Feb 05

The Solo 401(k) Plan Required Minimum Distribution Rules

What is an RMD?

Once you reach the age of 70½, you must start to better understand the required minimum distributions (RMDs) rules. That’s because, upon reaching this age, the IRS requires you to withdraw at least a minimum amount each year from all your IRAs and retirement plans—except Roth IRAs—and pay ordinary income taxes on the taxable portion of your withdrawal.

During the April following the calendar year that the owner reaches age 70½ and is no longer employed (this does not apply in the case of a business whether the owner owns more than 10% of the stock), they are legally required to take a Required Minimum Distribution (RMD), also called a Minimum Required Distribution (MRD). Distributions taken late are taxed at the rate of 50%, whereas the account owner can elect the tax withholding rate for RMDs taken on time. RMDs are partial annual payments required by the IRS. The rule is in place to ensure that retirees actually withdraw from retirement accounts rather than using them as a vehicle to pass money to heirs. The RMD amount is based on the preceding December 31 value of the account balance and life expectancy tables.

For any account with an RMD, any distribution from that account during the year will count toward that year’s RMD. You may take more than your RMD in any given year. However, amounts withdrawn in excess of your annual RMD won’t satisfy your RMD requirements in future years.

That’s because the IRS requires each year’s RMD to be calculated using the previous year’s fair market value.

Are RMD Distributions Subject to Withholding?

When you take your RMD, you can have state or federal taxes withheld immediately, or you may be able to wait until you file your taxes.   An RMD distribution is not treated as an eligible rollover. If you request a rollover and an RMD is due for the year, you must satisfy the RMD before rolling over the remainder of your eligible money. In general, since an RMD is not an eligible rollover distribution it is not subject to the 20% withholding tax.  Hence, there is no 20% withholding tax on an RMD, but a 10% federal income tax would be withheld on the taxable portion of your RMD. RMDs may also be subject to state taxes. However, in most cases, you may elect to have no federal or state income tax withheld or to have more than 10% federal tax withheld would apply, although it may be waived.

Satisfying the RMD Rules

The Solo 401(k) plan participant is responsible for satisfying the RMD. The Code does not permit participants to satisfy their RMD from another plan of the same type [e.g., 403(b), 401(k), etc.].  RMDs are to be satisfied from each individual plan subject to that plan’s rules for RMDs.

Calculating the RMD

RMD is calculated by dividing the adjusted market value of the account as of December 31 of the prior year by the applicable life expectancy factor, which is obtained from

the appropriate life expectancy table. The Uniform Lifetime Table is generally used to determine the RMD. If a participant’s spouse is more than 10 years younger and is the sole designated beneficiary, the Joint Life and Last Survivor Expectancy Table is used.

For example, to calculate your RMD you would do the following:

Your RMD amount is determined by applying a life expectancy factor set by the IRS to your account balance at the end of the previous year. To calculate your RMD:

  • Find your age in the IRS Uniform Lifetime Table.
  • Locate the corresponding life expectancy factor.
  • Divide your retirement account balance as of December 31 of the prior year by your life expectancy factor.

How is the RMD calculated Upon death of the Participant – Spousal Beneficiary

Spousal beneficiary refers to the surviving husband or wife who was legally married to the originating participant on the date of the originating participant’s death. The General Board will pay the benefit to the spousal beneficiary if the participant dies before receiving a benefit or a complete distribution from his or her account, unless another beneficiary is entitled to the plan’s benefits.

When is a spousal beneficiary required to begin taking RMDs?

If the participant dies before the required beginning date, and no election was made by the required beginning date prior to the participant’s death, the spousal beneficiary will begin receiving RMDs. The spouse’s required beginning date is December 31 of the year the deceased participant would have reached age 70ó or December 31 of the year following the year of his or her death, whichever is later. Subsequent RMDs must be paid no later than December 31 of every year thereafter.

The RMD is calculated by dividing the adjusted market value of the account as of December 31 of the prior year by the applicable life expectancy factor, which is obtained from the appropriate life expectancy table.

If the participant dies before his or her required beginning date, the spouse’s life expectancy is determined using the Single-Life Table and recalculated each year that an RMD is due. If the participant dies on or after his or her required beginning date, life expectancies are determined using the Single-Life Table. The life expectancy of the participant (using his or her age in the year of death) is compared to the life expectancy of the spouse, and the longer life expectancy is used. If the longer life expectancy is that of the participant, it is reduced each year by one. If the longer life expectancy is that of the spouse, it is recalculated each year. (Recalculation generally will reduce the amount of each RMD, causing the payments to be made over a longer period of time.)

How is the RMD calculated Upon death of the Participant – Non-Spousal Beneficiary

Non-spousal beneficiaries are the persons or entities (such as estates or trusts) to whom the General Board will pay account balances if the participant dies before receiving complete distributions of his or her accounts.

When is a non-spousal beneficiary required to begin taking RMDs?

If the participant dies before the required beginning date, and if no election is made by December 31 following the calendar year of death for a distribution over the life of the non-spousal beneficiar(ies), the non-spousal beneficiar(ies) will receive the entire account balance by December 31 of the fifth year following the participant’s death. If the participant dies on or after his or her required beginning date, the non-spousal beneficiary must continue to receive RMDs. If the non-spousal beneficiary is an estate, trust or other entity, it may elect to receive the remaining benefits in a lump-sum or to defer payment until as late as December 31 of the fifth year following the participant’s death.

What life expectancy table is used to calculate the RMD?

If the participant dies before his or her required beginning date, and if the beneficiary elects to receive distributions over his or her life, the beneficiary’s life expectancy is determined using the Single-Life Table. Each year thereafter, the life expectancy is reduced by one. If more than one beneficiary shares in each RMD, the life expectancy of the oldest beneficiary is used. If the participant dies on/after his or her required beginning date, the beneficiary must continue to receive annual RMDs. The life expectancy of the participant is compared to the life expectancy of the beneficiary, and the longer life expectancy is used. Each year thereafter, the life expectancy is reduced by one.

How to Calculate RMDs with multiple retirement accounts?

If you have more than one retirement plan, you’ll need to calculate the RMD of each plan separately. However, you may add the RMD amounts of all IRAs (including traditional, rollover, SIMPLE, and SEP-IRAs) and withdraw the total amount from any one or more of your IRAs. The same rules apply to 403(b) accounts.

For example, assume that you have three IRAs. Your RMDs are $3,000 from the first IRA; $2,000 from the second IRA; and $2,000 from the third IRA. If you wish, you can take $7,000 from any one or more of your IRAs to satisfy your RMD for the year.

If you have accounts in several 401(k) or other employer-sponsored plans, such as a solo 401(k) Plan, the IRS generally requires you to calculate a separate RMD for each retirement plan in which you participate and withdraw the appropriate distribution from each plan.

Work with the IRA Financial Group

Your assigned tax partner and CPA will work with you to understand and help calculate the annual RMD amounts for your Solo 401(k) plan, if applicable. For additional information on the Solo 401(k) Plan RMD rules, please contact a retirement tax expert at 800-472-0646.

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Jan 26

Retirement Planning Tips

You might think you are too young (or old) to save for retirement.  But, no matter your age, the sooner you get started, the better off you will be.  Here are a few tips to keep in mind when saving for retirement.

If your employer offers a 401(k), 403(b) or similar plan AND a matching contribution, this should be your priority.  This will be the highest return you will ever see on your money.  The two most popular matches are 50% of your contributions up to 6% of your salary or a full 100% match up to 3% of your salary.  For comparison sake, the average stock market return on investments for the year is about 7%.  If you can afford to make the full contribution, the limit for 2015 is $18,000 ($24,000 if you are age 50+).  Further, for some workers (such as teachers, nonprofit employees and health care workers) you may be able to contribute to both a 403(b) and a 457 plan which doubles the maximum contribution.

Retirement Planning TipsAnother popular savings vehicle is the Roth IRA, which allows for tax-free withdrawals come retirement.  However, if you earn too much money you cannot directly contribute to one.  For single filers, this amount is $131,000 and for married filing jointly the limit is $131,000 for 2015.  However, you can take the “back door” and contribute to a traditional plan and then roll it over into a Roth, regardless of your income.  The limit for IRAs for 2015 is $5,500 ($6,500 for those age 50+).

On the other end of the scale, if you are a low or middle income earner, you may be eligible for the saver’s credit.  If you are single and earn less than $30,500 or married filing jointly and earn less than $61,000, you may receive a tax deduction of up to $1,000 per person.  This encourages everyone to contribute to a retirement plan.

Did you know there are several states that don’t have state income tax?  These are Florida, Tennessee, South Dakota, Wyoming, Texas, Nevada and Washington.  If you are considering relocating or working in one of these states, it’s just one more advantage for you.

Lastly, if you have any self-employment income for the year, you can fund a Solo 401(k) or other retirement plans.  A Solo 401(k) allows you to contribute as both the employee and employer and offer numerous alternative investments such as real estate.

If you have any questions, please contact a 401(k) Expert @ 800.472.0646!

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Dec 24

An Overview of the Solo 401(k) Plan Roth In-Plan Rollover

For the past few years, plans with designated Roth accounts could allow an individual to roll over an amount from a non-Roth account into the individual’s designated Roth account in the same plan, but only amounts the individual could have had distributed from the plan, usually because the individual had attained age 59½ or had severed from employment.

An Overview of the Solo 401(k) Plan Roth In-Plan RolloverBeginning in 2013, a 401(k) plan can permit this type of rollover for an amount that is not eligible for distribution at the time of the rollover, such as an amount in an individual’s regular (pre-tax) elective deferral account when the individual is not eligible for a distribution from that account.  The Roth in-plan rollover rules also apply to Solo 401(k) plan employer profit sharing contributions which are made in pre-tax and can be immediately converted to a Roth plan account without any plan triggering event. The amount of the Roth conversion is treated as income and subject to tax, but there is no 20% withholding on the Roth conversion amount.

A similar expansion applies to 403(b) plans and governmental 457(b) plans. The amendment to the in-plan Roth rollover rules was made by the American Taxpayer Relief Act of 2012. The purpose of the relaxation of the in-plan Roth rollover rules is to encourage plan participants to do Roth conversions which brings in immediate tax revenue to the Treasury. In light of the recent financial difficulties in the economy, Treasury has had s tough time bringing in the amount of tax revenues needed and there hope is that encouraging plan participants to do in-plan Roth conversion will help Treasury add the needed tax revenues.

To learn more about the in-plan Solo 401(k) Plan Roth rollover rules, please contact a retirement tax specialist at 800-472-0646.

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Oct 21

Funding a Solo 401k with Another Retirement Plan

An individual who adopts a Solo 401(k) Plan may generally fund the Solo 401(k) Plan using two methods – the rollover process or by direct contribution.

Most Solo 401(k) Plan documents will allow for the rollover of IRA or other pre-tax employer retirement funds, such as a 401(k), 403(b), or 457(b). The IRA holder or plan participant may generally fund the new Solo 401(k) Plan by either a direct or indirect rollover. It is important to remember that Roth IRA fund may not be rolled into a Solo 401(k) Plan.

How to Fund a Solo 401(k) Plan with IRA, 401(k), 403(b), or 457(b) Plan FundsDirect Rollover of Retirement Funds to a Solo 401(k) Plan

When an IRA holder or plan participant directly rolls over eligible IRA or employer plan retirement fund to a Solo 401(k) Plan, the IRA holder or plan participant must generally initiate the rollover process with the financial institution that is holding the retirement funds. Upon receiving a direct rollover request form, which is usually submitted in writing, the current retirement account custodian would issue a check to the new Solo 401(k) Plan participant in the name of the receiving plan for the benefit of the individual. The 60-day rollover rule would not apply. Also, there would be no withholding because the rollover is not considered a taxable distribution.

Reporting a Direct Rollover to a Solo 401(k) Plan

A direct rollover of retirement assets to a Solo 401(k) Plan id reported on IRS Form 1099-R using distribution Code G, in box 7. The transferring financial institution would be the party required to file the IRS Form 1099-R with the IRS. The receiving financial institution is not required to report the rollover transaction.

How Does the IRS know The Retirement Funds Were Rolled into a Solo 401(k) Plan?

In the case of a transfer of retirement funds to an IRA, the IRA custodian receiving the transfer or rollover of IRA funds is required to report the receipt of IRA funds on an IRS Form 5498, which provides the IRS with the value of the IRA holder’s IRA account. The IRS would then be able to match the 1099-R with the Form 5498 offering the IRS a road map of the movement of funds.

However, when receiving a rollover of retirement funds, the receiving financial institution, which is the custodian of the newly established Solo 401(k) Plan is not required to report the rollover. So how does the IRS know that the funds were in-fact rolled over to a Solo 401(k) Plan. Firstly, the retirement account custodian transferring or rolling over the retirement funds to the new Solo 401(k) Plan, will file an IRS Form 1099-R and include Code G in Box 7, which will notify the IRS that the funds were rolled into another retirement account. In addition, if the Solo 401(k) Plan participant has plan assets in excess of $250,000, the Solo 401(k) Plan participant is required to file an IRS Form 5500-EZ. The IRS Form 5500-EZ will provide the IRS with the annual Solo 401(k) plan account value which will allow the IRS to match-up the funds that were rolled over and identified on the IRS Form 1099-R.

In the case of a Solo 401(k) Plan participant that is not required to file an IRS Form 5500-EZ because the plan has less than $250,000 in plan assets, how does the IRS know that the plans were actually rolled over into the Solo 401(k) Plan. In this case, the plan participant would have to rely on the IRS Form 1099-R disclosing to the IRS by using Code G in Box 7, that the funds were rolled over to a retirement account. The Solo 401(k) Plan participant does have the option of filing an IRS Form 5500-EZ even if the plan assets are less than $250,000. By filing the IRS Form 5500-EZ, the plan participant would be able to disclose the value of the plan’s assets, which would correspond to the rollover amount reflected on the IRS Form 1099-R. In general, relying on the IRS Form 1099-R as the sole method of proving to the IRS that the funds were directly rolled over to a Solo 401(k) Plan is sufficient, however, if an individuals wants additional support to show the funds were directly rolled over to a retirement account, filing the IRS Form 5500-EZ could be helpful.

Indirect of Retirement Funds to a Solo 401(k) Plan

An IRA holder or retirement plan participant may generally initiate an indirect rollover by requesting a distribution. An indirect rollover means that the retirement funds are distributed first to the IRA holder or plan participant before they are ultimately rolled over to an IRA or qualified retirement plan. The indirect rollover process must be completed within 60 days. The indirect rollover is not a common method of funding a new retirement account and it can only be done once every twelve (12) months.

The check for an indirect rollover is issued in the name of the IRA holder of plan participant. The individual would then have 60 days to deposit the amount in an eligible retirement plan, such as a Solo 401(k) Plan to avoid taxation and penalties.

Reporting a Indirect Rollover to a Solo 401(k) Plan

Like an IRA distribution, a distribution that is intended to be rolled over to a retirement plan is reported on IRS Form 1099-R, generally using code 1 or 7, depending on the IRA holder’s age. The IRA holder would then have 60 days to roll the funds over to the Solo 401(k) Plan. The indirect rollover process is not recommended when it comes to rolling funds to a Solo 401(k) Plan since it could lead to IRS inquiry about the whereabouts of the rolled over retirement funds. Unlike an IRA which requires the receiving IRA custodian to report the value of the received funds on an IRS Form 5498, in the case of a Solo 401(k) Plan no such reporting is required. A Solo 401(k) Plan custodian is not required to report the value or activities of a Solo 401(k) Plan. The Plan participant would only be required to report the value of the Solo 401(k) Plan if the plan assets were in excess of $250,000.

When retirement funds are indirectly rolled over to a Solo 401(k) Plan, a withholding election is generally required, but the IRA holder may elect to waive withholding.

To learn more about the rules of rolling retirement funds to a Solo 401(k) Plan, please contact a retirement tax expert at 800-472-0646.

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Jul 07

Don’t Forget Your 401k RMDs!

If you contribute to a traditional 401(k) plan, the taxes on your contributions are deferred.  Eventually, you will have to pay up.  Therefore, the IRS has put in place what are known as required minimum distributions (RMDs).  Once you reach age 70 1/2, you must start withdrawing from your 401(k), whether you want to or not.  Here are a few tips so you won’t be penalized by the IRS.

Don't Forget Your 401k RMDs!First off, you need to know WHEN you must start taking your RMDs.  As stated previously, you must start distributing from your traditional 401(k) once you reach age 70 1/2.  However, you do not need to take your first distribution during that same year.  You can wait until April 1 of the year following the year in which you turn 70 1/2.  While this grace period may come in handy for some, if you delay your first RMD until the following April, you will have two RMDs to take that year since your second RMD will be due by the end of the calendar year.

One of the biggest mistakes you can make when it comes to retirement planning is failing to take an RMD.  If you miss one, the IRS will hit you with a stiff penalty…50% of the amount you failed to withdraw!

Speaking of which, you must take into consideration all of your retirement accounts when figuring your RMD each year.  It doesn’t matter if you have a 401(k), IRA, SEP or SIMPLE IRA, 403(b), profit sharing plan, a Roth IRA or Roth 401(k), you must use all your accounts when calculating your RMD.  The year-ending balance of each account along with your life expectancy is used to figure out your RMD.

Furthermore, your RMDs must be taken from the correct account.  If you have multiple IRAs, your RMD can be calculated from all of them and then either taken from each one, or withdrawn from a single account.  Multiple 401(k) plans, on the other hand, must be calculated separately and withdrawn from each account.

It’s best to consult with a financial planner to make sure you don’t mess up these rules.  You’ve worked hard and saved long for retirement so you don’t want a simple mistake to cost you big time.  If you have any questions about required minimum distributions, please contact a 401(k) expert at the IRA Financial Group @ 800.472.0646 for more info.

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Jun 17

Deciding Between a 401k and a 403b Plan

The Motley Fool‘s Dan Caplinger writes about the advantages of both the 401(k) and 403(b) type plans offered by many employers in this article:

Taking advantage of workplace retirement plans is a great way to save money on your taxes and build up your retirement nest egg. Employer plans come in different flavors, with strange names like 401(k) and 403(b). Fortunately, in the battle of 403(b) vs. 401(k), everyone can end up a winner by making smart decisions based on their individual circumstances.

403(b) vs. 401(k): The basics
Most people are relatively familiar with a 401(k) plan, because they’re much more commonly seen than 403(b) plans. Employers that set up a 401(k) plan give their employees the ability to set aside a portion of their paychecks toward retirement, typically on a pretax basis using traditional 401(k) accounts, but also sometimes on an after-tax basis if the plan has a Roth 401(k) option. Ample annual limits apply to the 401(k), with those under age 50 eligible to contribute up to $17,500 in 2014 and those 50 or older allowed to save $23,000. Assets within 401(k) plans grow tax-deferred, sheltering you from taxes on the investment income those assets generate over the course of your career.

On the other hand, 403(b) plans are less common than 401(k) plans. The reason is simple: Section 403(b) of the Internal Revenue Code, on which 403(b) plans are based, limits eligible participants to employees of tax-exempt organizations such as schools, hospitals, and religious groups. The same contribution limits apply to 403(b) plans as 401(k) plans, and 403(b) plans have the same tax-deferral benefits.

403(b) vs. 401(k): How you can invest
Both 401(k) plans and 403(b) plans allow employers to establish menus of investment choices for their employees. However, the permissible range of investments differs between the two types.

401(k) plans can choose from a wider range of investments, ranging from mutual funds and exchange-traded funds to individual securities. Most employers are more restrictive in their investment selections, typically emphasizing funds but sometimes making a brokerage-account option available to those who want more investment flexibility.

403(b) plans, on the other hand, can only invest in annuities and mutual funds. Originally, 403(b) plans could only offer annuities, leading to their alternative name of tax-sheltered annuity plans. But 40 years ago, lawmakers expanded the rules to allow registered investment company shares — that is, mutual funds — as permitted options employers could give their employees.

403(b) vs. 401(k): What to watch out for
403(b) participants need to be careful about the extent to which their employers actually participate in the plan administration. Many 403(b) plans aren’t subject to the same regulation as 401(k) plans, allowing employers to step back and put more of the onus on participants to oversee their accounts. Although they’re allowed, employer matches and other employer contributions aren’t necessarily as common for 403(b) plans as they are for 401(k) plans. That said, private employers with 401(k) plans tend to be stricter about vesting requirements than 403(b) plan providers, which means 403(b) participants who are fortunate enough to get a match often reap the rewards sooner than 401(k) participants do.

Most important, it’s essential to know the characteristics of investment options in 403(b) plans. Make sure you know how much in annual expenses you’ll pay to invest in a particular fund or annuity. Ask whether any surrender charges or other fees apply if you sell your investment or switch to another type of fund or annuity. These charges can be extremely high, wiping out most or all of the tax benefit of using the 403(b) plan. Also watch out for different classes of mutual funds, which can have big disparities in annual charges. Lastly, make sure the insurer issuing any annuities you decide to buy has a strong insurance rating for financial security.

Most of the time, in comparing 403(b) vs. 401(k), you as the employee won’t have a choice. But don’t let the unfamiliarity of 403(b) plans keep you from taking advantage of their benefits.

If you have any questions, please contact a 401(k) expert at the IRA Financial Group @ 800.472.0646 today!

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Apr 03

Inheriting a 401k Plan

If a loved one passes and you are the beneficiary of his or her 401(k), 403(b) or 457 plan, you have some options on what to do with the assets.  These options are largely dependent on whether or not you are the decedent’s spouse or not.  Another factor is if he or she had started taking required minimum distributions (RMDs) upon reaching age 70 1/2.  Here are the options you have in the different types of situations.

If you are the spouse of the deceased account holder, you have three options: 1) you may choose to keep the assets in the plan, 2) you may cash out the assets in a lump sum or 3) you can transfer the assets to your own IRA.

If the plan allows, you may keep the assets within the plan as a “beneficiary account”.  You will continue to receive the tax-deferred benefits of the account.  If your spouse had already started taking RMDs, you must continue to withdraw at at least the same rate.  If he or she had not yet reached age 70 1/2, you don’t have to start taking RMDs until the year he or she would have reached that age.

When a loved one leaves you his or her 401(k) plan, know your optionsIf you want withdraw the money in one lump sum, you will owe taxes on the entire amount, due the following year when filing your tax return.  Further, the IRS automatically withholds 20% of the amount due for tax reasons.  This is not the best decision, but you might be tempted for a quick payout especially if you need the money.  Keeping the assets in a retirement plan allows the money to grow more and you won’t be hit with a huge tax bill if you withdraw it over several years during retirement.

Lastly, you may transfer the assets of the old plan into your own IRA, also known as an IRA rollover.  You do not have the pay estate or income taxes so long as the assets remain within the estate.  Once you reach 70 1/2, you must start taking RMDs based on your life expectancy.  If you already take RMDs, you must take your distribution before transferring the money into your account.  This is by far the best choice for this inheritance.  The account is much easier to manage than having to deal with your spouse;s old company plus fees are generally lower than in a 401(k) plan.

If you are not the spouse of the decedent, your options are similar but with a few differences.  You may choose to keep the assets in the plan, take a lump sum or roll it over into a Beneficiary IRA.

Opting to keep the assets in the plan is dependent on the plan allowing it.  Some may allow you to do this while others will require you to withdraw the funds.  Again, if the decedent had starting taking RMDs, you must continue to do so yourself.  If not, you must start taking them by the end of the year after he or she passed.

Requirements for withdrawing the funds in a lump sum are the same is if you were the spouse.  Again, not the best choice.

Lastly, you may choose to rollover the funds into a Beneficiary IRA (which is not always made clear as an option).  Again, you can move the money into the IRA without paying taxes and continue to receive the tax benefits of the account.  However, you must start taking RMDs right away even if you are not yet age 70 1/2.  The younger you are, the less you need to withdraw so the remaining funds will continue to earn for you.  Finally, if you choose this option, the account must be titled in a way that shows you are the beneficiary of the account.  IRA guru Ed Slott recommends using this form: “John Smith, IRA (deceased on May 21, 2007) F/B/O John Smith Jr., beneficiary.”

Losing a loved one is a trying time for everyone but don’t forget to take care of financial affairs or you could miss out on something he or she left to you.  Consult with a financial planner to make sure you know all your options and which one is best for you.  Contact a tax professional at the IRA Financial Group @ 800.472.0646 for more information!

Nov 07

2014 401(k) Contribution Levels Remain Unchanged

Recently, the IRS announced cost of living adjustments affecting dollar limitations for retirement plans for next year.  Since the Consumer Price Index “did not meet the statutory thresholds”, 401(k) limits remain unchanged from 2013.

2014 401(k) Contributions limits“The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.  The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.”

For the self-employed and small business owners, the amount they can save in a Solo 401(k) goes up from $51,000 in 2013 to $52,000 in 2014. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the new compensation limit used in the savings calculation is $260,000, up from $255,000.

The limit used in the definition of a highly compensated employee remains unchanged at $115,000.

The maximum annual benefitthat may be funded through a defined benefit plan will increase to $210,000 from $205,000.  For a participant who separated from service before Jan. 1, 2014, the limit for defined benefit plans is computed by multiplying the participant’s compensation limit, as adjusted through 2013, by 1.0155.

The limit on employee elective deferrals to a SIMPLE 401(k) plan remains unchanged at $12,000.  The catch-up contribution remains at $2,500 as well.

If you have any questions, please contact a tax professional at the IRA Financial Group @ 800.472.0646!

Mar 27

Transferring a 403b to an IRA

If you work for a school, hospital, or other nonprofit you probably have access to a 403b plan.  These plans work like 401k plans at for-profit companies.  There are several reason you might want to move the money into your Individual Retirement Account (IRA).  These include consolidating all your retirement plans, looking for lower fees or looking to have more control.

The first questions to ask is if you are eligible to make this move.  If you are under age 59 1/2 and are still working for the employer who sponsors the plan, you cannot withdraw money and transfer it to an IRA.  You can withdraw money for reasons like hardship withdrawals and loans, but you can’t rollover that money into an IRA.  However, if you are at least 59 1/2 years old or have left your job for whatever reason, you are eligible for an IRA transfer.

The first option for moving your money from your 403b to an IRA is a transfer.  This is the easiest method.  All you need to do is fill out a transfer request form with your personal information and your account information from both your 403b and IRA.  Your bank will take it from there and your money will soon be in your IRA.

The other options is to perform a rollover.  To do this, you would take a distribution from your 403b plan and then contribute it to your IRA.  You have 60 days to perform this type of move.  You can do whatever you want with the money during that time frame so long as you deposit the money into the IRA before the deadline passes.

The importance of the 60 day deadline is that if done properly, you won’t need to pay taxes on the rollover.  Failure to deposit the money in that time will make the maneuver a regular distribution and you will have to pay taxes at your current rate.

If you are rolling the money into a Roth IRA, then you will have to pay taxes since a Roth is an after-tax retirement plan.  The benefit of this is that you won’t owe taxes on any earnings you make when you take proper distributions.

The tax experts at the IRA Financial Group can help you with rollovers and set up your IRA plan for you.  Give them a call at 800.472.0646 or visit their website today!

Mar 15

Taking Early 401k Withdrawals

Are you still working but are looking to withdraw money from your 401k or other workplace retirement plan?  Now, we’re not talking about taking a loan that you would pay back with interest.  This is strictly about withdrawing the money completely from the plan that you will not pay back.  There are many factors to consider.

What type of plan do you have?  If you have a traditional 401k, you’re younger than 59 1/2 and still work for the employer offering the 401k, then you can only take withdrawals for an immediate and heavy financial need such as medical expenses, tuition, home purchase, to prevent foreclosure or eviction, repairing damage to your primary residence or funeral costs.  These hardship withdrawals will be subject to ordinary income tax and a 10% early withdrawal penalty.  These same rules apply to a 403b plan as well.

If you have a Thrift Savings Plan, you must also prove a financial need.  If you do, the TSP is legally required to allow the withdrawal.  (Your employer-sponsored 401k may have stricter rules and may not allow the withdrawal.)  After leaving your job, you can take a partial or full withdrawal from the plan.  You are subject to income tax and 10% early withdrawal penalty if the distribution occurs before you are 59 1/2.

If you have a 457 plan, the rules are a bit stricter.  You must have an unforeseen emergency, so you cannot withdraw for a home purchase or tuition.  If you leave your job, you can take distributions for any reason.  You will be subject to income tax but there is no early withdrawal penalty.

Another thing to consider is if you are over age 59 1/2 and still working.  The IRS doesn’t put any limitations on withdrawals but your employer might.  If allowed, the IRS just treats it like a normal distribution.  Check with your plan to see if your employer/plan allows “over 59 1/2 in-service withdrawals”.

Finally, is it worth it to withdraw from your retirement nest egg before you retire?  The simple answer is no, but you may not always have the choice.  Whatever you withdraw before retirement severely limits the benefit of compounding.  The more in your plan, the more it will earn for you.  Not to mention the tax you will have to pay plus the penalties the IRS will hit you with.  If you must dip into it, do it because you have no other option.  Contribute back into the plan as soon as you are financially able to.  Check out this story for more info.

There is a lot to consider when dealing with your retirement.  It’s best to talk to a professional before doing anything you don’t fully understand.  Give the tax experts at the IRA Financial Group a call at 800.472.0646!