What would you like to do?
Is money from 401k considered income for the year?
A loan is not income.
Is it best to put money into 401K and pay taxes at earned income rates or pay taxes up front and pay capital gains and dividend rates?
There are a few different ways to answer this question. * First, it matters whether or not your employer matches any of your 401(k) contributions. Ninety percent of employers …do; if yours does too, you'll want to begin by putting at least as much money into the 401(k) that your company will match. For example, let's say your company will match 25 cents for every dollar you contribute up to 6% of your income. You make $100000 per year; 6% of your income is $6000. So, you contribute $6000 to your 401(k) and your company kicks in $1500 (25 cents for every dollar you put in, up to 6% of your income). You can certainly contribute more than 6% of your income (although no more than 35% of your income or, for 2007, $15500), but you want to give enough to get the company match; otherwise, you're leaving free money on the table. * Second, regardless of whether or not your company matches your 401(k) contributions, you should consider opening a Roth IRA (individual retirement account). Unlike the 401(k), in which your contributions are pre-tax (meaning that you make your contributions out of your salary and then pay taxes on the amount that's left; that leads to fewer taxes now, but then you pay taxes when you withdraw the money in retirement), Roth IRA contributions are after-tax: you pay taxes now but then you can withdraw the money for free in retirement. This is wonderful for several reasons: 1) Tax rates are at historic lows right now, so the odds are good that we'll all pay significantly more taxes in the future; that makes both the 401(k) option and your idea of investing in the market outside of a retirement account not quite so good. You don't know what the future tax rates will be, and the odds are that they'll be higher; the Roth IRA takes away that problem. Pay (relatively low) taxes now, and take the money out for free later. 2) Since you can't save a significant sum per year in Roth IRAs ($4000 in 2007 if you're under 50), you'll still need to save for retirement in your 401(k) plan (or elsewhere), and so having a 401(k) where you will pay taxes and a Roth IRA where you won't pay taxes gives you what the experts like to call "tax diversification." When you retire, you'll then have some options about which account to pull money from so that, depending on several factors (such as what your income bracket is that year, whether you sold your house or stocks, etc.), you'll be able to decide whether you want to take out money from an account where you'll owe taxes or where you won't. 3) Lastly, since you contribute to a Roth IRA with after-tax dollars, those dollars count for more: you get to keep every single dollar you pull out in retirement. In a 401(k), you'll have to use some of those dollars to pay taxes, so not all of those dollars that you put in the 401(k) are really for you--you're putting away some of them for the IRS. So--long answer short--your best bet is to invest in your 401(k) first if there is any company match. Don't leave free money on the table--it's like you're forfeiting part of your salary. Invest only up to the match, and then put the rest of your money in a Roth IRA (such as a Vanguard Total Stock Market index fund). Contribute the full $4000/year to a Roth IRA. If you have money leftover you could consider investing it in the market, as the long-term capital gains and dividend rates are likely lower than your tax rate--but that's not a good plan if you're investing this money for retirement, as these rates expire in 2010 and there's no guarantee they'll stay low. So a safer strategy would be to invest the extra money (after you've made a full $4000 contribution to your Roth IRA) back into your 401(k). While I was typing my contribution someone else submitted one, which actually points out some different takes I hope I address. This is certainly a question that every financial type has an opinion on. I find it is frequently shaded by where they earn their fees, and which items they weigh more heavily than others. I believe they all would agree that your personal financial situation, age, expected needs, and more, etc., all enter the equation. Unquestionably, the comparison is really more in line with deciding on contributing to a before tax IRA or an after tax one, called a Roth IRA. I believe that in a 401(k) situation, the fact that there is normally a matching of at least some part of the contribution, by the employer, (frequently 50% of the first 6% of your salary) contribution, would mean virtually everybody would agree that is a "must" take advantage of at least. (You contribute 6% and get credit for 9%). Contributions above that (to the allowed 15% of salary) would be the question. First most planners would say you need to have some after tax money as an emergency fund…3 to 6 months needs is the amount you commonly hear. Again, more or less depending on your personal situation. But that seems logical and indisputable. So, once you've done the basic "musts", got an emergency account, taken advantage of matching benefits, paid off credit cards, etc., should you IRA or Roth (or 401k or not) with the additional funds you are saving for long term or retirement? Personally, I go with some steadfast ideas: Especially as Tax rates are now historically decreasing, the main new tax revenue ideas revolve around making a National sales tax and changing what income is taxable or expenses dedcutible (like eliminating home mortgage interest deduction) or such.. all these things would still effect you if you paid income tax on the current investment funds, yet get you no benefit. I am a tax expert...(more degrees than a thermometer as the saying goes)…and a tax planning ruke that is virtually ALWAYS true says: …Don't pay taxes now that you can otherwise pay later… I vote for the before tax investment. (And consider, it isn't just held to retirement, however many years that may be, but may well be finally withdrawn and taxed 20 -30 or more years after retirement). Some thoughts on that same line: What if the tax ideas we're seeing actually eliminate (or really start to replace) the income tax….do you think the Feds will give you a refund? Unlikely. You'll have paid a tax you don't have to. (Rates, while low , are political suicide to increase, is considered economically regressive, and again, holding rates but increasing the tax base works fine....or going to a new program altogether). What if your life takes a change....you end up in Europe...or someplace. US ain't sending you a refund. Pay today means pay the State today. Then retire to Florida ot Nevada, etc. So I would pay NJ (or NY, or Calif, etc.) 9+% now, and like so many, retire where there is no income tax? Bad investment. Paying with future dollars are deflated dollars. The more assets you have, the better. Taxes paid are not an asset. Investment accounts are. Something many seem to ignore: The money in IRA/401k is generally treated specially in many life situations; exempt from bankruptcy/seizure; lawsuit, etc. Your other assets are just an attraction to the vultures. Very Importantly -- Inherited without tax - giving a new stepped up basis to your beneficiaries (so if you die and paid tax on your invested funds, that is money your family won't get. If you didn't pay the tax, that money will pass to them and essentially NEVER be taxed). And unless you spend all your returement funds (which is uncommon), this may well become a big part of your estate. While intended for long term and retirement, (a real and big need), it is still available under many programs for housing/education, etc. Presumably, when your withdrawing from the account your no longer working (even true if a hardship period). Your income is low, your income tax rate is lower. (Your other expenses may be too). What you withdraw is rateably taxable. In a taxed account, the gains and dividend taxes really cut into what your realizing on the investments as you go along..agreeably you MAY have to pay them in the future. However, if you expect to lose money on your investments, do it in a taxable account. (Losses in a taxable account may well be used to offset current income…but not in a non taxable one.) Finally - Just the idea that the governments solution to fears of social security, economy, etc., and people wanting to save more for retirement is to override years of promoting tax deferring plans, and say essentially, the way to do it is to pay them more taxes now...seems fishy and I'm sort of leary about!
No. Distributions from a 401k are unearned income for Social Security purposes, and do not affect the benefit amount you receive under regular SS retirement or SSDI (disabilit…y) programs. Only SSI (Supplemental Security Income, a form of welfare) payments are means-tested and offset by either earned or unearned income.
59 1/2 years of age normally, but I think there is a hardship clause that will allow distributions at 55.
Lower Middle. (additional from other than original answerer) this varies from community to community based on cost-of-living (73k buys a nice life in iowa but you could starve… in manhattan). It also varies based on your situation, are you a parent? are you married? if so, does 73,000 apply to your combined household income or just yours? if you are in the median lifestyle in america which is significantly lower in expense than manhattan new york, and are a single person living independently and alone, then 73,000/year is middle class to upper middle class.
There is no limit based on percentage of income. However, most employer plans set a limit as a percentage of salary. Check with your employer for the limit they have set. Th…e law allows them to set a limit as high as 100% of your salary, though I know of none that actually has a limit that high. The limit on before-tax contributions and Roth 401k contributions for 2009 is 16,500 ($22,000 if you are 50 or over) per taxpayer, no matter how many employers you have. There is also a limit of $49,000 total including all employer and employee contributions (before or after-tax) per unrelated employer. (Few employers allow employee after-tax contributions.)
You can take money out of a 401k if you leave the company, your employer dissolves the plan, you qualify for a limited number of hardship exceptions, or you reach the "retirem…ent age" specified in your employer's 401k plan. You will have to ask your employer or check the plan documents to find the age. To avoid the 10% excise tax ("penalty") on early distributions, you must be age 59 1/2 or you must have left your employer in the year you reached 55 or later.
My CPA, has advised me, that you can take funds out of your 401k/IRA without any penalty or it being counted against your income. Bottom line, it is not counted as earned inco…me.
It is considered part of the estate for the purpose of determining estate tax. It is owned by the decedent if that person had the right to change the beneficiary up unti…l the moment of his or her death. It may pass outside of a probate estate, however, if there is a valid beneficiary designation. State law should also be considered.
No, if you made nothing in the year. If you are self-employed and have filed in previous years, then you also need to file for the prior taxable year. There is big differ…ence between money earned and what is considered a profit in self-employment.
NO. As long as it is a QUALIFIED gift that you are receiving according to the IRS gov website definition of a gift. Any transfer to an individual, either directly or indirec…tly, where full consideration (measured in money or money's worth) is not received in return. The person who receives the QUALIFIED gift does not have to report the QUALIFIED gift amount to the IRS or pay gift or income tax on its value. However, what you call a gift and what the IRS defines as one may be different. Go to the IRS gov website and use the search box for Gift Tax Frequently Asked Questions on Gift Taxes
The exemption amount for each qualifying child or qualifying relative dependent is $3,650 for each exemption. You can also deduct $3,650 for yourself.
There is a limit on the amount of elective deferrals that you can contribute to your traditional or safe harbor 401(k) plan. * The limit is $15,500 for 2008 and $16…,500 for 2009. * The limit is subject to cost-of-living increases after 2009. Generally, all elective deferrals that you make to all plans in which you participate must be considered to determine if the dollar limits are exceeded. Limits on the amount of elective deferrals that you can contribute to a SIMPLE 401(k) plan are different from those in a traditional or safe harbor 401(k). * The limit is $10,500 for 2008 and $11,500 for 2009. * The limit is subject to cost-of-living increases after 2009. Although, general rules for 401(k) plans provide for the dollar limit described above, that does not mean that you are entitled to defer that amount. Other limitations may come into play that would limit your elective deferrals to a lesser amount. For example, your plan document may provide a lower limit or the plan may need to further limit your elective deferrals in order to meet nondiscrimination requirements. Catch-up contributions. For tax years beginning after 2001, a plan may permit participants who are age 50 or over at the end of the calendar year to make additional elective deferral contributions. These additional contributions (commonly referred to as catch-up contributions) are not subject to the general limits that apply to 401(k) plans. An employer is not required to provide for catch-up contributions in any of its plans. However, if your plan does allow catch-up contributions, it must allow all eligible participants to make the same election with respect to catch-up contributions. If you participate in a traditional or safe harbor 401(k) plan and you are age 50 or older: * The elective deferral limit increases by $5,000 for 2008 and $5,500 for 2009. * The limit is subject to cost-of-living increases after 2009. If you participate in a SIMPLE 401(k) plan and you are age 50 or older: * The elective deferral limit increases by $2,500 for 2008 and 2009. * The limit is subject to cost-of-living increases after 2009. The catch-up contribution you can make for a year cannot exceed the lesser of the following amounts: * The catch-up contribution limit, above, or * The excess of your compensation over the elective deferrals that are not catch-up contributions.
A money market account (MMA) and a 401(k) plan are not the same. The former is a type of savings account while the latter is an investment account. Some of the key differences… lie in the type of deposits, or contributions, made, how the money grows, and whether or not withdrawals can be made from the accounts .
In State Laws
Because each state has their own criteria for moneys to report while receiving benefits, which include government entitlements, etc. it's best to contact your own state employ…ment security office for clarification in the case.
No it's not and for that reason it is not taxed either.