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Welcome to research401krollover.com - The most comprehensive 401(k) research planning website on the planet! Welcome to Research401krollover.com - The most complete 401k research planning website on the retirement sphere! We offer articles & insights on popular 401k topics including setting up a 401k, rollovers to a Roth IRA, Roth 401k or Traditional IRA, loans, withdrawals and distributions as well as IRA rollovers, income limits, frequently asked questions (FAQs), 401k how to articles, discussion forums and more!


Newest 401k Content


Deductibility Limits on Traditional IRA Contributions & IRA Contribution Limits from 2002 to 2012
Hardship Withdrawals and Accessing 401(k) Loans
401(k) Rules – Contribution Limits, Catch-Up Contribution Rules, Vesting Rules, 401k Eligibility Rules
Salary Deferral Contributions Made to 401(k) Retirement Account
Important Year End Statements for Individual Retirement Account (IRA) Holders
5 Things Every 401(k) Plan Should Have
The Roth 401(k) – How After-Tax Contributions Work, Comparisons with Roth IRA, Future Tax Rates, Contribution Limits & Frequently Asked Questions
What is a Traditional IRA? History of IRAs, Eligibility Requirements, Ineligible Compensation, Distributions from a Traditional IRA & How Income Tax Deductions Work
How to Invest in Real Estate using your Individual Retirement Account (IRA)
Rolling your 401(k) – Trustee to Trustee Direct Rollover, Modified Adjusted Gross Income (MAGI) Income Limits for Deductible Contributions to a Traditional IRA
401(k) Vesting – How It Works, Vesting Schedule, Number of Years of Service
401(k) Lump Sum Distributions – Tax Advantages, Rollover to IRA, Tax Deferred Contributions and more
401k Rollovers to an Individual Retirement Account (IRA) – Things to Consider Before You Rollover, Avoid Transfer Penalties, Move Employer Stock, etc.
401(k) Withdrawals – Early Withdrawal Penalties, Rollover Withdrawals, Exceptions and Tax Consequences
Understanding the Rules for Participating in a 401(k) Plan, Beneficiary Appointment, 401(k) Plans for High Paid Employees

Most Popular Articles

401k - www.401k.com - What is a 401k?

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Latest 401k News (Updated January, 2012)

Too Much 401k Sunshine? - From: Wall Street Journal, January 2012.

Mutual Funds Vs. ETFs: A Comparison - From: San Francisco Chronicle, January 2012.

Kodak Employee Files Lawsuit Regarding Retirement Plans - From: Plansponsor.com, January 2012.

Employers Adding Automatic Enrollment to DC Plans - From: Workforce.com, January 2012.

U.S. Retirement Market Projected to Hit $22 Trillion by 2016 - From: Financial-planning.com, January 2012.

Many DC Plan Execs Unclear on Plan Data - From: Business Insurance, January 2012.

How to Take Advantage of New 401k Fee Disclosures - From: U.S.News & World Report, January 2012.

401k Plans Step Into the Sunshine - From: Wall Street Journal, January 2012.

Target-Date Funds Get Customized - From: Financial-planning.com, January 2012.

A Retirement Plan Sponsor's Guide to Choosing a Third Party Administration Firm - From: The Rosenbaum Law Firm PC, January 2012.

Significant Compensation and Benefit Due Dates for 2012 - From: Aon Hewitt PDF, January 2012.

Good, Bad, or Meh? Readers Rate Their 401k Plans - From: Morningstar.com, January 2012.

What's New?

Suze Orman Roth IRA Rollover in 2010 Information Video
(May 21st, 2010)

ASuze Orman: I just want to take a moment to go beyond the basics here with that last caller because this is something I think it is very important for all of you to take advantage of. Prior to next year, you can only convert money from a traditional IRA or any type of retirement account in to a Roth IRA if your income is $100,000 a year or less; that's your single income or joint income if you are married.

Starting in the year 2010 regardless of your income, you will be able to convert in to a Roth IRA with the retirement money you may have somewhere. There are all different types of retirement accounts you can have besides your 401k and 403b, you can have an Individual Retirement Account (IRA) or a traditional one where you can put money in before tax.


You can also have a Roth IRA but you must meet some income qualifications to qualify for a regular Roth IRA. You can also have what's called a non-deductible IRA.

A non-deductible IRA works when you put money in to a non-deductible IRA but do not deduct it from your taxes; the growth on that money however; you will pay taxes on. This is different from a Roth IRA where you put it in with after-tax money but you don't pay income tax on the growth.

So in a non-deductible IRA, you could put money up to the maximum every single year and starting in the year 2010, you can start to convert it in to a Roth IRA and you can do that every single year. Now it is true you will NOT pay taxes when you convert it on your original contribution but if that money happens to have growth on it, you will pay taxes. Say you put in originally $5,000 and now it has grown to $7,000, you will pay income taxes on the $2,000 growth. If you do this every single year, you will have a lot of money in a Roth IRA and then once it is in a converted Roth IRA, it will grow tax-free.

Summary of Roth IRA Conversion

- Year 2010: No Income Limitations
- Can Convert in to a Roth IRA with retirement money
- Traditional IRA: Pre-tax money

- Roth IRA Conversion: After-tax income qualifications
- Non-Deductible IRA: You don't deduct from taxes; You will pay taxes on growth. (Read Full Article)

401k Investment Strategy Video
(April 30th, 2010)

Anchor: If you want to retire in style, you are not entirely banking on Social Security.

Kwei Battles: 401k, Roth IRA, pretty much and then personal investments.

Anchor: You've got to do more than just put away funds, you've got to figure out where to put it!

Kwei Battles: I guess American bond funds, Washington Mutual funds; I have mine divided in to 5 different major categories.

Anchor: If you feel a little lost regarding your company's retirement plan, here are a few basics:

i) Beware Company Stock - If your company offers its own stock as an investment option, just say NO, that's too many eggs in one basket.

ii) Keep it Simple - Keep your investment plan simple. You don't need more than a few investments.

Along with bond & money market funds, almost any expert will advise you have some money in stocks. But how do you decide how much? Well here's one simple rule of thumb:

Subtract your age from 100, put that percentage in to stocks. Divide what's left between money market & bonds.

Stock % = 100 years - Current Age

Bond % = 100% - Stock %

iii) Review Your Account: Review your account every now and then and make adjustments as necessary. This could be done every quarter, every year, but make sure you do it!

Stacey Johnson (CPA): There is one more thing to think about when it comes to retirement plan; fees! View Money Talks' next video for more information on 401k fees. (Read Full Article)

How a 401k Plan Increases your Savings Opportunities under the Economic Growth & Tax Relief Reconciliation Act of 2001 (EGTRRA)
(April 24th, 2010)

Many baby boomers who are nearing retirement and even young people who are interested in saving as much as they can for retirement visit their financial advisors each year to see how much they can contribute to their 401k plans and other savings plan for the current & upcoming tax years. Effective 2002 and thanks to Economic Growth & Tax Relief Reconciliation Act of 2001 (EGTRRA), annual limits on 401k contributions were raised for this exact purpose. This allows working investors to contribute more tax-deferred contributions to their retirement plans and lower their current taxable income.

i) Saver's Tax Credit

As a bonus to increasing 401k contribution limits, Congress inserted a provision in the EGTRRA that permits investors to have a tax deduction for any contributions made to Individual Retirement Accounts (IRAs) and other employer sponsored retirement plans. This provision is enacted under the Saver's Tax Credit clause and helps offset the first $2,000 contributed to an individual's retirement plan. To be eligible for Saver's Tax Credit, a worker must meet all of the following requirements:

- Not a full time student
- Will be 18 years or over by the end of the tax year
- Not a dependent of another tax payer
- Does not earn annually more than prescribed limits (shown in the chart below).

The chart below outlines the percentage of Saver's Tax Credit an investor is allowed for making contributions to an Individual Retirement Account (IRA).

Credit Rate


Married and files a joint return
Files as head of household
Other categories of filers
50% Up to $33,000 Up to $24,750 Up to $16,500
20% $33,001 – $36,000 $24,751 – $27,000 $16,501 – $18,000
10% $36,001 – $55,500 $27,001 – $41,625 $18,001 – $27,750
0% $55,501+ $41,626+ $27,751+

For example, an investor who is married and filing joint and has an income of less than $33,000 will be able to get a 50% tax credit on his first $2,000 contributed to an IRA. This means, that investor will get a $1,000 (50% x $2,000) tax credit... (Read Full Article)

Maximum 401k Contribution per Year
(March 7th, 2010)

Maximum 401k contributions for 2010 are set at the same level as in 2009 due to unchanged inflation; $16,500 for those people who are 49 years or younger and an additional catch up allowance of $5,500 for people aged 50 or older. Since 2005, maximum annual 401k contribution limits are indexed for inflation and increased at $500 per year, but since inflation has been relatively low in 2009, there was no increase in 401k contribution limits for 2010. In fact according to Forecasts.org, the annual inflation rate in the United States in 2009 was 2.82%, which is preferable by economists.

It is important to know the maximum annual 401k contribution limits because if you contribute in excess of the limit, you will be assessed penalties and will owe taxes on the extra contributions. Extra 401k contributions in excess of the limit are considered ‘non-qualified’ especially for 401k plans, therefore investors should be aware! If you have exceeded the contribution limit for a particular year, you have up to April 15th of the following year to ask for a re-distribution of the over contributed amount to you.

If you receive employer matched 401k contributions (where your employer contributes to your 401k plan on your behalf), then the maximum limit for 2010 is $49,000 which includes both employee and employer matched contribution. For example for the year 2009, a director making $100,000 a year can contribute $16,500 (maximum 401k contribution limit for 2009) plus receive employer matched contribution of 6% x $100,000 = $6,000 making the total ($16,500 + $6,000 = $22,500). If the director is 50 years or over, he can contribute an additional $5,500 catch up contributions, bring the total to $22,500 + $5,500 = $28,000.

Why Should You Maximize Your 401k?

You receive immediate tax break for the year! As an example, if you earn $80,000 a year and contribute $16,500 a year into a 401k retirement plan, your current yearly gross income is reduced to $63,500. This works out as $80,000 - $16,500 = $63,500. Therefore, you have a current taxable income of $63,500 and not $80,000. How much does this save you in taxes? Here are the calculations assuming you are in the 25% tax bracket... (Read Full Article)

How to Retire as a Millionaire with your 401k Plan and 7 Strategies to Achieve Growth of your 401k Plan

(January 28th, 2010)

The above title how to retire as a millionaire with your 401k plan may seem too catchy to you, but it is worth reading this article about how one ordinary man named Knute Iwaszko became famously known as the ‘401k millionaire.’ Author of the book ‘The 401k Millionaire – How I started with nothing and made a Million”, Knute was not a Wall street hedge fund manager making huge salary or CEO of Goldman Sachs, he saved for his retirement while earning a $60,000 a year salary and paying the costs to raise 5 kids.

So you ask, how did he do it? First, he started budgeting his finances and started saving in his early 20s. He learned how to deal with routine monthly expenses and minimize them by living within his means, as well as how to deal with unexpected expenses such as medical bills, home repairs, etc. He also started participating in his company sponsored 401k plan at a very early age. His journey to start saving began in the early 1980s when 401k plans became available. In fact, it was just 2 years after the IRS introduced the Revenue Act of 1978 that then became the Internal Revenue Code (IRC) Sec. 401(k). In the early 1980s, Knute started saving money away in his company sponsored 401k plan while he was in his early 40s. During the same time, he was stacking money away in to a traditional individual retirement account (IRA)

Upon leaving his employer at age 59, Knute had $800,000 in his 401k plan and about $200,000 in his IRA. And it’s been 5 years and Knute has not had to even touch his retirement savings, largely thanks to the success of his book titled "The 401(k) Millionaire: How I Started with Nothing and Made a Million - and You Can, Too." Having said this, saving up $1 million before you hit 65 years of age seems like a very challenging task for almost anybody, especially if you have to come up with all of that money from your own pocket (earnings). The key to achieving this is the power of compounding interest. As the old adage goes, “Do not work hard for money; make money work hard for you!” When you compound your interest, you take your original deposit (principal), earn interest on it and plough back the interest to the principal to form a higher deposit, which then also earns interest on interest, which is what the concept of compounding is all about. The longer you leave money in a compounding interest account, the more it grows exponentially.

Rule of Thumb: Want to find out how soon you will double your money? Use the rule of 72t. With this rule, you divide the current interest rate you are getting on your deposit and divide it from 72. For instance, if you are currently earning 8% on your deposit, then you will double your money in:

Double money = 72 / 8%

Double money = in 9 years

If we increase the 8% to 16%, then your money will double in half the time, approximately 4.5 years.

(Read Full Article)

How Contributions to a Qualified 401k & Other Retirement Plans Work

(January 23rd, 2010)

As you read from the introductory article on 401k plans, you know that contributions to a qualified plan can be made by both employers on behalf of their employees and from bi-weekly payroll deductions from the employees (known as elective deferrals). The aggregate totals for both employer and employee contributions to a qualified 401k plan must not exceed $46,000 for 2008 and $49,000 for 2009. Also, the maximum compensation cap for eligibility to contribute to 401k plans is $230,000 for 2008 and $245,000 in 2009. You might wonder, if there is a stated compensation limit of $245,000 for 2009, then why does the IRS impose a $49,000 contribution limit for contributions to a 401k plan? Well first point is, this $49,000 maximum 401k contribution limit for 2009 applies to BOTH employee & employer matched contributions.

Second is, the compensation cap limits the amount of money that highly compensated employees can receive from their employers in the form of matched contributions. As an example, say there is the CEO of a corporation that gets paid $500,000 annual compensation a year. If there was no compensation cap of $245,000 then that employee could have gotten a huge employer matched contribution of say, 15% x $500,000 = $75,000 which would be unfair to all the lower level line employees, managers & directors in the company that get paid 1/5th of the salary of the CEO. Let’s compare 2 scenarios as examples:

i) Annual Contributions to 401k WITH Compensation Cap

Employee maximum contribution for 2009 = $16,500

Employer matched contribution for 2009 = 13% x $245,000 = $31,850

Total contributions to 401k Plan = $31,850 + $16,500

Total contributions to 401k Plan = $48,350

i) Annual Contributions to 401k WITHOUT Compensation Cap

Employee maximum contribution for 2009 = $16,500

Employer matched contribution for 2009 = 13% x $500,000 = $65,000

Total contributions to 401k Plan = $16,500 + $65,000

Total contributions to 401k Plan = $81,500

From the 2 examples above, we used a compensation cap of $245k in example i) and the total 401k contribution resulted in $48,350 for 2009 which is below the cap of $49,000 thus it becomes qualified.

However in example ii) we used $500,000 for the employer matched contribution and the total contribution came out to $81,500 which is well ABOVE the defined limit of $49,000. So now you should get an understanding of why the IRS has set both 401k maximum limits as well as compensation limits for qualified contributions.

The benefit to employers of matching their employees’ contributions is that they get a tax deduction. Let’s consider an example where there are 2 highly compensated employees and 2 normal paid employees of a corporation.

Example 1

ABC Corp. has decided to make a 25% contribution for each of its 4 below employees for the 2009 tax year. The names of the 4 employees and their W-2 compensation are as follows:

Adnan - $300,000

Johnson - $180,000

Fergie - $85,000

Norman - $45,000

(Read Full Article)

401k Rollover as Business Startup - ROBS May Not Be A Good Idea - How to Use Your 401k to Finance your Small Business Start Up

(January 16th, 2010)

Phoebe ChongChua (Your Financial News): With unemployment rates high and salaries dropping, many recently unemployed people are looking to start or invest in a business. The problem is that many people are getting misguided information about investing their retirement funds in to a business which may lead to robbing their retirement account before the legal distribution age of 59 and ½; learn more about 401k distributions.


This strategy is called ROBS; Rollovers of Business Start-ups.

Jeff Nabers (CEO of Nabers Group): It’s the term that the IRS came up with to describe a strategy promoted by some companies where the start up business is funded with retirement funds. It’s the Department of Labour that is able to interpret the rules about how retirement accounts are run and so a lot of my dealings with the government have been with the Department of Labour. My dealings with the Department of Labour have clearly indicated that these types of schemes are strictly prohibited and results in 100% taxation. The issue is, ROBS promoters are taking the stance that they have created something new that has never been ruled on or they’ve created a loophole. The rule of thumb is, you can’t go off with your retirement funds and do something with it that benefits you TODAY.

Investing in a business can turn a sizable profit but its best NOT to risk your retirement funds using the ROBS strategy. Instead, seek alternative options to legally create and grow your wealth. I think the benefits of growing a profitable and legally compliant business are well worth it.

Using Your 401k Plan to Fund your Business Start – Up

Here is what experts at Research 401k Rollover suggest you do if you aspire to have your own small business and would like to use your retirement funds for funding. First, 2 words of caution:

i) First you need to check your 401k program allows 401k loans from your 401k to start up a small business. The best way to check this is to ask your 401k program administrator.

ii) Second is that the rate of return that you expect from your business will exceed the rate of return that you are currently getting on your 401k plans’ investments.

(Read Full Article)

Internal Revenue Service (IRS) Communicates 2010 401k Contribution Limits

(January 9th, 2010)

The IRS has announced the cost of living & inflation adjustments for 2010 for employee sponsored retirement plans. There is much unchanged from last year, most 2010 defined contribution 401k plan limits will continue at their 2009 levels. For instance, the elective deferral limit for 2010 for 401k plans is $16,500 which is at the same level as it was in 2009. Also, the catch up contribution limit for people 50 years or over also remains at $5,500 for 2010. These limits are in effect with changes in the Consumer Price Index (CPI) which tracks & measures inflation in the United States. Below is a summary of 401k plan limits in 2009 and 2010.

Maximum Elective Deferral Limits for 2010 and 2009 for 401k Plans

Qualified Plan Limit
Elective Deferral* Maximum for 401k & 403b plans - IRC § 402(g)(1) $16,500 $16,500
Elective Deferral Maximum for 457 plans - IRC § 457(e)(15) $16,500 $16,500
Catch Up Contribution limits** for 401k, 403b & 457 plans - IRC § 414(v)(2)(B)(i) $5,500 $5,500
Maximum contributions to a qualified defined contribution plan (including employee & employer matched contributions) - IRC § 415(c)(1)(A)*** $49,000 $49,000
Maximum compensation limit - IRC § 401(a)(17)**** $245,000 $245,000
Highly Compensated Employee Salary Threshhold - IRC 414(q)(1)(B) $110,000 $110,000
Individual Retirement Account (IRA) Limit $5,000 $5,000
IRA Catch Up Limit for 50 years or older Participants - IRC § 219(b)(5)(B)(ii) $1,000 $1,000

* Elective deferrals are the annual contributions that 401k investors make to their plans on a pre-tax basis. Pre tax 401k contributions are made from your gross income before taxes are deducted thus giving you a tax break now. This break is then taxed as ordinary income upon withdrawal when you turn 65 years or upon retirement.

** Catch up contribution limits allow those retirement savers who are 50 years or older to make headway by contributing more towards their retirement plans. This allows them to save more money in a shorter period of time and permits them to make up for the years they have lost.

(Read Full Article)

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and its Effects on 401k Plan Contributions

(December 20th, 2009)

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) is a legislation introduced in 2001 that allows American workers to have more opportunities and ways of saving for their retirement through contributions made to a 401k plan. The biggest changes brought about by the EGTRRA include lowered tax rates and simplified retirement rules for 401k plans, Individual Retirement Account (IRAs) and other defined benefit pension plans. The modifications were so large that many books were written on the Act and its effects on qualified retirement plans. In this article, we summarize some of the significant changes to 401k plans.

i) Increased 401k Contribution Limits

The 401k contribution limit was raised substantially from 2004 from $13,000 to $15,000 in 2006 as a result of rising popularity of 401k plans. As of beginning of 2004, the total estimated number of 401k plans in America was 438,000 with assets totalling $1.9 trillion & 42.4 million active participants. Also, a rule of “15% of compensation” which before 2002, required total company wide contributions to not exceed 15% of the company’s total payroll was eliminated. As a result, instead of limiting employee contributions to any percentage of total pay, the 401k contributions are now based on an annual maximum set by the IRS, with it being $16,500 for 2009. For employees 50 years or over, an additional $5,500 is permitted in 401k catch up contributions thus totalling $22,000 for the year 2009.

401k Contribution Limits


Annual Limit
2002 $11,000
2003 $12,000
2004 $13,000
2005 $14,000
2006 $15,000
2007 $15,500
2008 $16,000
2009 $16,500

ii) Invention of 401k Catch up Contributions for People 50 years or over

Employees who turn 50 years or older within the current contribution year can contribute an additional $5,500 for 2009 and this clause is known as 401k ‘catch up’ contributions with the term ‘catch up’ referring to these older baby boomers being able to catch up with their retirement savings by contributing more than the rest of the younger class of retirement savers (people less than 50 years).

(Read Full Article)

401k Worksheet for the Self Employed Unincorporated Businesses
(December 17th, 2009)

How to Calculate Maximum Contribution Limit for 2008

If you are self employed, the illustration below will help you calculate your retirement plan contribution limits for the tax year 2008. This information is derived from IRS Publication 560. To get started, make sure you have have your 2008 income tax forms ready at the table including Form 1040 - US Individual Income Tax Return and Schedule C.

Step 1 - Compute your self employment tax deduction using the first table below. Enter this amount on line 2 of the worksheet.

Step 2 - Calculate your maximum contribution limits using the information below:

- You can make a salary deferral contribution of up to 100% of your compensation with a maximum limit of $15,500 for 2008 ($16,500 for 2009).

- If you are 50 years or older, you can contribute an additional catch up contributions $5,000 for 2008 and $5,500 for 2009.

- The maximum annual deductible contribution limit for profit sharing is 25% of total salary up to a maximum of $46,000 for 2008 and $49,000 in 2009. The maximum compensation on which contributions can be applied on is $230,000 for 2008 and $245,000 for 2009.

- In the case of self employed businessmen, compensation means total earned net income.

- The sum of profit sharing and salary deferral contributions cannot exceed $46,000 for 2008 and $49,000 in 2009.

Step 1 - Compute Self Employed Federal Income Tax Deduction for 2008

1. Net business profits $200,000 Your Actual
2. Multiply line 1 by 0.9235 $184,700  
3. Multiply line 2 by 0.124; write this figure here or $12,648 for 2008 (whichever is lesser). $12,648  
4. Multiply line 2 by 0.029 for Medicare tax $5,356.30  
5. Add lines 3 and 4 to compute total self employment tax $18,004.30  
6. Multiply line 5 by 0.5 to compute your self employment tax deduction $9.002.15  

(Read Full Article)

Withdrawing Mony from my 401k Plan – Is it Advisable? How Much Can I Withdraw from my 401k Plan and How do I repay?
(December 11th, 2009)

If you have been diligently saving a 401k plan for retirement, you know how important it is to preserve your capital so that you can have enough money for the time when you will need it the most and the time when you stop working; your retirement! Many people wonder whether withdrawing money from my 401k plan is a good idea or not. Obviously the drawbacks are that you are taking money out and are risking having little or no money left for retirement. You could also face stiff penalties for withdrawing money from your 401k plan before the age of 59 and ½, precisely a 10% early withdrawal penalty. The image on the left shows long term financial planning, the cartoon at the very top with hands up high is the one that has stuck with his 401k plan for the long term, and not reacted to taking 401k withdrawals or loans. Supposedly, the person at the very bottom has not had a long term view of retirement and took 401k loans, hardship withdrawals and stock market losses.

However, if you are facing a financial need for which you urgently need money such as sudden medical expense, college tuition fees for your kids, attorney fees, lawsuit or any other emergency, then you have no option but to tap in to your 401k plan and withdraw money from it.

It is important to check with your Human Resources department to make sure you are eligible to withdraw money from your 401k plan because some companies do forbid it. You could either phone your plan administrator or read your plan summary description. Most employers will allow you to withdraw money from your 401k plan if you are facing financial hardships. Here are some characteristics of 401k withdrawals for financial hardships:

  • 401k loans require little paperwork or 100% online electronic records.
  • No credit check is conducted on 401k loan applications.
  • Little or no processing fees

How Much Can I Withdraw from my 401k Plan?

You can borrow a maximum of $50,000 or of 50% of your vested 401k contributions, whichever is lesser. If your account value is only $20,000, then you can borrow up to half of it ($10,000) towards your financial hardship.

How do I repay my 401k Loan?

Repayments of money borrowed from 401k plans must be made within 5 years of initial borrowing by making regular payments of principal + interest. These payments must be made at least quarterly in the year, usually through biweekly payroll deductions. The only time this 5 year period is extended is if you are using the funds to purchase your primary residence, check with your plan administrator on how many years you have to repay your loan... (Read Full)

7 Things You Should Know Regarding Roth IRA Conversions in 2010
(December 5th, 2009)

A Roth IRA (Individual Retirement Account) conversion allows investors to convert their retirement funds from a traditional IRA or 401k to a Roth IRA. A Roth IRA conversion also permits the flexibility of converting a portion of the traditional IRA or the entire IRA, depending on the preference of the investor. Starting 2010, anyone who has a traditional IRA will be able to convert it to a Roth IRA without undergoing the pain of passing the modified adjusted gross income limit test, which is set at $100,000 or less. Thus prior to 2010, if an investor with a traditional IRA makes $100,000 or more, he is NOT eligible to convert it to a Roth IRA. Also in 2010, a Roth conversion that was previously reported as income for the year it was converted will be split in to half and reported in the years 2011 and 2012, thus not reported as income for the year 2010. This allows the investor to defer paying taxes on his conversion for 2 years, which is a great feature of the new rules for Roth IRA conversions.

Which Types of Accounts Can be Converted to a Roth IRA?

During current years, you can convert a Traditional IRA and other employer-sponsored qualified retirement plans such as a traditional 401k, SEP 401k, etc to a Roth IRA. For any inherited assets, you can only convert those assets to a Roth IRA if you inherited them from your spouse. The best way to deal with this is to check with your 401k plan administrator or advisor.

7 Things You Should Know About Roth IRA Conversions

i) Adjusted Gross Income Level is $100,000

Starting 2010 whether you file as a single or married filing joint, the current adjusted gross income rule of $100,000 will be phased out. This creates opportunity for highly compensated employeees who previously could not contribute to a Roth IRA due to their higher salaries with a maximum cap of $100,000.

ii) You Can Convert Now

For non highly compensated employees who makes $100,000 or less every year, now is the time to make a Roth IRA conversion! Since 2008 was a year when the stock markets such as the Dow Jones Industrial Average took a hit of -33.8%, this is a good time to make a Roth IRA conversion since your account values will be lower, thus your total tax payable on the conversion will be lower as opposed to if you do it when the market appreciates again... (Read Full)

Qualified Retirement Plan Contribution Limits - Handy Summary
(November 30th, 2009)

You will find a complete list of qualified retirement plan and their contribution limits; this can be used as a quick handy summary guide.

Year End 2009 - Solo 401k Plan Retirement Tips Video
(December 1st, 2009)

In these turbulent economic times, millions of Americans have watched their money vanish in to thin air! And now with the end of the year rapidly approaching, they are looking for a tax break. And a Solo 401k gives them just that! The problem is, many Americans are unfamiliar with a Solo 401k plan.

Jeff Nabers: A Solo 401k is a special type of 401k designed to be used by self employed people and it has some unique powerful features that go above and beyond the average retirement account.

What makes the Solo 401k so unique is the ability for self employed people to make large retirement contributions to the plan. Imagine being able to put almost $50,000 a year in to a retirement account, it's the kind of break many could use this year and it is possible with the Solo 401k. For 2009, the maximum Solo 401k contribution limits are nearly 10 times higher than an IRA. You can contribute up to $49,000 per year or $54,500 per year if you are over the age of 50. If your spouse is also in the business, an additional $49,000 or $54,500 (if over 50 years of age) can be contributed by the spouse; but the benefit goes beyond the tax breaks.


One special feature of the 401k is that it can be run by the actual account owner. So you don't have to go and open it up at a Wall Street focused firm, what you can do is run your own Solo 401k. Also, you're not limited to ordering investments off of a menu of stocks, bonds & mutual funds. You can seek alternative investments like:
(View Full Article)

What is a 401k Plan? History of 401k Plans & Annual Developments Timeline from 1978 - 2003
(November 13th, 2009)

A 401k plan is a retirement plan or a deferred arrangement where an employee is eligible to have a portion of his/her salary be deducted and put towards a retirement savings plan known as the 401(k). Most such deductions or ‘contributions’ to a 401k plan come out from gross income, and are therefore deductible from tax during year end. Money invested in a 401k plan can be invested in a wide variety of investments including Guaranteed Investment Certificates (GICs), stocks, bonds, US treasuries or in some cases real estate (in the case of a self directed IRA).

Pre-tax contributions to a 401k are taxed when withdrawn upon the age of 65 or retirement. Employers at their will, are eligible to make matching contributions on their employees’ 401k plans, however they are not required to by law. However, most companies do match their employee’s 401k contributions as a means of financial motivation to obtain & retain the highest calibre of talent. Annual contribution limit for 2009 is $16,500 for people less than 50 years old and those who are 50 years or over are eligible to contribute $16,500 + $5,500 = $22,000. The $5,500 is known as additional ‘catch up’ contributions for older people who have less time to save for their retirement. Current 401k contribution maximums are derived from the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRA) that stated the maximum annual deferral an investor could make will be capped at $15,000 in 2006, after which it will be indexed for inflation each year to $500 a year.

The US Congress in 1986 planned to replace defined benefit plans for civilian workers with a more meaningful 401(k) type plan, named after the source of its existence in the Internal Revenue Code. This gave rise to the existence of ‘defined contribution plans’ as we know it today, the 401k plan. The government was ready to endorse both defined benefit plans (pension plans) and defined contribution plans (qualified 401k retirement plans) depending on the needs of American’s working population. The Economic Growth and Tax Relief Reconciliation Act of 2001 made 401k plans extremely popular among Americans.

Precursor to 401k Plans of 1978

Prior to 1978 when 401k plans did not exist, there existed other types of deferral arrangements that allowed worker compensation to be deferred & contributed to Cash or Deferred Arrangement plans which then lowers tax liability for that year. Below, we outline some of the major developments in the world of 401k plans by each year:

i) 1978 – In 1978, the Revenue Act of 1978 was passed which then became the Internal Revenue Code (IRC) Sec. 401(k). Notice this is the part of the Internal Revenue code from which the term 401(k) plans is derived. This Act allowed employees to defer a part of their compensation from tax liability by contributing to a deferred arrangement plan. One of the earliest companies to adopt the 401k plan was the Hughes Aircraft Company that amended company rules to allow & adopt the 401k plan as a standard retirement saving arrangement.

ii) 1979 – Johnson & Johnson adopts the 401(k) retirement plan system; the first major company of its kind to do so.

iii) 1979 – 1982 – Several companies including PepsiCo, JC Penney, Savannah Foods & Industries, Johnson & Johnson, Hughes Aircraft Company, etc propose development & adoption of 401k plans for their many thousands of employees.

iv) 1981 – The Internal Revenue Service (IRS) proposed rules that sanctioned pre-tax contributions to 401k plans as the standard, as opposed to after-tax payments made to thrift savings plans. By 1983, studies showed that almost half of all the major employers in America were either offering a 401k plan or developing one.

v) 1984 – Developments were made to 401k plans thanks to the Tax Reform Act of 1984 (TRA '84) that required ‘non-discrimination’ testing of plans so that 401k plan contributions do not work in favour or the highly compensated employees who would receive larger tax breaks with larger amounts of contributions; thus highly compensated employees can only contribute a maximum allowable limit to 401k plans. At this point in 1984, over 17,303 plans had a 401k feature integrated into them, totalling $91.75 billion with 7.54 million active participants.

(Read Full Article)

What is a Simple 401k Plan? Advantages & Disadvantages & Important Points about Simple 401k Plans
(November 21st, 2009)

A Simple 401k plan comes from the financial acronym Savings Incentive Match Plan and contains some features that make it quite different from a Simple IRA or a Small Business 401k or other profit sharing 401k plans. However, a Simple 401k is known to be a best of both words of the Simple IRA and the small business 401k. How? Let’s explain. Let’s first look at the advantages & disadvantages of a Simple 401k plan:

Advantages of a Simple 401k

i) 401k Loans are Permitted – Withdrawal of loans without severe penalties such as in the case of a traditional 401k plan makes a Simple 401k more attractive for investors who like the idea of being able to borrow from their own pool of funds and making interest & principal payments back to their own accounts, rather than say paying a credit card or loan company.

ii) No Regulatory Testing – Traditional 401k plans undergo lots of scrutiny and non-discrimination and top-heavy testing rules to ensure the plans work in compliance with regulatory requirements set by the IRS such as contribution limits for highly compensated employees, etc. Simple 401k plans other the other hand; do NOT have to undergo such testing rules. For instance, the deferral contributions of highly compensated employees (usually executives & senior management) are not limited by the amount of the non-highly paid employees' deferrals.

Disadvantages of a Simple 401k

i) Immediate Vesting of Contributions – Contributions to a Simple 401k plan are 100% automatically vested as soon as they are contributed, which means an employee can take distributions from the plan as soon as he/she is eligible. This can lead to higher employee turnover ratio which is not good for the organization.

ii) Lower Contribution Limits – Contribution limits for a Simple 401k plan are lower than those of a traditional 401k plan. Let’s compare contribution limits of a traditional 401k versus those of a Simple 401k.


Traditional 401k Plan
Simple 401k Contribution Limits
2004 $13,000 $9,000 $4,000
2005 $14,000 $10,000 $4,000
2006 $15,000 $10,000 $5,000
2007 $15,500 $10,500 $5,000
2008 $15,500 $10,500 $5,000
2009 $16,500 $11,500 $5,000
2010 $17,000 $11,500 $5,500

Important Points about the Simple 401k Plan

i) Employer matching contributions to an employee’s Simple 401k plan are limited to 3% of the employee’s annual total salary. This is as opposed to a traditional 401k where the employer can contribute up to 25% of the employee’s total annual salary. For instance, say James makes $50,000 a year, his eligibility for employer matched traditional 401k & Simple 401k contributions will be as follows:

Employer Match for Traditional 401k
25% x $50,000 = $12,500
Employer Match for Simple 401k
3% x $25,000 = $750

ii) The maximum eligible compensation for a Simple 401k for 2008 is $230,000 and $245,000 for 2009. This means the total employer & employee contribution limit for a Simple 401k for 2009 would be:

Employer Match for Simple 401k
3% x $245,000 = $7,350
Employee Contribution for Simple 401k $11,500 (Elective Deferral limit) $11,500
Total Contributions to Simple 401k   $18,850

(Read Full Article)

46% of Employees Cash Out their 401k when Changing Jobs or upon Losing Jobs
(November 11th, 2009)
Des Moines, Iowa - According to a study done by Hewitt Associates on 170,000 employees who left or changed jobs last year, 46% of them cashed out their 401(k) plans instead of rolling over to an IRA (do an IRA rollover) or rollover to their new employer's plan. About 25% of the workers rolled over to an IRA and 29% of them left their 401ks with their old employers. Pamela Hess, Director of Retirement Research @ Hewitt Associates thinks the fact that almost half of the workers are cashing out their 401(k)s is not good for future retirement planning. Reasons why workers could be cashing out as a result of job loss is due to a lack of income, 401k financial hardships under which withdrawals can be made. Pamela quotes, ""Millions of Americans who rely on defined contribution plans will find themselves unable to achieve a financially secure retirement." (Read More)

Deductibility Limits on Traditional IRA Contributions & IRA Contribution Limits from 2002 to 2010
(November 9th, 2009)
The traditional & Roth IRAs present many more retirement savings tools for investors & American employees who have careers and wish to save towards their retirement. It is important to understand that the government’s social security benefits may be able to cover a portion of your retirement needs, but not all of it; that’s certain. It is therefore your responsibility to save for your own retirement and making sure the lifestyle you plan to have upon retirement is easily financeable using your accumulated retirement savings. In this article, we explore the world of traditional IRA, its contribution limits, spousal contributions and deductibility limits for 2008... (Read More)

Quiz Trivia #2 for Rolling your 401(k) – Trustee to Trustee Direct Rollover, Modified Adjusted Gross Income (MAGI) Income Limits for Deductible Contributions to a Traditional IRA
(October 16th, 2009)
Quiz Trivia #1 for Understanding the Rules for Participating in a 401(k) Plan, Beneficiary Appointment, 401(k) Plans for High Paid Employees

This trivia will quiz you on the concepts explained in the article Rolling your 401(k) – Trustee to Trustee Direct Rollover, Modified Adjusted Gross Income (MAGI) Income Limits for Deductible Contributions to a Traditional IRA section. If there is any question you do not understand, it is advised to refer to that page for explanation. After selecting your answers, choose the "Grade Me!" button at the bottom to know your result & the right answers.

1) Employees must fill out a distribution election form when they:
a) Join a new employer
b) Leave or quit an old employer
c) After 1 years of service with their current employer
d) After being 100% fully vested with their current employe... (View Full Quiz)

Quiz Trivia #1 for Understanding the Rules for Participating in a 401(k) Plan, Beneficiary Appointment, 401(k) Plans for High Paid Employees
(October 10th, 2009)
Quiz Trivia #1 for Understanding the Rules for Participating in a 401(k) Plan, Beneficiary Appointment, 401(k) Plans for High Paid EmployeesThis trivia will quiz you on the concepts explained in the article Understanding the Rules for Participating in a 401(k) Plan, Beneficiary Appointment, 401(k) Plans for High Paid Employees section. If there is any question you do not understand, it is advised to refer to that page for explanation. After selecting your answers, choose the "Grade Me!" button at the bottom to know your result & the right answers.

1 ) By law, corporations are not required to offer 401(k) plans to their employees, but they do it as a sign of good gesture and also because:
a To obtain and retain skilled & talented employees
b) To encourage employees to save towards their own retirement and not rely on the company’s pension plan
c) To increase awareness of financial responsibility among their employees
d ) All of the above... (View Full Quiz)

Advice on Required Minimum Retirement Distributions - Calculation of RMD, Example of Minimum Distribution Penalty & 50% Excise Tax, Combining Required Minimum Distributions on Multiple Plans
(October 10th, 2009)
Most retirement plan investors have to begin taking minimum required distributions (MRDs) from their 401k plans on December 31st of the year in which they turn 70.5 years of age. However in the first year of the required minimum 401k distribution, investors may be able to defer their distribution until the following next year by the required beginning date (RBD). The required beginning date is defined as the date when an IRA holder or 401(k) plan investor must begin taking minimum required distributions from his retirement nest egg. This date occurs on April 1st of the year following the year when the IRA holder turns 70 and 1/2 years. What happens if you are required to take a minimum required distribution but fail to do so? The IRS will penalize you a 50% excise tax on the amount you didn't distribute from your retirement plan. Thus, investors must make sure they withdraw a fair sum of money to avoid the IRS from penalizing them the 50% excise tax... (Read More)

Compare 401k & IRA Plan Types for Personal & Business Tax Deferred and Tax-Free Investing
(September 25th, 2009)

Do you currently received earned compensation income (W-2 form or Schedule C or F)?

No --->
You are not currently eligible for an IRA or 401(k) qualified retirement plan.
Are you self employed? No ---> Does your employer offer a qualified defined benefit retirement plan such as a 401(k), profit sharing or money purchase plan or an SEP plan? No --> You are eligible to make fully deductible IRA contributions including contributions to a Roth IRA.
Yes   Yes    
    You can make Roth or traditional IRA contributions and deductibility from taxes is based on your income & prescribed MAGI limits.    

401k Plans for Small Business Owners - Eligibility Requirements for an SBO-401(k), making 401k Elections, Salary Deferral & Profit Sharing Contribution Limits & Example
(September 23rd, 2009)
The economic reforms brought about by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) have made 401k plans very easily accessible and easy to set up for small business owners who do not necessarily have employment incomes but self-employment incomes or net business incomes. 401k plans developed for small business owners are also known as “Small business owner 401k” or “SB0-401K.” The economic reforms brought about by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) have made 401k plans very easily accessible and easy to set up for small business owners who do not necessarily have employment incomes but self-employment incomes or net business incomes. 401k plans developed for small business owners are also known as “Small business owner 401k” or “SB0-401K.” Other financial advisors call the small business owner 401k as “Solo 401k” or “Self Employed 401k” or “Individual 401k plans”, whatever it may be; we will call it a small business owner 401k.

Pre-tax versus After-tax 401(k) and IRA Contributions
(August 27th, 2009)
Pre-tax 401k contributions are any contributions made to a 401k account from your bi-weekly gross income before any taxes are deducted. By making 401k contributions, you are getting a tax benefit now because you are lowering your current taxable income. For instance, if you earn $6,500 a month gross wage and contribute 15% of this to your employer sponsored 401(k) plan, this totals:

Your monthly taxable income before making 401(k) contributions =

401k contributed amounts = $975 ($6,500 x 15%)
Your current lowered taxable income = $5,525

Top Frequently Asked Questions about 401(k) Plans - Divorce
(September 5th, 2009)
I am going through a divorce and my spouse has a 401(k). How can I make sure that I get my fair share and will I have to pay tax on this?

- The 401(k) should be split between the two through a valid qualified domestic relations order (QDRO) document. A QDRO is a court order that allows a part of your spouse’s 401(k) money to be given to you. If this document is made properly, neither spouse will have to pay a 10% early withdrawal penalty, even if both of you are 59 and ½ years of age or less. (View Full)

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