401k Information
- for your retirement

Valuable 401k Information

Ok, so what 401k rules do you have to know about? First of all you need to know how much you are entitled to contribute each month, and currently that figure is the lesser of $4,000 or 100% of your income, if you are under 50 years old. If you are 50 or older, you are entitled to deposit a little more into your 401k fund, the lesser of $5,000 or 100% of your income, but as mentioned above do check this amount with your financial advisor. Did you know that you can only contribute to a 401k fund by automatic payroll deduction? The funds are taken from your wages before the taxation step, so it has to be by automatic deduction through the company you work for.

With regard to withdrawing from your 401k fund, remember that your contributions were made without being taxed, so any withdrawals you make are subject to tax, unless you rollover the money into another individual retirement account, or ira. If you wish to withdraw funds before retirement age, you will have to pay a penalty of 10% for this early withdrawal. There are a couple of instances when this penalty is waived, and that is if you should leave the company because of disability, or if you leave after you are 55. There are some 401k plans which will only allow you to make a withdrawal in cases of extreme hardship, but the definition of this is often left to the employer, but basically you can make a withdrawal if it is to cover the cost of medical fees, or to pay for the funeral costs of a family member, or to pay education tuition costs, or to pay for accommodation to avoid eviction.

Now, since the 401k investment funds are through your employer, if you leave what happens to your funds? You may rollover the 401 (k) funds, either part or all of your 401k funds that have accumulated for you, into another fund sponsored by your new employer, or if you wish you can deposit these funds into an individual retirement account. The latter will give you more flexibility as you can then choose how to invest your money. If you are going to rollover your account it, I have seen that it is best to do this through a trustee to trustee transfer to save you the 20% withholding tax.

The most important thing to remember when dealing with your 401k funds, is to talk to your financial advisor to make sure that what you are planning is in your best interests, and will help to achieve your financial goals. So, to summarize, find all the 401k information you an before you make your retirement decisions.