Tag: 401(k)

Tax Adjustments Now For The Taxes Are A Changing

April 15th, this is the date that all Americans associate with the IRS. For many it is a stressful situation to try and figure out what exactly needs to go on their return. This is where a Certified Public Accountant or other tax professionals can help by pointing out useful tax adjustments now for next year’s return.

The regulations and codes for taxes are constantly changing and that is truer for this year because the Bush tax cuts are set to expire December 31. These cuts are projected to change how deductions can be made for retirement plans like the traditional IRA and Roth IRAs. Contributing more to a 401k through work can also be a good way to lower the taxable income one acquires within a fiscal year.

For the more affluent individuals it might make sense to roll over any traditional IRAs they own into Roth IRAs if they are projecting that their income after the age of 59 and half will be higher than it currently is. This would allow them to draw the payments from the Roth IRA as non-taxable income when they retire because they have already paid the taxes on the interest returns from those accounts.

Again, it is imperative to talk to tax professionals in order to gain the advice needed to plan for the changes coming in the next year. Seeking the advice of the benefits office within one’s company can help and is where the necessary adjustments need to be requested for changes in the 401k and the withholding forms. Also, the customer service representatives of the financial institutions that the retirement portfolios are being managed can also offer some guidance to tax adjustments now.

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When is borrowing from your 401K account a good idea?

Your 401K retirement account is something that is very important to your future retirement. However, like many other people you may be considering borrowing money from your 401K account to fund something that is important to you such as starting up a business. It goes without saying that you should never make a rash decision with regards to borrowing from your 401K account, as you could potentially be risking a comfortable retirement by doing this. However, there is sometimes occasions when it can be fine or even advisable to borrow from your 401K account as opposed to looking at other options.

Of course, it is important to always consider what other options are available to you when you are in need of funds, as you may find that there is something that is more suited to your needs and financially viable than using your 401K account. You should bear in mind that, other than under certain circumstances, you may end up paying hefty withdrawal fees/penalties for taking money from your 401K fund early. However, if you repay what you borrow within sixty days you can avoid these charges.

With this is mind, borrowing from your 401K retirement account on a temporary short term basis is often a good idea, as you will not be hit with the penalty fees. This is an ideal solution if you have a short term cash flow problem and know that you can repay the money within sixty days.

If you have a lot of high interest debt that is financially crippling you then you may also find that tapping into your 401K for a loan could be a good idea, as you can ease the financial strain. You will also find that borrowing from your 401K at a really low interest rate to repay a debt such as a credit card debt with a really high interest rate makes financial sense. However, you need to make sure that you do not get carried away and borrow only the amount that you actually need rather than being tempted to take a little extra – after all, it is your retirement money that you will be taking!

Essentially, borrowing from your 401K is something that would be considered ok if it is for a necessity such as medical expenses or something that is going to ultimately save you or make you more money, such as paying off high interest debt or investing in your own business. What you should never do is risk your future by taking money from your 401K simply to splash out on luxuries such as holidays.

Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from savings to mortgages to
business insurance cover.

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Free 401k Advice for Plan Participants.

This article will focus on the latest trend in the 401k space ~ “free” 401k advice!

To begin with, the Pension Protection Act of 2006 which came into effect in January of 2008, includes a provision for plan providers (the vendor that provides you company with your 401k plan platform) to offer plan sponsors (your company) the option for plan participants (you) to pay for independent third party investment advice with pre-tax money from your plan assets. Granted this is not free but it gives the plan participant the choice to use pretax dollars vs. writing a check for the investment advice.

Know that even though you do not currently get a bill for the service, you are already paying manager fees if you own any type of mutual fund in your plan. You just do not see the money deducted from inside the fund. It is not transparent.

Furthermore, at least one plan provider, Charles Schwab, has begun offering some of their plan sponsor clients the option for plan participants to use, without charge, an unrelated investment advisory firm, GuidedChoice Asset Management, Inc.. There is a catch however; their investment advice is limited to the core lineup of mutual funds offered in the plan. In other words, if the plan also has a self directed 401k GuidedChoice will not advise the plan participant on those possible investment choices. Neither will they provide any advice on assets held outside the plan whereas an independent advisor would, if asked.

Yet, Schwab has taken the concept a step further. They are introducing an indexing-only 401k plan using exchange traded funds… along with customized 401k advice. The indication so far is not clear if the client plan sponsor or the plan participant is billed for the advice; however, it is clear that participants are in dire need of this service.

If you think that 401k advice is a good idea and you want to know if your company has adopted any of these provisions, call your human resources department and ask. If no one can give you a verbal answer, ask for a document called The Summary Plan Description. This document will spell it out for you. Just know that there are 401k advisors ready and willing to help.

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