401k and 403b Plans

WOW...

Probably Spouse first, then his Estate then the children.

dependaing upon the age of the participants, yes.. In a "cross-tested" or age-weighted plan, the contribution may be different for persons with the same compensation but different ages.

There is a lot of baggage borrowing from your 401k including that if you lose or change jobs the loan becomes due in full immediately. Personally, with interest rates as low as they are now I would do my best to avoid it unless it is absolutely the only way.

Contributions in 2010 will be $16,500, the same as 2009. These contribution maximums did not change from 2009 maximums as the relevant cost-of-living index did not increase year over year.

Also, catch-up contributions for 2010 will remain at $5,500.

Talk to a Tax attorney, if he can`t do it he can tell you who can.

Yes, this is possible if you earn enough and the plans allow it. Your total contribution amount, 401k plus 403b can not exceed the $15,500 ($20,500 if over age 50) for 2008.

In a word Don't. If you do you will have a penalty (10%) and they will treat the distribution as income (which is taxed at whatever your rate is)

But for us taking a 401k loan two years ago was really smart.

Me and my wife took out a $5000 loan from the 401k and paid off a 14% interest rate car loan.

Those mutual funds that were sold to get that $5000 are today worth $4200 (two years later)

And the amount we will save between not having to pay full coverage insurance and the interest on the car note is quite a bit of money.

Worked so well earlier this year we took out another $6000 to pay off a 16% interest rate SUV loan.

Those funds are worth $5500 now and we have saved quite a bit in interest and not having to pay for full coverage insurance on that vehicle as well.

I took out a third loan to settle a $6000 credit card for $3500 a savings of $2500 (not to mention I won't get sued)

I'm not saying that taking out 401k loans are perfect for everyone. But, we were in a lot of stupid debt. Now we have two paid off cars (and we will never finance another one ever again !!) and we have paid off all of our credit card debt.

And the only interest we pay now is to ourselves!!!

Actually the prior provided answer below is incorrect. I have left the incorrect comment below (indented) for documentation. In reality, money used to pay back a 401k loan comes in two parts just like any loan repayment (principal and interest). The principal paid back is not taxed twice. To understand this you simply have to do the follow through math on your income over the years vs. how much you paid in taxes once you finally withdraw the money. So in this example, the 14,000$ is not taxed twice. However, interest paid on the loan is considered income to the 401k and this is NEW money going into the 401k. This interest is taxed twice because it is NEW money. You pay it in after tax dollars but unlike the principal, you did not get to use untaxed dollars to offset this. So assuming the 25% tax rate stated below, the answer below is only 25% correct. This is a common mis-understanding. Only the interest paid on a 401k loan is taxed twice, not the re-paid principal. To say that the principal paid back is paid back using after tax dollars is not correct.

Here is a simple example to illustrate: assume you have 50,000$ in the bank that has been taxed. You then borrow 50,000$ from your 401k. You now have 50,000$ in the bank on which you paid taxes and 50,000$ on which you did not pay taxes. Now you change your mind and immediatlely pay off the 401k loan with 50,000$.

Hmm... did you use 50,000$ taxed or 50,000$ untaxed go pay the loan. Let us see. Before this silly (but legal) sequence of events you had 50,000$ in untaxed money in your 401k and 50,000$ of taxed money in the bank. After wards you (oh gee) had 50,000$ of untaxed money in your 401k and 50,000$ of taxed money in the bank. How about that... nothing is different. As you can see, there is no change in your tax situation at all. Principal paid back to a 401k is not taxed twice. I love the extremes of questions. They are so good at clarifying things. If you are not getting it, think about it a bit, you will. The author of the below would have us believe that we used the 50,000$ of taxed money to pay back the loan. If we follow that logic then there is still no difference since from that point of view you have simply reversed the locations of the money, not it taxed status. In the end you still have 50,000$ of untaxed money on one place and 50,000$ of taxed money in another place.

Additionally, none of this really matters. A 401k is just another money pool with a specific set of rules. The point of taking money from a 401k is to use it smarter than the 401k will. If you get more from the money you take out than you lose, then it is a good move, that is all there is to it. In evaluating a loan (OR EARLY WITHDRAWAL) from a 401k you need to do two things:

1) do the math to know what it costs you vs. what you make with the money once you get it. You want to know this even if it is not your driving factor for taking the loan (or withdrawal).

2) weigh the intangibles somehow. Borrowing from a 401k is usually done for a purpose that cannot be accommodated otherwise. Consider an example: your daughter wants to go into the medical field. Let us assume she has two choices, be a Nurse or be a Doctor. You have the money to send her to 4 year nursing school in the bank, but you need more to make her a doctor. Your 401k can provide the extra funds needed? Do you take the loan? Some people would try to figure out the extra money she makes as a Doctor vs. a Nurse into the equation in order to justify it. Others would see that in this case the finances are immaterial. The jobs of Nurse and Doctor are different and will lead to completely different life styles for your daughter. Which life do you want your daughter to live, the life of a Nurse or the life of a Doctor? If you want to give her a shot at beign a Doctor, then you take the loan. What the loan costs may be important but is secondary to your primary goal in this case.

Below is the prior incorrect answer.

This doesn't give the whole picture. Loan repayments are made with after tax dollars from your paycheck, but get deposited in the 401k as pretax money. So when you retire, you pay taxes on all that money again. In the case above, the person has taken out a total of $14,000. Estimate the interest they paid themselves and we're talking a total of approximately $18,000. That $18k was already taxed at a conservative rate of 25% for federal, state, and local taxes. That means their pretax loan payments comes to $24,000.

That's a $10,000 difference. That's a lot of money "missing". Also consider that the $18,000 that this person took as a loan has already been taxed at 25%. When they retire/quit and take their money out of their 401k, they have to pay 25% AGAIN on that money. That's another $4,500 (potentially more if they are under 59.5) they are paying to the IRS.

Liquid assets are cash or investment holdings or any tangible property that can be instantly converted to cash without losing their value. Individual retirement accounts and 401(k)s are retirement savings accounts designed to hold your money until retirement and technically are not liquid assets, unless you have reached retirement age. The idea is to leave your money in the 401(k) or IRA until you retire, so liquidating these funds prior to retirement age will get you some cash but also some Internal Revenue Service penalties that reduce the value of your asset.

The contribution that is matched by an employer is not counted towards a 401k contribution limit. If someone contributes the maximum IRS allowed amount each year, still the employer's matching contribution would be in addition to that limit.

Depends on your plan but you can opt out of your 401K at any time but you will pay taxes on the balance then pay a 10% penalty on the pre-tax amount. For example, if your balance is $10K, you will pay $1K penalty, then pay taxes on $10K which might be as high as $3000. So you end up with $6000 and probably won't be able to participate in the 401K plan for another year.

59 1/2 years of age normally, but I think there is a hardship clause that will allow distributions at 55.

Our first priority while working is to earn sufficient funds to meet our daily living requirements. If our 403b contributions take away from our day to day needs, we are contributing too much or earning too little.

This is not a time or value answer. Everyone has different needs and expectations. The information you have provided prevents a clear date or value answer which I would not give anyway. First you need to know what your goals were when you began contributing to your 403b. Then ask Are those goals still valid? If those goals are not valid today, then you need to set some new goals. When the original goals we made are still valid, then we ask, Did I meet those goals? When you answer yes, you can stop contributing to the 403b. When you answer no, keep contributing. Look ahead to your plan for retiring. Will you be able to live in retirement the way you want? A friend of mine told me that, money is one of the 2 things in life where too much is not enough.

ANS WILL BE = 85106.38297

Yes you can borrow on 401(k) loans, the rates will be comparable to other loans, but there are no regulations on what can be charged for loans, although federal rules do require plans to charge a "reasonable" interest rate. Most companies usually make it easy to repay the loan, and will deduct the payments from your paycheck, and the money goes back into your account. The restrictions on how much you can borrow and on the length of time to repay the loan, it can't be larger than $50,000 or half the balance of your account, whichever is smaller, and it must be repaid within five years, unless used for a home purchase which will allows you to pay out in 10 to 30 years.

Yes, only if you are taking the loan from a 401(k) with your current employer, but the loan may only be used for the following specific actions:

* Education expenses for self, spouse or dependent child

* Eviction prevention from principal residence

* Medical expenses that may not be reimbursed

* First-time purchase of a principal residence

Most 401(k) plans allow the owner to take a loan out (despite being a legal feature of the plan, the cost to administrate loans is usually too high for some businesses and they choose NOT to allow the feature) for specific reasons. There are limitations on the minimum and maximum amounts borrowable and payments must usually be made through payroll deductions.

If you have a 401(k) with an employer that you no longer work for, they will not typically allow you to take a loan.

You can cash out your 403b, but expect tax penalties of up to 30% if you are under the age of 59 1/2.

Probably not. Generally a 401k plan will dictate what investments are available to plan participants. The reason for this is the employer has some fiduciary responsibility to the plan participants. Some 401k plans have a brokerage window where you can move some of your contributions to the brokerage. Here you can invest in any investment offered by the brokerage. Note that the added fees for trading through the brokerage will be paid by your 401k account.

This might help

The money that was taken from your pay and not taxed and contributed to a 401k plan is your money. Even though you were not vested in the plan, this is still your money. Vesting will make employer contributions to the 401k plan available to you. When you signed up for the 401k plan you were given a copy of the Summary Plan Description. In that document, it describes when and how you can get your money. This document also tells you what the tax consequences are for taking your money under various circustances. Read your Summary Plan Description. If you do not have The Summmary Plan Description, contact the 401k custodian/trustee and ask for a copy. This may be a good idea anyway because these plan descriptions change from time to time. Generally the best thing to do is to move this 401k money to a Traditional IRA using a Trustee to Trustee Transfer. The Trustee to Trustee Transfer to the IRA can be done by determining where you want your IRA. Contact that orginzation and tell them what you want to do. This new IRA custodian/trustee will help you through the process. After signing some papers, they will see that the transfer of your old 401k funds is done properly and deposited into your IRA. This IRA will be called a ROllover IRA. Doing this Trustee to Trustee Transfer is not a taxable event.

First, Never borrow from your 401k plan. You can pay off your 401k loan with money form any legal source. The money does not need to be deducted from your pay check. That is the most convient method. To use money from an IRA, it would be necessary to take an UNQUALIFIED DISTRIBUTON from your IRA. If this is a Traditional IRA, the mney would be subject to income tax. And if you are not yet at the age of 59.5 years, a 10% penalty would be assessed on the amount taken from the IRA. This 10% would need to be paid when you file your income tax return. If this is a ROTH IRA, there are some different rules. Distributions from a ROTH IRA come out in an ordered fashion.

- First to come out is our annual contribution amounts. These amounts come out free from tax and free from penalty.

- Second to be distributed from a ROTH IRA is our Conversion Contributions. Conversion amounts are distributed tax free. A 10% penalty may apply if the conversion is less than 5 years old. Each Conversion has it's own 5 year clock.

- Last to come out is earnings. If the ROTH IRA owner is younger than 59.5 years, the earnings will be taxed and the 10% penalty will apply.

The right answer is, It Depends.

I like a ROTH IRA. Here we pay tax on our contributons. Qualified distributions from a ROTH IRA are tax free. The ROTH IRA also allows us to take our Annual Contributions out of the IRA at any time without tax or without penalty for any reason, even to make a trip to Vegas and put it all on red.

A Traditional IRA is OK too. Here we do not pay tax on our annual contributions giving us a tax advantage now. All distributions from a Traditional IRA are subject to income tax, and if taken before age 59.5 years, there is a 10% penalty. There are a few items that qualify for avoiding the 10% penalty.

Everyone can contribute to a Traditional. Not everyone can take the tax deduction. This is called an after tax Traditional IRA. The earnings are tax deferred. When you take a distribution from this IRA part of the distribution is subject to income tax and part of the distribution is tax free. These amounts are based on the ratio of your after tax contributions to the total amount of the IRA.

Both IRAs will provide you with more investment choices when you use a discount broker as the IRA custodian.

IRAs typically are afforded $1,000,000 of bankruptcy protection. This may vary from state to state.

The 401k contribution is taken from our pay each pay day. Some employer's offer a matching contribution. The Traditional 401k is not taxed when we contribute. It is taxed when we take a qualified distribution. Investment choices are usually limited to a set of mutual funds and savings accounts. Some 401k plans offer a loan feature. I do not recommend you ever take a loan from your 401k account.

Some employers offer a ROTH 401k. Your contributions are taxed as you make the contribution. When you take the qualified distribution from the plan your money comes out tax free. When the employer makes a matching contribution to this IRA, it is a tax deferred contribution. You will pay ordinary income taxes on distributions of the employer's contribution.

When you start contributing to a 401k plan, READ the Summary Plan Description. You will be given a copy, read it.

The big advantage of a 401k plan is for 2008 you can contribute up to $15,500. And if you are over age 50, you can contribute an additional $5,000. This "Catch-up" contribution can be made even if your 401k limits you to an amount lower than the $15,500.

Which is better? It Depends.

When you make a contribution to your 401k plan, your employer is required to have that money deposited into your account with the 401k custodian within a few weeks, From the IRS: "if your plan provides for salary reductions from employees' paychecks for contribution to the plan, then these contributions must be timely deposited. The law states that this must be accomplished as soon as it is reasonably possible to do so, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you need to make the deposits at that time." Once that is done, most plans ask you to select some investment choices for your money. Sometimes one of the options is Employer Stock. If you invest in your employer's stock, and the employer goes bankrupt then you could loose the amount you have invested in that stock. Depending on what investment options you have available, stock mutual funds, bond funds, money market accounts, the stock mutual fund may also own some employer stock. So if you are invested in that mutual fund, and also have some emplyer stock in your 401k, your risks are increasing. You are dependent on the employer for current income, you have some employer stock in your 401k account, and the stock mutual fund holds some of the employer stock. Add to that if your employer has a retirement plan for you your risks go up dramatically. Keep employer stock in your 401k at a minimum and you will likely do well.