Retirement Archives - Page 2 of 3 - 2011 Tax to 2023 Tax

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.

When is Borrowing from Your 401k a Good Idea? (2009taxes.org)
Using Your 401k to Start a Business (2009tax.org)

The Best Retirement Calculator for Financial Planning

Choosing to work on a personal financial strategy is made easy when using tools like the best retirement calculator. Enlisting the help of tools used by experts is always the best way to go. Nothing can be more helpful to financial planning than having tools that will make that planning easy to understand. The numbers matter. The tools needed must be reliable and accurate.

Retirement Savings Calculator

The retirement calculator has the strongest potential for making or breaking a savings plan. While the program is created by some engineer, it is the end-user being able to read the output that makes the most difference. A savings calculator allows the input of user data and then quickly outputs formidable information used in creating a plan. Every good plan will always begin with the right tools and then culminate in sound advice.

Your Retirement Plan

With the information that comes out of the calculator it is easy to decide what steps should come next. The plan is what comes next. The information will tell the user with some clarity what must be obtained and how it may be obtained for a proper and secure retirement. Most people want to retire at some point, they simply don’t know how and that is what puts the most fear in personal planning.

The Best Places to Invest

As the information is now available, it is also important for the user to have some advice on the best places to invest. After all, the information on retirement would be nothing unless the user has a place to make the data usable. With the latest tools and a good primary plan, it is always a good idea to ask a few question, but the blueprint being laid out will make the asking less likely to be controlled by the advisor. Starting with good tools puts the user in control.

Last Ditch Retirement Plans When You Are Close to Retirement Age (2009tax.org)
Retirement Advice For Which Plan To Use (2010tax.org)

Traditional IRA or A Roth IRA You Decide

Are not all retirement accounts the same, they just hold money for you while you are waiting to retire correct? This is not true and most retirement accounts differ in many ways and these differences can make or break the account for you. Below is listed a few differences between a Traditional IRA and a Roth IRA.

A Roth IRA is a retirement account that requires for the holder to pay taxes on the money that is contributed to the fund in the year it was earned. This is not true of a Traditional IRA which allows for the holder to wait until the funds are withdrawn in order to pay taxes on the money. Also there are Roth contribution limits and income limits which narrow the pool of people who can contribute to the fund.

When you contribute money to a Traditional IRA your adjusted gross income (AGI) is reduced. This means that when you file your taxes the amount of money you have made in the year is reduced by what you have contributed to the fund, and this is not the case when contributing to a Roth IRA. The lowering of your AGI has the potential to place you in a lower tax bracket and thus you can receive tax breaks and benefits.

It can also be argued for both a Traditional IRA and a Roth IRA that depending on which state you retire to one account can be better than the other. If you currently live in a higher income tax state than the one you wish to retire to then it is possible that by using a Traditional IRA you can save money because your income will be taxed later. The opposite is true of a Roth IRA because if you live in a lower income tax state and plan to move to a higher taxed state then you can save money.

There are benefits and disadvantages to both retirement accounts and depending on your financial situation one could be better suited for you.

Traditional IRA or A Roth IRA You Decide (2011tax.org)
IRA: Traditional IRA and Roth IRA (2010tax.org)

Pros and Cons of 401k rollover to IRA

A 401k rollover to Individual Retirement Account (IRA) situation usually denotes a movement from one employer to another. Instead of en-cashing the 401k account, the recommended choice when you decide to switch employers is to rollover your 401k to your IRA. The IRA is an account which helps you to lower your investment related expense and can give you more choice in investment opportunities.

Having an IRA can be advantageous in many different ways. It is a good option to manage your investment portfolio and saving on administrative and management cost. With an IRA, you can develop your investment portfolio according to your own risk appetite levels. In addition to that you can also choose your own administration and custodian for the account.

However, having a 401k rollover to IRA does have its own disadvantageous as well. One of the biggest negative for this is that the account can be used to pay off your debts should you get into a bankruptcy situation and the amount is higher than 1 million. A traditional 401k account cannot be touched in such a scenario. Another big disadvantage is the IRA mandates that you take periodic distributions when you reach 70 years old even if you are working whereas the normal 401k does not have such stipulations.

The 401k rollover to IRA does have some guidelines which must to be clarified. The first is that the 401k rollover can be put into any of the three different accounts rollover account, roth IRA or traditional IRA. The second rule is that the account can be cashed out anytime but with the accompanying fines and fees. The third rules states that any loans due must be settled within 60 days to the 401k rollover to IRA.

It is very easy to do a 40k rollover to IRA. You just need to open an IRA account with a financial institution and inform your employer about the change so that the check can be made out to the financial institution. Once the fund is transfer, you can start investing with the IRA.

401K Rollover To Roth IRA: You Better Make A Move Now (2010taxes.org)
Advantages of a Rollover 401k (2009tax.org)

A Flexible Retirement Plan;Roth IRA

A Roth IRA is a retirement plan with great flexibility, this accounts for its popularity. Along with flexibility comes a few Roth IRA rules, advantages, and disadvantages. To obtain money from an account tax free a few rules apply. The account must be at least five years old currently, and for amounts drawn on growth over principal the owner must be 59.5 years old. The only other rules apply to income levels, regarding how much money can be contributed.

If you have an existing IRA converting to a Roth IRA is easy, and the funds transferred can be withdrawn penalty free. The transferred funds must be at least five year’s old to be penalty free. Assets in a Roth IRA can be passed to heirs unlike social security.

A Roth IRA does not require distribution based on an owners age. All other tax deferral retirement accounts assign a specific age when withdrawals have to start. Since a Roth IRA has no begin date on withdrawals the total amount of funds can be passed to a beneficiary, irregardless if the owner dies or if the funds are just not needed.

One of the draw backs to owning a Roth IRA is that at certain income levels the ability to contribute to the fund is restricted. Basically if a person makes to much money according to the guidelines only so much money can be contributed to the fund if any at all. Also placing money into a Roth IRA does not change a persons adjusted gross income (AGI).

When contributing money to a traditional IRA a persons AGI can change. This can lower an individuals taxable income, allow tax credits, and deductions. The amount of tax credits and deductions can increase as a person slides down in income level. As with all retirement plans research should be done to decide which plan works best for each persons individual needs.

Retirement Plans; A Roth IRA (2009tax.org)
Knowing the Roth IRA Tax Rules (2011tax.org)

Costa Rica And The US Overseas Retirement Market

For many US baby boomers with nest eggs that have shriveled during the recent financial crisis, an overseas retirement can make financial sense. Once they shift their perspective offshore, the Central American region captures a fair share of attention given its close proximity to the US. There are many connecting flights that travel daily from US airports. Costa Rica attracts more retirees than its neighbors, and here are some of the reasons why.

Costa Rica has been a popular vacation destination for decades, as well as a hot retirement spot. In fact, the country boasts the largest population of US expatriates in the region, so current retirees are following in other US citizens’ footsteps.

Costa Rica is aggressively attracting retirees by launching the first ‘retiree program,’ which offers tax benefits, exemptions, and discounts. Panama, Nicaragua, and Belize have all followed suit, rolling out their own retiree programs, but Costa Rica was the first country to put such a policy in place, actively seeking out retirees.

Costa Rica has long held a tradition of environmental protection, as evidenced by the country’s tourism slogan, “No artificial ingredients.” Tourists aren’t the only ones enjoying Costa Rica’s biodiversity. Retirees also take advantage of the national parks and beautiful landscapes.

Retirees prefer to move to more established parts of the country that provide well-serviced amenities and infrastructure. Costa Rica has a number of well-developed second home and retirement destinations available. The country is sometimes known as “The Switzerland of Central America.” Combine this with a stable democratic government and a diverse economy, and it’s easy to see why investors, tourists, and retirees flock to Costa Rica.

There is also Costa Rica’s lower cost of living to consider. Real estate in Costa Rica is much more affordable than the US. There are other countries that are cheaper, such as Nicaragua real estate for example, but Costa Rica can still provide retirees with a lifestyle they could not afford in the US.

How to Plan Your Retirement With An IRA (2011taxes.org)
Roth IRA: Reach Retirement Bliss (2011tax.org)

Tag: Retirement