWER:
     these other people are on drugs…I’ve seen 401k plans named retirement savings plans and even profit sharing plans. The name means absolutely NOTHING! Check out the plan document, or summary plan description, of the new plan and see if the provisions are the same. If so, then sleep comfortably. If not, then they will give you the opportunity to roll your money over into an IRA instead of into the other plan. Your choice if you want to do that. Generally when a merger occurs the companies also merge retirement plans. This is likely what happened in your case.

     And btw no special training is needed for directing the investments of any type of plan. You simply need to invest prudently….I’ve seen small business owners invest for their participants and do quite well…and I’ve seen those knuckleheads with licenses do worse than they would have if they were simply in a 60/40 Equity/Bond split.

6. QUESTION:
   Are there ways I can get my money from my company’s 401k profit-sharing plan before I leave the company?
   I am young and planning to work in another company that, unlike my current employer, has no 401k profit sharing plan. I am just wondering if I could still benefit from my 401k plan once I left the company. Perhaps I will still be able to contribute to this plan from my pocket?

   • ANSWER:
     It really depends on your company’s 401k Summary Plan Description (SPD) which are the guidelines to your plan. Current IRS laws state that if you have less than ,000 in your 401k you must withdraw the funds either as a rollover to another plan/IRA or cash it out. If you have more than ,000 you will be able to leave it in the plan.

     Personal contributions to a 401(k) are not permitted since it would not be tax free dollars going into the fund.

7. QUESTION:
   I have 500k in a 401k plan, i want to withdraw it to start up a business, is there a way I can without taxes?
   I am a private attorney. I have been putting money into a 401k plan for years, I ahve a chance to fund a start up company and would like to use my funds without paying the penalty, is there away?

   • ANSWER:
     Are you 55 and retired? No.
     Are you wanting an annuity form it? No.
     Are you disabled? No
     Did you get divorced and this is your spouse’s half?
     Do you have excess medical expenses? No.
     Do you have the need to pay cobra because you are unemployed? No.
     Do you face an IRS levy? No.
     Are you a reservist being deployed Iraq? No.

     Nope, the penalty applies.

     As for income taxes, they ALWAYS have to be paid if you take a distribution. (You can’t just take the money unless you have quit or retired. Investing in a startup is not a hardship.)

     In theory, you could get a loan, but it’s not always a good idea.

     http://www.fool.com/personal-finance/retirement/2007/08/27/the-perils-of-401k-loans.aspx

8. QUESTION:
   Does the IRS allow to invest in a 401K Plan and also a Roth IRA account at the same time?
   I just signed up for a 401K Plan with my company and am also considering investing in a Roth IRA Account. My question is, does the IRS allow simultaneous investments in the 401K & Roth IRA? My filing status would be married filing jointly. Thanks.

   • ANSWER:
     Yes, as long as your modified AGI is less than 6,000. At that point, phaseout limitations occur.

     You can contribute 00 (00 if you are 50 or older in 2007).

9. QUESTION:
   What do I need to know before enrolling to a 401k plan?
   I am 26 years old making ~ a year. My company offers a 401k plan and matches a maximum of a week. Should I enroll to the 401k? What are the risks/benefits? What type of plan is best for my situation? Am I enrolling too soon?

   Any information would be appreciated. Thanks in advance!

   • ANSWER:
     It’s NEVER too soon to start saving for retirement – the sooner you start, the easier it will be to achieve your goals (even if you don’t know what those goals are right now). Start out investing as much as you can, whether it’s 3% of your income or 10%. Just know that you’ll have to do without this money until retirement (there are sometimes loans available, but that is almost always a bad idea). Your ultimate goal should be around 15-20% of your total income, but don’t worry if you can’t do that much right now (most people can’t) – just do whatever you can, and remember to increase that percentage each and every time you get a raise.

     As far as what to invest in, most 401k’s offer “Target Date” funds – you would choose the fund closest to your estimated retirement date (in your case, probably 2040 or 2050), and it will automatically become more conservative as you approach retirement. If your plan does not have target date funds, then go with an S&P 500 Index fund.

     Once you are all set up, I would recommend heading down to your local book store or library, and picking up one or two books on the basics of investing/retirement planning. This stuff isn’t all that complicated, but it is VERY important to know. Once you learn more about the different options available to you, you can tweak your investing strategy based on your personal preferences.

     I hope that helps. Good luck!

10. QUESTION:
    How Much will I owe in taxes on an inherited 401K plan?
    I inherited my daddy’s 401k plan. He dies last month he was young so its not alot. It is 24,000. How much taxes will I have to pay on that?

    • ANSWER:
      OK, now for the correct answer.

      401(k) plans are deferred income plans, meaning the tax is deferred until it is taken out. For federal purposes, you will have to include in your income whatever you take from the plan that year. If you take the whole ,000, you will have to add ,000 to your taxable income on your 1040 (line 16b). The amount of tax this will trigger depends completely on many, many other things such as your other taxable income, whether you are married, the number of dependents you have, etc. It could be as high as 35% or as low as 0%. Neither are likely, but I wanted to give you the extreems.

      If you are not working, single, dependent on someone else (live with your mother), and have no income or deductions, then your federal income tax on the ,000 will be around ,750.

      You may owe state income tax too. If you do, chances are it will be substantially less than the ,750. Some states don’t tax this type of income.

      As far as inheritance tax, the IRS has none. Instead, they have estate tax which your father’s estate will have to pay. It is extremely unlikely that his estate is large enough to trigger an estate tax.

      Some states have inheritance taxes. Most don’t tax IRA or 401(k) inheritance. Even if they did, it probably wouldn’t be much.

      Good luck!

11. QUESTION:
    Can you withdraw all available funds from a 401k plan that is thru your company? Then close your account?
    I keep losing money in my 401k plan and am ready to call it quits. I am not sure if I can withdraw my money and syop paying into the plan.

    • ANSWER:
      If you withdraw it, you’ll probably get nailed with taxes & fees.

12. QUESTION:
    How do I invest in out of plan stocks in my 401k?
    I want to invest in a stock option that is not offered through my employer’s 401k plan. Is there a way to move funds from my employer sponsered 401k program to these investments that I want to invest in?

    • ANSWER:
      You will have to do this outside of your 401k. You cannot move money out of a 401k to another stock option plan when you are still working at that company that you have the 401k at. If you no longer work there, then you can rollover the 401k into a rollover IRA, but not if you are still employed. If you were to try to take money from your 401k you would be subject to early withdrawal penalties and taxes on the withdrawn amounts.

13. QUESTION:
    Is a roth 401k better than a regular 401k plan for a 21 year old? I dont know anything about retirement plans
    Is a roth 401k better than a regular 401k plan for a 21 year old? I dont know anything about retirement plans. But the lady giving the presentation at my work said roth 401k would be better for my age but I dont see how. Also my company will match up to 5% any tips I should consider?

    • ANSWER:
      I concur whole-heartedly with the responses stating that the Roth is better due to its pre-tax status.

      By the way, if you take 00 and sink it into an investment making 12% within a Roth IRA, then add 0 a month to it, it turns into ,775,093.54 when you are 65. Not bad.

14. QUESTION:
    Can you only get a 401K plan through your employer?
    I am 30 years old and have no retirement plan. I have worked with my company for 5 years but they had just stopped offering 401K plans right before I started. What other Retirement plan options do I have? Thanks for any help.
    Any suggestions on where to go to set up an IRA? I feel clueless at this point.

    • ANSWER:
      A 401K is an employer sponsored plan. You can set up an IRA on your own. Just contact any bank or brokerage firm. One thing to keep in mind if you contact an investment brokerage firm. The investment brokers are paid on commission. They will try to sell you whatever provides the greatest commission to them or to their firm. Their loyalty is to themselves first and their brokerage firm second. You are number 3 in importance to them.

      Before investing, I suggest you read an investment primer titled “Investing for Dummies” by Eric Tyson. Please don’t be offended by the name. For Dummies is a publishing company. They hire writers who can put concepts in plain English for beginners.

15. QUESTION:
    What is the best 401k plan for a 30yr that just want the largest possible profit short or long term?
    What 401k plan yeilds the most profit, and what the possible margins for aggressive and conservative. My company offers Fidelity

    • ANSWER:
      Generally you can’t choose a plan – a company usually offers only one plan to its employees. That plan will set limits on how much the employee can contribute, how much the company will match, and include a variety of choices (usually mutual funds) for how to invest the money.

      I think you’re asking which of those choices provides the highest returns. The plan should provide you information on each of the available funds and that information should include historical return information for the fund. If the fund has been around for more than 10 years, that’s probably a good place to start. If the fund is newer, the return information won’t help much.

      Historically, over long periods of time, stocks have provided the best return of any investment class, with small company stocks doing slightly better than large company stocks and “value” stocks doing slightly better than “growth” stocks. If that trend continues (and I have no reason to believe it won’t), then a “Small Company Value” stock fund might be expected to provide the highest returns in the long run.

      There could be a lot of big ups and downs along the way, though and most financial planners strongly recommend spreading your money across several types of investments to help minimize the wild swings. For example, something like 15% in an international stock fund and a portion in large company stocks and maybe some in bonds.

      Over the long run, returns that average something like 10-12% per year are probably reasonable to expect with a small company value fund, but in any given year, it could be -20% or +40% or anything in between. The key thing to remember is not to panic and withdraw the money when the market is down. So far, the market has ALWAYS rebounded to new highs after a decline (no matter how severe) and taking the money out just means it won’t be invested when the rebound happens.

16. QUESTION:
    How much freedom do I have to change funds within my 401K plan?
    All of my funds are through AIM whose fees are higher than Vanguard’s or T. Rowe Price’s. Is it possible to change to Vanguard or T. Rowe while still retaining the same 401k plan in which I am currently enrolled?

    • ANSWER:
      The 401(k) plan in which you are enrolled is controlled by your company – which usually has several trustees in charge of a plan. They are the ones to decide what funds (or family of funds) to offer the participants. If you are unhappy with that, you are free to voice your displeasure to the trustees of the plan. Other than that, you are stuck until you are eligible to withdrawal funds.

17. QUESTION:
    Can a judge reach a retirement plan (401k) after a divorce is final when both parties waived interest?
    My ex-spouse under an MSA in California waived our respective interest in the others 401k plan. Can my ex-spouse tried to tap into my plan years after the divorce finalized?

    • ANSWER:
      Nope. Has to be dealt with during the proceedings, once the divorce is finalized, it is over.

18. QUESTION:
    How do I calculate a 401k plan?
    I just started about three weeks ago at my new job. I earn 30,000 and was told by the controller that a 401k will be offered to me in detail after three months from when I started. So, I’d like to figure out on my own (if possible) how the defferals work. In addition, if I leave after, say, a year or two, what happens to my plan? Will it be frozen until I cash it in and unable to receive further payments or can I continue with it as is?
    Oh yeah, I’m 25 yrs. old. Maybe this will help in figuring out the plan through the long run.

    • ANSWER:
      Any money you place into the 401k can be rolled over into an IRA account without penalty, but you have to do a direct transfer into the IRA account. The money that the company contributes may be subject to vesting, I am not sure. Your contribution to the 401k is not taxed untill you withdraw the money. The amount and the money that it earns is all tax deferred until withdrawal. Unfortunately, the amount of money can add up greatly over a period of time. It is not uncommon to have 0,000 to ,000,000 at retirement. When you go to make the minimum required withdrawals, you may find yourself in a very high tax bracket.

      Of course you do wish to get the company matching amount, but putting more than that in the account can be detrimental.

      Think about a Ross IRA account for the excess contributions. All income earned by a Ross IRA account is tax free. The contributions are taxed but the income is tax free for ever.

19. QUESTION:
    was offered a new position in which I will not be eligible to contribute to the 401K plan until after one year?
    I would like to contribute to retirement savings during that one year though. Would it be better to open a new account such as an IRA or have my husband contribute a higher percentage into his 401K? Also, I have money left in my previous employer’s 401K plan which I have just left there since ending my employment. What are the best options for the money in that plan?
    Thank you.

    • ANSWER:
      Unless a 401K plan offers you a large choice of investment options, I would always go with an IRA. So I would look at your husbands 401K and see how many funds it offers. If it doesn’t offer many (the last company I worked for offered only about a dozen) open up an IRA with Fidelity or Vanguard. They offer hundreds of different funds. I suggest the same for your previous employer’s 401K plan. If it’s not offering too many choices, roll it over into an IRA. This is done with no charges, penalties, or taxes. As one of the other posters said, it’s always good to have both an IRA and 401K. By any chance if you should max out the amount you are allowed to put into your 401K, you can put that money into the IRA, up to its maximum amount allowed.

20. QUESTION:
    Is it better for me to start an IRA now or wait until after college and use my jobs 401k plan?
    I’m 21 and about to get out of the Marines and start college. Do people usually open an IRA and enroll in there companies 401k plan?

    • ANSWER:
      If you have any money you can put into a Roth IRA, that would be a very smart idea. You should also have a savings account so you have a safety net.

      Once you are working, use the 401K plan if it has an employer match. If your company has a Roth 401K, that may be an even better option, at least while you are in a fairly low tax bracket.

      The beauty of starting a Roth now is when it is 5 years old you can take up to ,000 out of it to buy a first home–no tax and no penalty. Such a deal!

21. QUESTION:
    Am I able to qualify for a deductible IRA if the only retirement plan my company offers is a 401K?
    My question concerns only a fully deductible IRA, and the confusion over the IRS wording “to quality….you must not be eligible to participate in a company retirement plan”. My company does not offer a pension plan , but does offer a 401k plan, so does that disqualify me from a deductible IRA ? Basically the question comes down to the defination of a “company retirement plan”.

    • ANSWER:
      401k plan is considered a company retirement plan for what you are asking about. Note: actually participating is irrelevent. Your eligibility to participate is what drives this. You still may be able to qualify for it if your spouse (if any) doesn’t offer a plan.

      Of course this assumes that you are over the income phaseout limits. I assumed you were as you specifically mentioned the wording and didn’t ask the typical vague question.

22. QUESTION:
    How do I find out how & how much That I have in my 401K plan ?
    I would like to know how to access my 401K plan, and learn how much moneys I’ve earned, also how to get it.

    • ANSWER:
      Your employer should have already given you info about this so it sounds like you never got around to learning about it. You should have gotten something in the mail about it. Otherwise contact your employer’s HR dept. & ask about it. If your employer has a website the info may be in there also.

23. 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).

24. QUESTION:
    401K plan laid off and outstanding loan in default?
    I have an oustanding loan on my 401k plan, and I was laid off in January. My loan is in default. I will receive a 1099-R from the funds company this year. How much will my tax liability be on my tax return? The loan was for 10,000 and I claim single one exemption.

    • ANSWER:

25. QUESTION:
    How do I start a 401K plan?
    I work for a major bank and though I don’t plan on staying with them for years, I would like to start my 401K. I am 21 years old, full-time student, part-time employee, and I live at home. I take full financial responsibility for myself and don’t pay rent as long as I attend school. I have looked up different plans but am so lost on where to start.
    Someone told me it wasn’t a good time to start one but I’m taking any recommendations and advice.
    I guess I got the term incorrect but yes, what I meant is I wanted to have one through my employer.
    I wouldn’t want to buy my bank’s stock, not now at least. As far as the bank, I prefer not to disclose but it’s in the top 3 so it’ll narrow it down for you.

    • ANSWER:
      Only if your company offers a 401k & you qualify, then you can invest in it. Ask your human resources

      At these lows, and assuming that you’re a long-term investor, you have one of these historic moments in time that few of us ever get to see. Invest now! and poor as much as money as you can into it.

      http://finance.yahoo.com/focus-retirement/article/106462/New-Deals-for-New-Dollars?mod=retirement-401k

      I’m contributing almost 90% of my paycheck into my 401k plus I’m putting the max ,000 into an ira, because like I said, you may not have the opportunity to buy at such lows again during your lifetime

      If you can’t invest in a 401k, then you should try an IRA. Do not buy this through your bank or a broker, because as you know from working at your bank, these people charge fees that are 100% avoidable. Avoid the middle man & go straight to the mutual fund company. As a matter of fact, the link below will suggest exactly which fund you should be looking at for an IRA.
      Hint based on your age it will be the Vanguard Target Retirement 2050 Fund

      https://personal.vanguard.com/us/funds/vanguard/TargetRetirementList

      To go into further detail
      Traditional IRA or Roth? This depends on your tax bracket.
      If you think you will be in a lower tax bracket when you retire, then choose the Traditional IRA (pay your taxes when you retire in the lower tax bracket), but if you think you will be in a higher tax bracket when you retire, choose the Roth (pay your taxes now).

      Example:
      If you choose the Roth now because you don’t expect to earn much this year, & then next year you start earning a lot then you can open a Traditional IRA for that year (you can have both)

26. QUESTION:
    What should I do with my 401k plan when i leave?
    Here’s my problem. I had a 401k plan at my old job but now I’m going to be starting a new job that doesn’t offer a 401k plan. What do I do? Do I cash it out? can my old job simply “hold it” for me until I roll it over to another company? Or do I transfer it to a IRA savings in a bank? Are there any other options or are these it, what’s the best thing to do?

    • ANSWER:
      Do not close your existing 401(k) account balance because the amount will be subject to taxes and a 10% penality for early withdrawal. Furthermore, you contributed to your 401(k) plan because you want to be saving for retirement and that objective hasn’t changed because you are changing jobs.

      So, you have eliminated the option of a complete cash-out and you cannot transfer the amount to your new employer’s plan because they do not currently offer one.

      That leaves you with two options: 1) Leave the money in your existing plan; or 2) Rollover the balance to an Independent Retirement Savings Account (IRA). Under the law, the “rollover” provision allows you to withdraw from a 401(k) plan and deposit the funds into another qualified retirement account without incurring taxes or penalties on the balance.

      However, some companies have a minimum balance requirement in order for you to be permitted to keep your existing funds in the 401(k) plan. If there is a minimum balance requirement, the company can force you to withdrawal your funds or rollover your balance to another employer’s 401(k) plan or to an IRA.

      If your previous employer does have a minimum balance requirement and you do not meet this minimum, you will be notified in writing. In order to prevent taxation on your balance and avoid the 10% penalty for early withdrawal, rollover the balance to an IRA.

      If you meet the minimum balance requirement, you can leave your funds in your previous employer’s 401(1) plan indefinitely. If the plan is performing well, that might be the best option. If you are not happy with the plan’s financial performance, you might opt to move your money to an IRA.

      Since your new employer doesn’t offer a 401(k) and you can no longer make contributions to your previous employer’s plan, you will want to continue saving for retirement by opening and contributing to an IRA. It is best to have all of your money in one fund so that you make the most from your investment but I wouldn’t be overly concerned with that until you have two relatively high balances in two separate accounts.

      As far as what financial institution to use there are a countless numbers of companies (i.e. Vanguard, Fidelity, US Bank, Chase, T. Rowe Price, and Bank of America). Select a company that you are familiar with and research any fees before opening an account.

27. QUESTION:
    Can i transfer my 401k from my old job to my new 401k plan @ my new job?
    I recently switched jobs and my 401k plan @ my last job is sitting idle. Is it possible to transfer it to my new plan at my new job or should i consider something else.

    • ANSWER:
      You have several options for your 401K.
      1) You can roll it over to your new employer often at little to no cost to you. This is convenient because the amount of effort by you is minimal.
      2) You can keep it where it is at. This is the lazy way out, unfortunately often times your previous employer may begin to charge you fees to hold the account for you.
      3) You can convert your 401K to a Conduit IRA.

      Best wishes on what you decide, take care and have a great 4th!

28. QUESTION:
    Is it better to pay more towards a mortage or invest additional in 401K plan?
    I have a mortage with a 5.25% arm that is adjustable in 2010. I am also investing in my employer’s 401K plan but only need to invest 6% to get the total match. I am currently investing 12% because I don’t have much in the way of retirement. Would it be better to throw that additional cash at the principle of the mortgage each month rather than in a 401K?

    • ANSWER:
      First off, I would definately invest as much as possible in the 401k that the employer matches, that is an automatic 100% return. As far as the mortgage, if you are planning on living in the home longer than 2010, you should put the most possible toward the mortgage after the 401k match or consider switching to a fixed mortgage before the adjustable rate gets very high.

29. QUESTION:
    What a small biz owner need to know to set up a 401k plan for his 2 employees?
    I have a small biz and i need some information about seting up a 401k plan for my employees

    • ANSWER:
      Have you tried doing a search for 401K Provider? Your best bet would be to search for that term and to email the providers to provide you with an information packet on what you need to get started. You could also contact your local Chamber of Commerce and see if they have any further information.

30. QUESTION:
    How do I calculate earned interest for each month for a 401k retirement plan?
    This is for a project for my Economics class, and I’ve used as many resources as I can to find this… and I’m stuck.

    The hypothetical situation below explains what I’m supposed to do:

    After initially picking a 401k plan (upon research I chose a Bond Mutual Fund for this), I’m supposed to “keep track of my earned interest for my mutual fund” per month.

    My monthly income is 00 and I plan to contribute 8% of that to the 401k, which would be 0/month.

    How do I figure out the earned interest per month? I have no idea what the interest rate is or how to find that. I’ve researched online and got 5.25%, in which I have no idea is correct.

    Thanks in advance for any help you can provide.

    • ANSWER:
      It appears that rather than projecting future gains what is being asked for is the previous month’s gain. Thus, on the first day you deposit 0. One month later, before you make your next deposit, you calculate your gain for that month.

      Example:
      Start of month 0
      End of month value 1

      Gain (earned interest):
      1-0 =

      Rate of Return:

      /0 = 0.005 per month
      0.005 x 12 = .06 (6%) on a yearly basis.
      ____________

      Next month the starting value is 1 (Last month’s ending value (1) plus your contribution (0)).

      Do this for each month. The result for each month will likely be different and some months may even show a loss.

      Realistic results might look like this:

      Month #: 1 , 2 , 3 , 4 , 5 , 6
      Interest %: 6 , 4.3 , 11 , -9.2 , 0.2 , 4.3

31. QUESTION:
    I am 43 how much money should I be putting in my 401k plan on a weekly basis?
    I would like to retire in about ten years and I presently have approximately ,000.00 in my 401k plan

    • ANSWER:
      If you wish to retire in 10 years and you currently have ,000 in your 401k, then there is only one acceptable answer. You have to put the maximum into your 401k that is allowed. Unless you are in bad health, which I am guessing you are not, your retirement nest egg will likely have to provide you a living for over 30 years, according to mortality tables.

      Therefore, If you have: a paid-up mortgage, no consumer debt, a good long-term care insurance policy to protect your retirement assets in case of a long term care incident (useable by 44% of males and 72% of females over the age of 65), at a retirement income of over ,000 monthly measured in TODAY’S dollars, (which won’t buy as much in ten years, so you will need to adjust for inflation to approximately ,400 in 10 years and increase 3-4% annually after that), you are going to need over .2 million.

      If you wait untill 59 and a half to retire, you can come closer to reaching that amount AND not have to pay a penalty for any withdrawals from your 401k (or IRA if you roll it over when you leave your job).

      good luck and hope this helps. Email me if you need more exact hypotheticals that include your particular financial info.

32. QUESTION:
    Is money deposited in a 401k plan tax exempt?
    My wife started making regular deposits in a 401k plan offered by her new employer in 2006.

    Question: Is the money she invested in the 401k Plan tax deductible in 2006? In other words, do these contributions count as taxable income….or are they tax exempt?

    If contributions to 401k plans are tax deductible, is there a limit to what we can claim on our federal income tax form each year if we file a joint return?

    • ANSWER:
      The money in my 401k is tax exempt until I get it out. I think they will take about 15% when you get it and if you aren’t a certain age they take another 10% at income tax time. I’m not great on these things so I hope someone can help you more.

33. QUESTION:
    What do I do if I over contributed to my 401K plan by accident?
    I switched companies mid-year and consequently I have over contributed to my 401K plan by accident, i.e. went over the ,000 government limit. What do I do?

    • ANSWER:
      Tell your employer about this. They will cut a check for the difference. At the end of the year you will get the 1099 form and you will have to report this in your tax returns. Make sure you do that.

      You will owe taxes on this amount. But no penalty. But remember, you will not get any interest or returns from the investment that you had made in the 401k account.

34. QUESTION:
    What should I do with my 401k plan when I leave my job?
    I am aware of of the penalties. I wanted to pay off my debt of 13,000.00. My 401k plan has 17,000.00. Is this a good idea ? Thanks for any input

    • ANSWER:
      You won’t be able to pay off your debt with what you have now in your 401k. First of all, you can’t get all of it out unless you can prove that you have a hardship. Secondly if you can get all of that out then there will be penalty which you are aware of and additional tax added on top of that.

      If you have to get it out then get it out but be aware that you won’t get the same amount as have you have now. They have those online calculator that you can use. Plug in 17g and calculate how much you will get in return when you are near your retirement. The number will convince you not to pull it out.

35. QUESTION:
    Do I get charged for transferring fund to fund transfer within my 401k plan?
    Do I get charged a small fee or any for transferring fund to fund transfer within my 401k plan?

    • ANSWER:

36. QUESTION:
    How can I find my old 401k plan? Does it still exist now that I am not employed at my old job?
    I used to work for Suddenlink Communications, at one of the call centers in Texas. I know I had a 401k but I don’t know with who but I would like to know if it still exists, and if I can take it over now. I don’t know any more details about it, I apologize in advance.

    • ANSWER:
      Yes your 401K exists if you did not withdraw the money. You need to contact HR and find out who is the trustee. I am going to guess it is Fidelity. They can find it with your SS#.
      Then you want to roll it over to an IRA.

      There are many advantages to rolling your 401K over to an IRA. You will have many more choices in which to invest the money. Your former employer will not have any effect on your investments. Many times companies change their 401K plans. Perhaps you simply do not want to have anything to do with your former employer.

37. QUESTION:
    Can I contribute to both a 401K plan and an IRA plan?
    I work 2 jobs; my FT employer doesn’t contribute to the 401K, so I don’t participate. My PT employer’s plan does, so I put in 20%. Can I also open an IRA and contribute to it along with my PT job’s 401K without tax implications?

    • ANSWER:
      Yes you can have both a 401K and an IRA. Depending on your income and whether any of your jobs have a pension may determine what kind of an IRA you can have. But no matter what you make, there is some kind of IRA you can have.

38. QUESTION:
    How do I switch my old 401k plan to my new employer?
    This might be a ridiculous question to some but I’m confused. At my previous employer, I had a 401k with Prudential. At my new company, I have it through Vanguard. How do I switch over my old 401k to my new 401k? Is it worth it for me to do so or is it better for me to have some money in Prudential and some in Vanguard. I am so confused so any help will be appreciated! Thank you in advance!

    • ANSWER:
      FIRST YOU NEED TO CHECK OUT WHO IS GIVING YOU BETTER RETURN. IF VANGUARD IS COMING OUT WITH BETTER RETURN, ASK THEM FOR A TRANSFER OF FUND FORM AND TRANSFER FUND FROM PRUDENTIAL TO VANGUARD, IF NOT, ASK YOUR EMPLOYER TO PAY INTO PRUDENTIAL ACCOUNT, AND I BELIEVE IT’S YOUR RIGHT THAT YOU CAN OPT FOR AN ACCOUNT WHICH SUITED YOU BEST AS RULES AND REGULATION CHANGED REGARDING YOUR ACCOUNTS. ALSO NO NEED TO HAVE TWO SEPARATE ACCOUNT AS YOU WILL HAVE TO PAY DOUBLE ACCOUNT OPERATING FEE.

39. QUESTION:
    What company should I use for 401k plan in my start-up?
    I want to sign up a company for offering 401k to my employees (currently 4 inc myself and planning to grow to about 15 by end of this year). Any recommendations?

    Does anybody have experience with http://www.employeefiduciary.com/?

    • ANSWER:
      No experience with that company….and there are a ton of them out there just like them. Personally? I’d avoid any of them that says they are the low cost provider because they simply offer an off the shelf product. I would especially avoid one that uses comparisons on their webpage like they do. I’m sorry but if your plan has million in it then no way are you paying 1.4% Investment Management Fees or any 12b1 fees. If you are then you are a terrible businessman…don’t fall for the draconian comparisons that a company like this throws out!!! At any rate, a company like this may or may not work for your company…but I know that if I was the fiduciary (plan sponsor) then I wouldn’t be using any of the 3 comparisons that they use. I’d hire a TPA to set up a plan that works for me. I’d hire a financial advisor seperate from the TPA to make sure that my employees are receiving good financial advice. I’d make sure that the recordkeeper provides me access to funds without 12b1 fees and institutional class funds with low expense ratios. And yes, you can get these with startup plans you just have to shop.

      Look…if you’re planning on growing at that pace then a straight vanilla plan is not going to work for you. You’re going to want a plan that is flexible enough to grow with you and provide YOU with the maximum benefit. This is not a benefit for just your employees. It’s a benefit for YOU! What good does it do to save k a year on expenses if you turn around and give it right back to the staff in employer contributions? Why not set up a plan that saves you k a year in expenses and provides you a benefit that is large enough that the tax savings you make on the employer contributions for YOU, the business owner, funds the contributions for your staff in it’s entirety. Why pay to Uncle Sam (or to a 401k “advisor” what you can pay to yourself or your staff).

      Recommendations? Use your local phone book and look for third party 401k administrators. Interview at least 6 of them. Go with one that you trust that sells you consulting services/adminstration services only. Preferably they will bill you without regard to plan assets. If they do bill according to plan assets then I’d avoid them….the work is the same no matter how much money is in there. Also be wary of one that tries to sell you on a certain fund family (even american funds!) or insurance company. They have a vested interest in that investment and receive $$ back somehow. There are plenty out there…just look for one.
      And remember, what works for one company (individual) does not work for another!

40. QUESTION:
    What ever happened to my 401k plan?
    I once worked for a company that gave me a 401k plan, but I am do not work for them anymore, I was just wondering what ever happened to my plan?

    • ANSWER:
      Unless they paid you off, it should still be there. Call the Benefits people at your former employer to find out.

      Do yourself a favor and move it to a rollover IRA, so you have control of that money and so you can have greater investment options. Choose a low-cost investment house, like Vanguard or Fidelity. I did that with Fidelity, and they handled the transaction for me very smoothly.

41. QUESTION:
    With the stock market down is this a good time to get in my company’s 401k plan ?
    I am looking to get into my employer’s 401k plan and everything I am reading says that with the way the stock markets are all over the world now is a good time to get in if not already enrolled. Is this true is it truly a good time to start an investment portfolio?

    • ANSWER:
      Tom S is right, max your contribution to the level of employer match.. otherwise, stick with an IRA.

42. QUESTION:
    How do I locate my 401k plan?
    I had a 401K with a former employer, that employer has since passed away and his children are closing the business. I would like to locate that account and fin dout much money is in it and maybe continue to pay on my own, but I don’t know how to locate that plan. His children are very irresponsible and think if they tell me that will take money from thier pocket so they have refused to tell me anything. Is there another way? Should just pay the penalties if/when I find that plan and start my own account?

    • ANSWER:
      Did you look under the couch? (jk). You should call an attorney… when you do find it you should roll it into an IRA, there will be no penalties, you will have control of the money, and you can continue paying into it.

43. QUESTION:
    Does anyone know if you can transfer a pension from the teamsters to a 401k plan?
    My husband has a pension with the teamsters union and we also have a 401k and we were wondering if we can take the money from the pension plan and invest it in the 401k. He is 61 years of age but does not plan to retire any time soon.
    Any help would be appreciated.
    Thanks.!

    • ANSWER:
      In general, the answer is no.

      The Central States Pension Fund (for Teamsters’ Union members in most US states) and the Western Teamsters’ Plan (for the west coast) are defined benefit plans. Retirement benefits are defined in terms of a life annuity, an amount payable as a monthly income over a person’s lifetime.

      While there are usually a number of payout options under these type plans, most will involve some form of lifetime income option differing by the number of payments that are guaranteed and how big a benefit a beneficiary would get if the participant dies.

      A lump sum is rarely available from union pension plans except in the case of very small benefits. I don’t know specifically whether either plan offers lump sums, you’ll have to check with the plan admistrator.

      If a lump sum were available, your husband could take the lump sum and “roll it over” into a 401k or an IRA. Be sure and have the Teamsters’ fund distribute the funds directly to the 401k or IRA. If you don’t do that the fund will be forced to reduce the payout 20% for federal withholding tax.

      A couple of other facts to keep in your mind:

      An annuity is a valuable option. If you take a benefit in an annuity you cannot outlive or outspend your retirement money. Even if your husband lives to 90 someone will continue to pay him a monthly benefit. The security of a guaranteed income is important.

      Many union pension plans (including Central States) are in bad financial positions requiring susbstantial cash contributions to get them back on track. Some may need to impose benefit cutbacks to stay solvent.

      In order to make sure you minimize the likelihood of being subject to such cutbacks, start receiving your annuity as soon as you can. Benefit cutbacks of this type are generally imposed on active workers first, former workers next, and retirees only as a last resort. So I’d get my benefit in payment as soon as I could and sock it away for when I actually retire.

44. QUESTION:
    Is the employer required to contribute to a 401k Plan when the employee is deployed by the military?
    While deployed to Iraq, my employer moved manufacturing to another country and eliminated my job. The retirement package (401k) was a matching contribution, plus an additional 3 percent provided by the employer even if the employee didn’t contribute. My concern is the 3% that was lost while I was gone.

    • ANSWER:
      They will not credit the 3% because you are not currently earning a paycheck from them and your position has been outsourced. I would contact your Human Resources department and ask them. They will have all the corporate policy on these matters. Good luck and thanks for serving.

45. QUESTION:
    Year End Deadline for Participant Contribution to Company Sponsored 401k Plan?
    For tax purposes, what is the deadline for a year end participant contribution to be deposited in a company 401k plan?

    Also, what determines the date that a 401k contribution made by the participant and deducted from my bonus check was “effective” for tax purposes? Is it:

    1. 12/28/06 which is the date that the bonus check was issued (net of the 401k contribution I requested to be made),

    2. 1/3/07 which is the date when my employer actually wrote the check to make the contribution, or

    3. Some other date?

    • ANSWER:
      The 401K contribution will reduce box 1 of your 2006 W-2. It is a 2006 contribution since it was withheld from your 2006 income.
      Your employer actually has until the 15th business day of January 2007 to make the deposit into your 401K investment account.

46. QUESTION:
    If I recieved money from a 401K plan do I need to report it on my tax return?
    I had quit an old job and a couple months later I recieved a check in the mail from my 401K. I was wondering if i needed to report that on my taxes, the letter that came with the check said that taxes had been taken out, and someone told me that if it was less than 600 dollars then I wouldn’t have to report it. Is that true?

    • ANSWER:
      You will get a form 1099R. It should have been mailed to you by January 31. You’ll probably be subject to a 10% penalty for it being an early distribution. I am assuming that you are under the age 59 1/2. Had you rolled it over into another retirement plan within 60 days from receiving the distribution, you could have avoided a 10% penalty. You must report the distribution.

47. QUESTION:
    What should I do with my 401K plan from my old job?
    I do not have a 401K at my current job and would like to get this away from my former employer,as I do not trust them. So what should I do with this money.

    • ANSWER:
      Rollover the money to an IRA.

48. QUESTION:
    What is the difference between pre-tax basic and pre-tax supplemental in my 401k plan?
    there are two choices when selecting the payroll deduction on my companies 401k – pre-tax basic and pre-tax supplemental. When selecting a percentage of my pay that I want to contribute, which one do I choose?

    • ANSWER:
      I’m guessing that you are actually talking about 2 different types of plans. The Basic would be the 401k and the Supplemental would be a SERP (Supplemental Executive Retirement Plan). The SERP is a non-qualified plan that may or may not be invested in the same manner as the 401(k). The accounts are NOT combined. The 401k is covered under ERISA law and is highly protected. The SERP does not have same protections. In fact, I think there has to be a risk of loss in the SERP for it to be valid.

      Essentially the 401k money is deferred and put into a trust. The compensation shows up on the w-2 when it’s actually earned for social security purposes but it’s not taxable for IRS purposes. When it comes time to pay it out you receive the cash and a 1099-R. That’s when it becomes taxable for IRS purposes. The money is real and the balance is tangible. The SERP, however, is typically a phantom plan. You defer your pay but the money does not go into an account for your benefit. The “comp” does not show up on your w-2 and is not taxable for IRS purposes. It’s as if you never earned it. The deferred comp money remains with the company. They may choose to invest it and let you direct it but it remains under their ownership. When it comes time for the payment, the money is paid through payroll and shows up on your w-2. That’s when it’s taxable for IRS and earned for social security.

      Generally how it works is people who are highly paid, max out their 401k contributions and then are stuck. Someone makes 225k can only put ,500 which equates to 6.89% of their pay. Hard to achieve an equivicable retirement income if you’re limited to that 15.5k. The SERP allows them to put more away…But, as I said the assets belong to the company so there is some risk here if the company goes under. Those in the SERP stand in line with all the other creditors.

      So, if you know you’re going to hit the 15.5k figure for the year then put a percentage into the Supplemental Plan. But if you aren’t going to hit that number anyway don’t bother.

49. QUESTION:
    How do I get a loan through my 401k plan?
    I recently had to take three months off of work to take care of my dad. My job has allowed me three months but WITHOUT PAY. I need to know how to go about getting a loan through my 401K or if its even worth doing.
    I’ve only been with my company for 2 and 1/2 years now if that makes a difference.

    • ANSWER:
      Its not worth it. Do you realize that you will have to pay an early withdrawal penalty. This money will be taxed as income and you still have to pay it back into the account. Then when you finally do retire and go to withdraw the money, you are going to have pay taxes on money you’ve already been taxed on!

      Double taxation + the typical 10% early withdrawal penalty and its definitely not worth it.

      Another thing to be aware of depending on your employer, is that in taking the money out you may have to forfeit all the matched contributions made by the company.

      I would rather see you search for a credit card with a 0% interest rate for 12+ months and try to pay that off in time instead of tapping into your 401k.

      I hope this saves you from making a costly mistake.

50. QUESTION:
    Can someone help me with my 401k plan please?
    Hello. I’m a little concerned about my 401k plan that I have with Myrll Lynch at the moment. Should I pull out and cash it in? If not, how do I invest? I’m 32 and single. I do not own my own home. I’m just very concerned on what to do. Who can I call to offer me financial advice? I live in zip 18072. I have no one to help me and getting scared. Thank you!

    • ANSWER:
      do not listen to anyone who tells you to invest your 401k in real estate. Unless it’s in a REIT, it’s not diversified enough for your portfolio. Additionally you would have to fund any and all repairs through contributions to your plan AND you couldn’t live in it. Would have to be a rental. Not smart for majority of Americans and incredibly stupid for someone who doesn’t own their own home.

      For you? Don’t worry…ML is a huge firm that was still going to be profitable in the long term. They sold themselves to B of A because they had short term liabilities – housing debts that were slated to increase which would not enable them to do any short term borrowing which was necessary for them to do business on a day to day basis. Rather than let that happen they sold themselves to a reputable bank. Their 401k plans that they are administering are ok and safe and will be run/administered by the same people that were doing it last week. It’s all good. Will they go down? yes, likely…but they’ll go back up and over time will balance out to the 8%-10% range that all the books tell you to expect.