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How to Save Money by Choosing between a Roth 401k and a Traditional 401k

How to Save Money by Choosing between a Roth 401k and a Traditional 401k

Summary: Employers are opening the playing field for retirement planners when it comes to the kinds of 401(k) plans they allow. We look at two key cases and consider the pros and cons that come with each.   When we talk about 401(k) plans and retirement, the recipe is almost always familiar: save tax-free now and then pay the IRS when you start to withdraw— incurring a penalty if you take distributions before reaching the retirement-age threshold that's been set.   Now,...more

Decoding Your 401(k) Fees

Decoding Your 401(k) Fees

Most people don't know it, but you actually pay for the privilege of investing in your company's 401(k). Read on to know what you're paying, and what to keep an eye on. By Anna B. Wroblewska.   Whether you know it or not -- and a 2011 AARP study found that 70% of people don't know it -- you pay for the privilege of investing in your company's 401(k). If you're wondering why you've never gotten an invoice, it's because those fees get automatically deducted from the plan's assets. It's...more

401(k) FAQ's after leaving a job

401(k) FAQ's after leaving a job

I could use some extra money. Can I just take the cash from my 401(k)? Yes you can take the cash, but you may be hit with a 10% IRS penalty if you are under age 59? and pay ordinary federal and state income tax on the value of the distribution. So if there is $20,000 in the 401(k) plan and you take an early distribution, you could end up with only $11,000 (assuming 10% early withdrawal penalty and 35% combined state and federal income taxes). That is quite a hefty cost to access this...more

3 Ways to Make the Most of Your 401(k)

3 Ways to Make the Most of Your 401(k)

By Anna Wroblewska Congratulations! Now that you've opened a 401(k) account with your employer and started your contributions, you've taken an important step in retirement planning. Now how can you ensure that you'll get the most from it? 1. Make a diversified investment plan Lack of diversification is a major source of poor investment performance. Whether your portfolio is concentrated in company stock or in your favorite index, you'd almost alway better off over the long run by...more

Should I Invest My 401(K) in Individual Stocks?

Should I Invest My 401(K) in Individual Stocks?

By Anna Wroblewska. Individual stocks can have unlimited upside and don't come with management fees. So are they a good bet for your 401(k)? Here's how you can decide whether stocks are right for your 401(k) and limit the risks associated with them. Please note: This article assumes that your 401(k) comes with the option to invest in individual stocks, but many plans do not. Know thyself There's no question that investing in individual companies can grant your retirement account returns that...more

The One Person 401(k) Plan

The One Person 401(k) Plan

Did you know that a firm as small as one-person can establish a 401(k)? This is not a new phenomenon. It just never made sense under the old tax law. However, recent changes have made the 401(k) much more attractive for small employers. How attractive? Consider a sole proprietor at age 50, with Schedule C income of $40,000. Assume this business owner would like to contribute as much as possible to a tax-deferred retirement plan during 2005. By adopting a SEP IRA plan or a Profit...more

Finding Your Lost Pension & 401(k) Funds

Finding Your Lost Pension & 401(k) Funds

People change jobs many times over a working career. Women marry and change their name over their working careers, many more than once. Adults move on with their lives, sometimes to another city, perhaps you moved across state lines. Some workers will venture across country borders forgetting they were at a particular employer long enough to have become vested with a pension benefit. As the years pass, when they don't leave a forwarding address, it becomes harder to find them and remind...more

Getting the Most Out of Your 401(k)

Getting the Most Out of Your 401(k)

Your 401(k) plan's ultimate size is primarily a function of two factors - how much you contribute and how much you earn. Of course, you know you should contribute the maximum amount possible ($17,500 in 2014). But what steps should you take to maximize your returns? Consider these tips: Take advantage of employer matching contributions. Contribute at least enough to take full advantage of any matching contributions. You simply lose the money if you don't use it. A 50% match on your...more

Is Your 401(k) Plan Enough?

Is Your 401(k) Plan Enough?

For the vast majority of workers, a 401(k) plan may be the only retirement plan offered by employers. If you won't receive a traditional pension benefit from your employer, will a 401(k) plan be enough to fund your retirement? Answering that question is difficult because the 401(k) plan has only been around for 20 years, so no current retirees have saved in a 401(k) plan for their entire working career. However, the Employee Benefit Research Institute (EBRI) conducted a study to determine...more

What Are Roth 401(k)s?

What Are Roth 401(k)s?

Effective January 1, 2006, 401(k) plans now have the option to offer Roth 401(k)s. The Roth 401(k) is patterned after the Roth individual retirement account (IRA) - contributions are made from after-tax earnings that grow tax free and qualified distributions are withdrawn tax free. However, there are some significant differences between Roth 401(k)s and Roth IRAs: Eligibility Employees eligible for their employer's 401(k) plan are also eligible for a Roth 401(k). There are no income...more

Don't Overload Your 401(k) with Company Stock

Don't Overload Your 401(k) with Company Stock

Your 401(k) may be a great retirement-savings vehicle. Your earnings grow on a tax-deferred basis, and you typically fund your plan with pretax dollars, so your contributions can lower your annual taxable income. Plus, you may even get an employer match. But if you're really going to get the most out of your 401(k), you will need to pay close attention to your investment mix and change it at the right times. And now may be a particularly good time to review your 401(k) for possible moves in...more

To

To "Roth" Your 401(k) Contributions or Not

Beginning January 1, 2006 employers have the opportunity to offer a new 401(k) option aimed at decreasing your tax burden during your retirement years. Starting in 2006, 401(k) plans will be permitted to allow employees to designate their contributions as 'Roth' contributions. If offered, your decision whether or not to contribute to the new option ' known as a Roth 401(k) ' will require the same considerations as to whether or not to contribute to a regular IRA or a Roth IRA (with the...more

Top 12 Mistakes 401k Investors Make

Top 12 Mistakes 401k Investors Make

Mistake #1: Thinking the 401k is a "free account" Today's 401k accounts are mainly made up of mutual funds. Unfortunately, most investors have no clue as to how much their 401k costs them. We first need to learn what the fees are. Mutual fund fees come in four flavors: Annual expense fees - These can be found in the prospectus. They pay the fund manager, and can vary substantially. 12b-1 fees - Again, these can be found in the prospectus; they pay for the fund's advertising. Generally,...more

A New Option for Tax-Free Retirement Income

A New Option for Tax-Free Retirement Income

It's nice to see another tax-savings option available-one that provides tax-free withdrawals after you retire. This one became available on January 1 and combines parts of two popular plans, a 401(k) and a Roth IRA. Called the Roth 401(k), it allows employees to designate their contributions as Roth contributions and offers a significantly higher annual contribution than the Roth IRA. The Roth 401(k) allows for a maximum annual contribution of up to $20,000 in the 2006 tax year versus just...more

Is Your 401 (k) As Good As They Say?

Is Your 401 (k) As Good As They Say?

Since the fully funded company pension plan is fast becoming a thing of the past, the popularity of the 401(k), the IRA, the SEP and other 'qualified' retirement plans has skyrocketed. And why shouldn't it? After all you get to sock away large portions of your income on a pre-tax basis and then your money will grow tax-deferred for as long as you leave it there. But then what? On the surface this seems like a great idea and so over the past 20 years or so hard working employees and...more

Add a Roth Contribution to Your Solo 401(k)

Add a Roth Contribution to Your Solo 401(k)

A good thing ? the Solo 401(k) ? just got a whole lot better. A Solo 401(k) plan is already a great tax-advantaged retirement savings vehicle for a business (including corporations) where the owners and their spouses are the only employees. In 2006, tax- deductible retirement contributions can be as high as $49,000 per person (assuming you are over age 50 and have sufficient adjusted gross income to qualify for the maximum contribution). Amounts contributed to the plan grow tax-deferred...more

Making the Most of Your 401(k) Plan

Making the Most of Your 401(k) Plan

One of the biggest changes in the workplace in the last 30 years has been the shift away from traditional, or defined benefit, pension plans. In their place are a growing number of alternatives known as defined contribution plans. Today, the 401(k) plan is the most common defined contribution plan. Congress created it in 1978 by adding section 401(k) (hence the name) to the Internal Revenue Service tax code. Such plans offer distinct advantages, such as tax-deferred growth potential, high...more

401k and Pension Lump-Sum Rollover Assistance

401k and Pension Lump-Sum Rollover Assistance

Over the years I have worked with hundreds of people guiding them through the rollover maze. I have worked with employees who have worked in small businesses, regional companies, national organizations as well as international corporations. When an employee leaves their place of employment due to retirement, a career change, job relocation or corporate "downsizing", an employee is faced with many issues. Some of these issues that need to be addressed are what to do with accumulated funds...more

Before You Quit Your Job, Know the Rules for Rolling Over Retirement Savings

Before You Quit Your Job, Know the Rules for Rolling Over Retirement Savings

By Justin Stoltzfus March 8, 2014 Most Americans are generally familiar with the idea of planning for retirement, whether it's through an employer-backed 401(k), a private IRA, or some other investment vehicle. But not all of those who toil away building a 401(k) or other account understand what's going to happen to it if they leave the company. In talking about the big changes made to pension and retirement plans in the last couple of decades, one thing analysts are stressing is...more

Should I Put My 401(k) Into a Target-Date Fund?

Should I Put My 401(k) Into a Target-Date Fund?

By Anna Wroblewska. Over $650 billion of America's retirement savings are in target-date funds, and these investment vehicles are only getting more popular. Adored by 401(k) plan administrators and investors for their simplicity, target-date funds are expected to attract half of all defined-contribution plan assets by 2020. So should you put your retirement savings into one? As with most things in finance, it depends on your needs and preferences. What is a target-date fund?Target-date...more