What Is A 401k Plan

Frequently Asked Questions

1. QUESTION:
   What happens behind the scenes in a 401k plan?
   I work for a medium sized technology company in Silicon Valley. I have been participating in the company 401k plan for 5 years. Every once in a while the 401k funds available to us change completely. Even the funds that are doing spectacularly well. I can never get a straight answer from our 401k plan administrator or the company that provides us with the plan, as to why funds are added and dropped at will. Apparently there is a board of trustees that manages the company 401k and decides which funds to make available.

   Being a salesperson myself, I am guessing that this Board of Trustees has other incentives to choose one company’s 401k mutual fund over another. How does this work exactly? Are these board members given kickbacks and free lunches when approached by new fund administrators?

   • ANSWER:
     Most likely it’s because of service. That’s the typical reason that a firm your size would switch administrators. However, if they aren’t witching the company that provides the plan but only the funds then they hopefully are doing their due diligence and making choices based on appropriate information. Why would they switch a fund? Perhaps the fund moved out of the appropriate investement category…ex: a large cap starts buying small cap funds to prop up it’s returns or a value fund starts buying up growth stocks. Or it could be as simple as the fund has a lot of turnover in it’s management. Perhaps the fund was targeted by Eliot Spitzer for fee issues….could be a myriad of reasons.

     For smaller firms the mutual funds sold to them typically pay for the fees out of 12b-1 fees which are hidden in the expense ratios. The higher that fee the more that is being paid to the administrator and or investment firm. That means less out of pocket expenses by the company….essentially a “free” product…but it’s not free it’s being paid for by the participants.

     Check your funds expense ratios…see if there 12b-1′s being paid by the fund…check to see if they are higher than before. If not the reasons are probably reasonable. Mutual Fund companies are not supposed to pay bribes or kickbacks…delisting would be the end result if caught.

     btw…if the fee were the same…would you rather know you were paying it via a fee column or would you rather it be hidden as part of the funds expense ratios? I think the former…but the mutual fund companies say the latter.

2. 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.

3. QUESTION:
   What type of investments are similar to a 401k plan?
   I have a 401k plan at w/ run by John Hancock (JHPensions). The funds that I have chosen have some pretty decent returns. I am wondering what is similar to this that I can invest in? I’m not talking about a different 401k or no taxes on may wages. I am talking about a similar program or plan where I can invest some money. Is a mutual fund similar?

   • ANSWER:
     A 401(k) is not an investment. It is an employer-sponsored, tax-qualified retirement plan. It CONTAINS investments, usually mutual funds and/or company stock. If you are referring to options for retirement savings, take advantage of all your tax-qualified options first (401k, IRAs, etc.).

     Contribute to your 401(k) to the extent that your employer’s match is maxed, then look to IRAs. You can put virtually any type investment into an IRA (stocks, bonds, mutual funds, annuities, for example). Most qualified plans are pre-tax tax-deferred; meaning you put money in before you pay taxes on it, then it grows without taxation until you withdraw it in retirement. A Roth IRA works opposite, but is usually preferable. You contribute to it post-tax, but you withdraw the funds completely tax-free in retirement.

     Speak with a properly qualified financial advisor or planner. Many are available at little or no cost. A referral from a friend or relative is usually best.

4. 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!

5. QUESTION:
   What is the difference between a 401K plan and a 401A?
   I used to have a 401K plan when I was self employed but now have a 401K plan as an employee.

   What’s the difference?

   • ANSWER:
     The differences between a employer based 401K and a self employed 401K, is the amount of money that you can contribute.
     employer based 401K for 2011 = 500
     self employed 401K for 2011 = 500 plus 20% of your income up to 000
     – there might be other things like loans and stuff but this is the basics

     A 401A is more of a deferred comp program. You are not taking money this year for money that you earned this year.

6. 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.

7. 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.

8. QUESTION:
   What is the only options trading allowed in a 401K plan?
   Apparently the US govt. only allows 1 type of options trading in a 401K plan… but I don’t know what to call the strategy… I just heard someone talking about it… does it exist? if so, what’s the strategy called?

   • ANSWER:
     You can only sell covered options. You can’t sell naked options because you might receive a margin call for more than you’re allowed to put into a 401k for the year. Of course, this assumes you have a brokerage account tied to your 401k.

9. 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

10. 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.

11. 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.

12. QUESTION:
    What improvements would you like to see in your 401k plan? What options or features is your 401k plan lacking?
    Please answer this question only if you are currently participating in a 401k plan or have actively participated in an employer based 401k type plan in the recent past.

    • ANSWER:
      I would just like a wider variety of investment choices – I work for a Fortune 500 company and there is 0million in our 401k plan and maybe 10 choices of funds other than Target funds and some investment sectors are not offered

13. QUESTION:
    Has anyone experience on rolling over a 401k plan from the USA to a complying Australian superannuation fund?
    Where do you find info on rolling over 401k funds into an Australian pension fund?

    How do you do it?

    Assuming the funds stay in a pension fund in Australia, what tax implication is there in the USA?

    • ANSWER:
      Can’t roll a 401k out of country. It’s taxable income to the US Govt. They won’t let that money disappear. Otherwise you’d have people rolling into countries where there is little or no taxes and then taking distributions from there…thus avoiding the US Tax. Further, if you’re not a US citizen and living overseas the government mandates that the trust withhold 30% instead of the normal 20%. That way if you fail to file taxes at least they’ve got their 20% plus the 10% penalty up front.

14. 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.

15. 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.

16. QUESTION:
    Is the department of labor now trying to tax my 401K plan?
    The Department of Labor and the Department of the Treasury (the “Agencies”)
    are currently reviewing the rules under the Employee Retirement Income Security Act (ERISA)
    and the plan qualification rules under the Internal Revenue Code (Code) to determine whether,
    and, if so, how, the Agencies could or should enhance, by regulation or otherwise, the retirement
    security of participants in employer-sponsored retirement plans and in individual retirement
    arrangements (IRAs) by facilitating access to, and use of, lifetime income or other arrangements
    designed to provide a lifetime stream of income after retirement. The purpose of this request for
    information is to solicit views, suggestions and comments from plan participants, employers and
    other plan sponsors, plan service providers, and members of the financial community, as well as
    the general public, on this important issue.

    http://www.zerohedge.com/sites/default/files/2010-02028_PI.pdf

    Hey Dbags in the Dept of Labor, what happens if I want a lump sum from my 401K? You going to regulate that as well?

    • ANSWER:
      Yes they are in their attempt to redistribute your wealth to pay for their programs and failed policies

17. 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

18. QUESTION:
    Can my former employer force me out of the 401k plan?
    I left my account with my previous employer and am now self-employed. The company notified me that they are changing administrators and want only current employees in the plan. I think it is a bad time to sell the funds and roll over to a IRA cd. Am I correct? What are my options?

    • ANSWER:
      1. I don’t recall the legality of whether an employer can kick you out of a 401(k) plan as a former employee. I left a major Wall Street firm and no one forced me to rollover the 401(k). They can ask you to leave, but they would be severely liable under ERISA law if they liquidated your assets and sent you a check without your written instruction to do so. They can charge you an “administration fee” to hold the 401(k) for you however.

      http://www.dol.gov/dol/topic/health-plans/erisa.htm

      2. You can opt to move the 401(k) to an “IRA Rollover.” I would not do this with a bank or insurance company. Most bank/ insurance employees are poorly trained and inexperienced when it comes to investing and investment strategy. I would go get professional advice from a broker with 15+ years of retirement and market experience.

      3. You can often transfer the assets “in kind.” This means you keep exactly what funds (assets) are in the 401(k) when you move it to an IRA Rollover.

      Historically, CD’s are bad investments long term, esp if you have 10+ years before retirement.

      There is no such thing as an “IRA CD.” This is an incompetent banker wanting you to liquidate your funds at loss and buy a CD which he/she gets paid on that.

      You can have an IRA account, and inside the IRA are the investments. An IRA is nothing more than a shell that holds assets under a certain legal structure.

      http://www.investopedia.com/terms/i/ira.asp

      I don’t know what you are holding, or your situation, so I cannot give you personal advice.

      In general, I would look to Dollar Cost Average each month or bi-monthly (better) in major market indexes such as the S&P 500.

      http://en.wikipedia.org/wiki/Dollar_cost_averaging

19. QUESTION:
    I have to pick a 401K plan for work and I don’t which plan to pick that has the lowest risk and the best retur
    I don’t want to have to take a lot out of my check (maybe one and a half to two percent). And the last time I participated in a 401K I lost money. What should I do. My company is making this mandatory.

    • ANSWER:
      May I suggest that you go to your HR department and have them run the numbers. It may be that by saving more than 2%, possibly even the full amount, you may not negatively impact your take home pay. When I first started my 401(K), I had 12% taken out for my contribution and my take home pay actually went UP. It was only [FAQ-ANSWER].38 per week, but it did go up and I had the money in an account with MY name on it instead of the money going for income taxes.
      While you may have lost money in your 401(k) in the past (as did we all) there has never been a 10 year period where the stock market has lost money, not even in the Great Depression. As long as your time horizon is longer than 10 years a growth stock mutual with a good track record and an index fund should pay very good interest over time.

20. QUESTION:
    What is better a retirement plan or a 401K plan? Is there a difference and how much should I save a month?
    Do you know a good place to start when your employer is not doing retirement because you do not have enough hours? I dont feel like Social Security will be around when I get to the age to draw. That will be like in 2040 something.

    • ANSWER:
      my preference is a Roth IRA. You can deposit upto 00 a year if your income is under 0,000. The alternative is a tradional IRA. The difference is that with a Roth IRA you deposit after tax dollars and never pay any tax on the earnings of the account or until the government changes the law. With a traditional IRA you deposit pre tax dollars and do not have to pay any taxes on the money or income until it is withdrawn at which time you pay full taxes. Withdrawals from a 401k are treated like a tradtional IRA.

      You can establish an IRA account of either flavor with a stock broker or a mutual fund company.

21. 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.

22. QUESTION:
    What does the term vested mean in a 401k plan?
    I am doing a report for my Organizational Behavior class on Gap Inc. I ran across some employee benefits and I have no idea what the following means.
    “Dollar for dollar match for up to 4% contributions, 100 % immediate vesting.”
    What is vesting?

    • ANSWER:
      When you defer salary into a 401k plan, often the company will match your deferral. In the example in your question, Gap will match the first 4% of your deferral. The vesting period determines how long it will take you to have access to the company’s match in your account. In the case of the Gap, you will have immediate access to the company’s match. However, most companies have progressive vesting. This means that it might have to work at the company for a number of years before you can have access to the company’s match.

23. QUESTION:
    I own a small business and want to set up a 401k plan for myself and some key empoyees. How much is setup?
    I got a quote from ADP who does my payroll and they want a lot. What is the range for the setup and monthly fees typically.

    • ANSWER:
      Start with your bank. There is a good chance that they either will handle a 401k for you or be able to recommend someone who does.

      You might also contact Fidelity Investments (they are in Boston MA) or Vanguard (in Valley Forge PA) or T Rowe Price (Baltimore MD) as that is their business.

      Hope this helps
      Jerry-the-bookkeeper

24. 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.

25. QUESTION:
    what is the diffrence between an IRA and a 401K plan?
    I already have a 401k plan at work, but I been hearing that it’s best to have an IRA instead… but I don’t know. Can anyone help me out? Thanks

    • ANSWER:
      IRA:
      Roth individual retirement accounts are another option for investors. However, unlike traditional IRA accounts, Roth IRA accounts aren’t tax deductible. When retiring, however, the account holder cans easily withdrawal funds without being taxed. This account is a good option for people who don’t mind waiting to receive the tax benefits of individual retirement accounts.

      401K Plan:
      401k accounts are retirement savings plans offered through an employer. Plan participants make contributions directly from their paycheck every month. Some employers match contributions, which is a great deal. For example, an employer might elect to contribute up to 5% of the employee’s salary. So, as long as the employee contributes at least five percent, they get the full matching benefit from the employer.

26. QUESTION:
    How do I put my 401k plan (from a previous employer) into an IRA?
    I heard that this would be a good idea. Is this true or not? What are the pros and cons?

    • ANSWER:
      open an IRA, then call the 401K plan. They will have forms for you to file. Make sure you tell them it is for roll over and not for distrubution. They will cut a check or you can ask for wire transfer. The check should specify it is for roll over and not cashable. As a rule of thumb 1) never cash out your 401K when you leave the job as you will pay penalty tax 2) roll over the 401K into your own IRA. What happen most of the time whe peopel leave a company but leave their 401K there they either forget about it, something can happen to the company and they loose the plan (although the money is yours I would not take the risk), they change plan, or do not offer the choice of funds…etc

27. QUESTION:
    the co. i recently stopped working for is terminating the 401k plan. what is my best option?
    need to make decision soon. do i rollover to an IRA or cash out? could use the cash for credit cards or to stop possibe foreclosure. having a retirment plan at this point is out of question. need to get back on feet!

    • ANSWER:
      If it were me, I would find a good broker, and roll what you can in to a ROTH IRA first, and then an individual IRA. Never cash out. That is the worst you can do, I don’t care what age, unless over 59 1/2. You will end up paying a 10% penalty, and you will pay 30% FED tax, and then 6% State tax.

      Still, getting back on your feet is probably more manageable if you stop for awhile with the retirement contributions. Would you dare to borrow money at 46% interest? Of course not. Don’t blow this money with a wrong choice.

28. QUESTION:
    what are my tax obligations on transferring my 401k plan into a Roth IRA?
    this is a question for my 44 year old daughter, who acquired half of her ex husband’s 401k plan thru a divorce settlement

    • ANSWER:
      First she gets the money to a traditional IRA. Then she asks the bank if she can start to roll the money from the IRA to the Roth. (There won’t be enough time in 2007 to start this.)

      If she can roll the money to a Roth, she would have to pay taxes on any money rolled over and should do so with funds outside of the IRA (to avoid the 10% penalty). Rollovers do not have to be the entire amount, but each rollover will have it’s own 5 year clock. If she takes the money back out of the Roth before she’s 59.5 and the 5 years aren’t up yet, she’d still owe the 10% penalty.

29. QUESTION:
    What is the best Fidelity 401K plan/fund to invest in for a 26yr old?
    I’m currently in the Freedom-2040, and I’m not sure if it’s something I should remain in.

    • ANSWER:
      I am not a great believer in target funds for a couple of reasons. First you get hit with double expenses. Second they are managed by a computer program. If your 401k allows you to pick among all the Fidelity funds, then it would be my suggestion to break your investments into 5 parts and spread them among 5 Fidelity funds with different investment objectives. You decide on the objectives. Being young you might want to choose a somewhat aggressive approach perhaps, but since it is your retirement money not too aggressive.

      The 2040 fund spreads its investments among about 30 different fidelity funds, somewhat of an overkill I believe but playing it safe more or less.

30. QUESTION:
    401k&child support wich plan protects you from garnishment?
    Ive done some research(still uncertain) and child support cannot garnish retirement from 401k as long as there is no CONTRIBUTION by employee. But to my knowledge the employee contributes a percentage of his income into the plan. So can someone explain in detail what 401k plan the article may be refering to?

    • ANSWER:
      Whether or not one has contributed to the plan is irrelevant. In most states, all assets within a 401(k) are completely protected. In those few other states, all of the vested and employee-contributed assets are subject to seizure per each state’s guidelines.

31. 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.

32. QUESTION:
    What are the fees in a Prudential 401k Plan? Is there a wrap fee?
    Here are my investment choices:
    LSV Asset Management
    Turner Invest. Partners
    Julius Baer
    Pimco Total Return
    Oakmark Equity & Income
    Prudential target dates
    and a few others……
    Is the expense ratio accurrate? or can I get lower fees by going directly to the fund companies?

    • ANSWER:
      The recordkeeper doesn’t set the fee’s for 401k participants, they are set by the company who handles the 401k (your employer). Fund fee’s are set by the funds, not by the 401k and not the recordkeeper.

33. QUESTION:
    is it a good time to start a 401k plan now? even with the stock market falling.?
    If so what is the best things to invested in to make a gain?

    • ANSWER:
      Don’t think of it as a falling market, think of it as stocks on sale! Just invest and don’t worry about the news coming out of Wall St.

      I like US stock, if your 401K offers an index fund, that would be the best options; low cost help long term returns. Good luck and get started.

34. QUESTION:
    What penalty will I have to pay for a 401K plan discrimination refund?
    Due to our company failing the 401k Discrimination test, I as a Highly Paid Executive will receive about a ,500 refund in early 2011.
    - How will this affect my taxes?
    - Will the ,500 be taxed as ordinary income?
    - Will I pay a penalty?
    - What should I do with the $$?

    Thanks

    • ANSWER:
      - How will this affect my taxes? it just becomes ordinary income
      - Will the ,500 be taxed as ordinary income? yes
      - Will I pay a penalty? no

      - What should I do with the $$? If you are allowed to fund a Roth IRA and haven’t yet, that’s where I would put it. Otherwise, just invest it.

35. QUESTION:
    What are all of these 401K plan fees- how can this rip off happen?
    Ignorance aside- I quit the stock market long ago and have no 401k, realizing that once the common man and woman could freely invest the sharks would raise the prices of nearly everything. How can this happen during a Republican administration- aren’t they supposed to have integrity at some level?

    • ANSWER:
      You are correct that 401K fees are a ripoff, and the bigger problem is that there is no law requiring these fees be disclosed to participants. It is unconscionable that up to half of the earnings can be eaten up by fees.

      I don’t think that Republicans or Democrats have the market cornered on integrity. Too many politicians allow themselves to be dictated to by lobbyists and industry – especially the financial industry. They surrender their integrity to raise money to be elected or re-elected.

      Until there is sufficient outrage among the common persons, the politicians will not stand up to these special interests. I find it curious and discouraging that so many people came out to protest taxes, when taxes are not really the problem.

36. QUESTION:
    I have a 401k plan thats tied to the stock market. Do I panic now or is there an end in sight .?
    So our government encourages us to move away from reliance on Social Security. What our Goverment seems to be encouraging us to do is all become bravado risk takers. This sucks!

    • ANSWER:
      The current meltdown is a market correction. The correction is painful for some. If you are losing right now its a disaster but if, like me, you are buying it is a clearance sale. If you are not going to withdraw funds from the 401K in the next 3 months just wait and watch. Most of these corrections last about 30 days. They go down so they can go up!

      The problem is that lenders are finding out why it is a bad idea to lend money to people with bad credit histories. They don’t pay!

      Don’t panic – there have been several of these since 2000

37. QUESTION:
    What is the best way to determine whether a company should implement a 401K plan?

    • ANSWER:
      There are a few factors, first, is the 401 k going to be used to attract or keep employees? Also, there is a cost to implement and maintain a 401 k. (especially if the company matches a portion). Do your employees want a retirement plan/ How big is your company? Smaller companies could have a SEP or SIMPLE retirement plan.

38. QUESTION:
    What is the best option, that I have with a 401k plan?
    I have a check from fidelity but I don’t want to roll it over to my current job, cause I heard things that I dislike, so if someone have knowledge on this field I would like to hear your ideas, also I need to loan money from this check so please let me know your inputs! THANKS

    • ANSWER:
      You don’t want to be borrowing from your 401(k), if you default the whole amount becomes instantly due. You also don’t want the check to be made out in your name (though it sounds like you already have) because it causes absolute nightmares at tax time to avoid large penalties.

      You need to open an IRA with a major established brokerage/bank, and have the funds rolled in to there.

39. QUESTION:
    My husband puts 10% into our 401K plan every paycheck and his company matches it up to 6%. That being said,?
    what is a good dollar amount one should have in their 401K plan TODAY, if they are married and both people are 45 years of age? I am wondering if we are doing enough for our retirement. I know about other investments, so please don’t go into all that. I’m just wondering how we stand as far as the dollar amount we have accumulated thus far. Thanks.

    • ANSWER:
      How much does the company match up to 6%? 100% of your contribution? 50% of your contribution?

      Without knowing the dollar amount you’re putting in and the amount you need to live on in retirement, it is very difficult to give you a dollar amount you should already have in retirement.

      There are calculators online to show you how much you will have in retirement based on how much you have in there now and how much you’re contributing. I suggest you look into those.

      Go to www.fool.com and click on the calculators link.

      If you just want a quick and dirty number… I don’t know… at 45… planning on retiring in 20 years… oh… 0k – 0k?

      Again, not knowing what you are expecting to need in retirement and how much you’re saving now (in dollars), there’s really no way of answering this question.

40. QUESTION:
    what is hardship loan about in a 401k plan and can I get it if I qiut work?
    I have to quit work to take care of my father and I need alittle money to help me get by

    • ANSWER:

41. QUESTION:
    How do I take all the money out of a 401K plan from my last job?
    Yes,I want to remove it all,and YES I understand there are penalties and taxes! So,exactly what forms do I need to fill out and send back to my old job to have the entire amount sent to me in a check?
    Thanks so far for the fast answers. And I’ve been to the website www.Nadart.org where I can get all the forms that I need. As for contacting the previous job,I’d rather not. I hated that job and I’m not one to show up at a previous job once I left or even talk to them if I don’t have to.
    Besides I really believe that the people here are more qualified to answer this than her. lol (no seriously)

    • ANSWER:
      You contact the 401k Plan Administrator. Ask them for a hardship withdrawal form. I think it takes about 6 weeks on average.

      Because you already “know the consequences”, I won’t remind you of them.

42. QUESTION:
    At what age do you have to pull money from your 401k plan?
    I will be 70 next year and I still work full time and put as much money as I can into my 401k
    I want to keep it up as long as possible. Is there an age limit?

    • ANSWER:
      Dan’s got it right, but left out one key line.

      The required beginning date is April 1 of the first year after the later of the following years:
      Calendar year in which you reach age 70½.
      Calendar year in which you retire.

      HOWEVER, a plan may require you to begin receiving distributions by April 1 of the year after you reach age 70½, even if you have not retired. You need to speak to your HR department.

      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. 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

      “Providing sound retirement opportunities and tax-reduction strategies since 1985.”

43. QUESTION:
    What is the difference between a 401K plan and an IRA or Roth IRA account?

    • ANSWER:
      1. 401(k) is like a scooter. You’re company that you work for provides you this savings plan. The company selects who administrates the savings account (where you park your car) which investments you can have (which road you can drive your scooter on), and they can match your contributions (like mom & dad giving you gas money). If you want to get that money (selling your car), you need to work with the “Fund Administrator”, and sometimes your “Human Resources/Supervisors” to get that money. Sometimes, you’ll only get the money if you promise to pay it back. ( yep, mom & dad want you to be responsable )

      2. IRA is like a standard car. You can select who administrates the account (or where you park your car), what investment to buy (what roads to drive on). Unfortunantly, there is no one available to give you a match on your contribution (no gas money from mom & dad); but you can deduct your contribution from your taxes. You can also withdrawl the money at anytime (selling your car). . . BEWARE. . . there are financial concequences to this. . .research before you choose to withdrawl (its like sales tax from selling your car. . .if you sell at the wrong time, you’ll get jipped on the sale proceeds).

      3. A Roth IRA is like a hybrid car. You get to pick who administers the account (parking the car) which investments (which roads to drive), but there is no matching and you can’t deduct your yearly contributions from you taxes. Instead, you can get your money without tax conseques (selling your car) when you need it. . .BEWARE. . . to get your money without tax problems, there are still rules. Research before you withdrawl funds (sell that car). Providing you withdrawl (sell that car) under the guidlines, you don’t have to pay sales tax on the withdrawl ( no sales tax from selling the car).

44. QUESTION:
    Best Savings Plan for Self Employed: 401k, IRA, CDs, Stocks, Bonds, or what?
    I am almost 29 years old and I am self employed. I have saved (in a savings account), roughly 50k.

    I am wondering what the best method of savings/interest would be for me. Should I do a self employed 401k plan? Should I invest it in CDs? Should I invest in bonds? Roth IRAs?

    What would you recommend? Preferably something that is safest (insured), while offering the best interest possible.

    • ANSWER:
      The best is likely a tax deferred account – IRA, or a 401k. A sep401k, you could put more money into. However they might be difficult to set up on your own. Check with one of the large mutual fund companies on this – Vanguard, Fidelity or TRowe Price.

      It’s hard to see how you would ever have a comfortable retirement putting your money into something safe. These don’t even keep up with the drag of inflation and taxes. You want to grow your money, equities is the way to do it.

45. QUESTION:
    What’s the maximum someone can pay into a 401k plan in 2005 including company match? k or more?
    My company matches a portion of my proceeds and I just went over the k mark for the year. My question is, can my TOTAL contributions exceed k as long as my personal contribution is limited to k and the excess is from company matching funds? If yes, what’s the limit on the TOTAL contrib including personal and company matching funds? k?

    • ANSWER:
      Your personal limit is 15K in 2006, which company matching is extra. Meaning 15k+company matching.

      43k limit is for self employ

46. QUESTION:
    Question about 401k plan for a 21 year old?
    I just got my first job and I’ll be making ,000 base salary. What is a good percentage for my 401k?
    I mean what percentage should I take out for retirement…

    • ANSWER:
      Minimally, you should put in enough to max out the employer’s contribution (i.e., if the employer contributes 50 cents on the dollar up to 3% of pay, you should contribute at least 6%).

      One of the best things to do is start at the max employer contribution, then every time you get a raise, add to the percentage. For example, if this year, you contribute 6% and next year, you get a 3% raise, take 1% and add it to your contribution – that way you put away more and you still get an increased pay check. If you do this, after 10 years, you will contributing say 15% of pay and you will never have missed any of it as opposed to all of a sudden realizing your savings are falling short and you need to go from a 6% contribution to 15% – effectively a 9% decrease in your pay check.

47. QUESTION:
    How can I rollover my Roth 401K from my old firm to my new firm’s traditional 401K plan?
    I have a personal choice retirement account with Schwab that’s 20% Roth 401K and 80% Traditional 401K. I recently switch jobs and my new firm does not offer the Roth 401K. What are the consequences of rolling over? Can I recharacterize my Roth 401K as a traditional 401K and get back a larger tax refund?

    Thanks for your help.
    I have a personal choice retirement account with Schwab that’s 20% Roth 401K and 80% Traditional 401K. I recently switch jobs and my new firm does not offer the Roth 401K. What are the consequences of rolling over? Can I recharacterize my Roth 401K as a traditional 401K and get back a larger tax refund?

    Thanks for your help.

    And yes, there is such a thing called a Roth 401K and I am not confusing an IRA w/ a 401K.

    • ANSWER:
      My understanding is that you generally would not move your Roth 401k to a traditional 401k. You will most likely need to move it to a Roth IRA unless you can leave it where it is.

      If you don’t have a Roth IRA and you don’t qualify for one, you should consult your financial planner. (Don’t cash out!)

      I’m no expert but I thought could help a little more than then the guy who claimed there is no such thing as a Roth 401k!

48. QUESTION:
    Can someone explain the Democrat’s new plan to socialize our 401k plans?
    I watched part of their hearings on C-Span the other day. Sounded like they want to take away the tax deferral savings for the more successful and give around 0 to lower income workers as a savings credit or something like that.

    I really want to understand what is going on here?
    Please Peggy, this is serious. Don’t joke around about people’s retirement like that!

    • ANSWER:
      They said something about Obama putting a high tax on 401s and IRAs. So I thought it sounded like they would take the extra taxes on 401s and IRA to give away. But I didn’t get to hear it all clearly.

49. QUESTION:
    Other than a 401k plan & IRAs, what ways of investing would be good to see your $ grow with little investment
    Which investing programs should be avoided? What do people think about Sharebuilder?

    • ANSWER:
      Purchasing stock is more risky, but if you are investing for the long term, you should be OK. Large stocks like Disney and Cisco may have periods where they dont’ increase or even decrease, but over the last ten years, they have returned 10% annual return. You could use sharebuilder to purchase 2 or 3 shares each month.

50. QUESTION:
    401k plan question regarding employee match?
    This isn’t a real life situation more of a paper i’m writing but if an employer matches up to half of first 6% what does that mean? Lets say my salary is ,000 and i have a 401k plan.. how does this work? Thanks.

    • ANSWER:
      If you contribute 1% of income, that’s 0 per year. Assuming the employer matches 50%, they would contribute 0 that same year. Contributing 2% would be ,000 and 0. And so on up to 6% income contribution.