Posts Tagged ‘retirement plan’

What You Should Know Before Dipping Into Your 401(k)

Friday, May 16th, 2014

Got a 401(k) plan? Have you ever withdrawn money from your 401(k) account? If so, you’re part of the growing number of Americans using their 401(k) accounts to fund other areas of their lives. A recent Bloomberg article explains that more and more Americans are turning to their 401(k) accounts rather than to other means, such as a loan, to help cover any unexpected financial needs that come up.

Historically, Americans have used their homes as a source of additional money. According to the article, when home values rose, homeowners refinanced or took out second mortgages. But due to the housing collapse back in 2008, many homeowners don’t have these options anymore – so they turned to their 401(k) accounts. What many people don’t realize is that depending on their 401(k) plan, they could be penalized for either taking an early withdrawal and/or not putting that money back into their account in the appropriate amount of time.

Shocking 401(k) Withdrawal Statistics

The Bloomberg article cites an IRS report that states the agency collected $5.7 billion in withdrawal penalties in 2011. In other words, Americans withdrew nearly $57 billion from their retirement accounts. That’s $5.7 billion that the IRS would otherwise not have banked on receiving. And what’s the federal government doing with this “extra” income? Funding federal agencies and projects.

Think Before You Dip

Before you turn to your retirement plan for help, you should be aware of some things. It may seem like an easy option, but the IRS actually has some rules that you have to meet before taking money from your 401(k). One of the following conditions must occur before you can take money out without being penalized:

  • You lose your job
  • You claim disability
  • You or your spouse dies
  • You turn 59 ½ years old

401(k) Withdrawal Based on Financial Hardship

If you don’t meet the criteria listed above, but are facing a financial hardship, you may also be able to take an early withdrawal from your retirement account. The IRS’ hardship rules require you have one of the following needs to qualify for a hardship withdrawal:

  • Medical expenses for you or your immediate family
  • Financial assistance in the purchase of your primary residence (this excludes mortgage payments)
  • Tuition or other educational fees (maximum of 12 months) for you or your immediate family
  • Prevent the eviction of you from your primary place of residence
  • Burial or funeral expenses for deceased parent, spouse or other immediate family member
  • Expenses for the repair of damage to your principal residence

The amount of money you take can’t be more than the amount you actually need to cover your hardship. It’s important to note that your early withdrawal due to a financial hardship is subject to state and federal taxes, and is also subject to a 10 percent early withdrawal penalty if you are under age 59 ½. So keep all of these considerations in mind when deciding whether to dip into your retirement account.

401(k) Withdrawal Help

If you’re not sure if a retirement withdrawal is the best route to go, contact Rea & Associates. Our team of Ohio retirement plan services professionals can help you determine if you’re eligible and what you need to do to minimize your tax liability from a withdrawal.

Author: Steve Renner, QKA (New Philadelphia office)

 

Looking for more information related to 401(k) or retirement plan withdrawals? Check out these blog posts:

Will I Be Penalized for a Hardship 401(k) Withdrawal?

Raiding Your 401(k)? It’ll Cost You

What Are The Rules For Taking A Distribution from My 401(k) Plan?

 

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DOMA’s Effect On Retirement Plans And Beneficiary Forms

Monday, May 12th, 2014

Last June, the U.S. Supreme Court, in United States v. Windsor, ruled that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional. As you may recall, DOMA Section 3 states, “In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.”

By holding Section 3 of DOMA unconstitutional, qualified retirement plans must now treat the relationship of same‐gender married couples as a marriage in order to maintain the plans’ tax‐qualified status. The term “spouse” includes an individual married to a person of the same-gender if the individuals are lawfully married under state or foreign law.

The IRS recognizes a valid same-gender marriage even if the married couple is living in a state that does not recognize same-gender marriages. The term “spouse” doesn’t include individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not defined as marriage.

Important DOMA Information for Plan Sponsors

  • Participants (and their spouses) who are in same-gender marriages generally must be treated as married for all purposes under a retirement plan. This was effective as of June 26, 2013.
  • As of September 16, 2013, your plan must recognize same-gender marriages that were lawfully performed under the laws of the 50 states, D.C., U.S. territory or a foreign jurisdiction.
  • States that currently recognize same-gender marriages include: California, Connecticut, Delaware, Hawaii, Illinois (law will take effect on June 1, 2014), Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode Island, Vermont and Washington.
  • Depending on whose retirement plan provider plan document you use, you may want to contact the provider to ensure that your retirement plan complies with these new rules. In general, amendments to such plans are due by the end of the plan’s remedial amendment period, or December 31, 2014.
  • As a plan sponsor, you have no obligation to notify current or former participants of the new rules.
  • All qualified plans must recognize same-gender marriages for all plan purposes. This would include provisions applicable to beneficiary designation, death benefits, applicable spousal consent requirements regarding distributions and loans, rollovers, etc.

Retirement Plan Help

Now is the perfect time to update beneficiary forms for all participants in your plan. It’s important you keep a current copy of each participant’s beneficiary form in his or her personnel file. If you need assistance with this, contact Rea & Associates. Our Ohio benefit plan services team can help you determine what you need to do to keep in compliance with IRS and DOL regulations.

Author: Andrea McLane, QKA (Dublin office)

 

Looking for more posts about retirement plan best practices? Check these out:

What Are The Rules For Taking A Distribution from My 401(k) Plan?

What Should Plan Sponsors Ask Their Investment Advisors?

What Are The Responsibilities of a Fiduciary?

 

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How Can I Make The Most of My Retirement?

Wednesday, April 23rd, 2014

During my 30 years of financial planning experience, I have come to find that there are four phases of a person’s life. If you’re a Baby Boomer, each phase is approximately 22 years in length. Phase 1 is our formal education and/or training. During Phase 2, we try to figure out what we are going to do for a living, and then focus on becoming as proficient at it as we can be. In Phase 3, we strive to be on top of our game and begin to accumulate wealth. It’s Phase 4 that should prove to be, as long as we enjoy good health, the most gratifying phase of our lives. For in Phase 4, we should be able to step back and enjoy our journey at a more relaxed pace. It is during this phase that we are oftentimes best positioned to positively impact the people and causes that are important to us, while hopefully leaving this world a little better than we found it.

Financial and Emotional Threats to Retirement

Certainly, there are financial challenges that you may face that you should address in order to live the lifestyle necessary to accomplish your mission. These financial challenges exist for many of us due to longer life spans, the decrease of defined benefit retirement plans, and the uncertainty surrounding programs such as Social Security and Medicare. Because of our longer life expectancies and the disappearance of guaranteed pensions, many Baby Boomers are choosing to cut back the hours that they work rather than retire. For some it becomes a phase-out period of their career, while others choose to commence an entirely new career.

I have had the privilege to work with financially successful people whose fourth phase of life is not threatened by financial insecurity. However, they may have confronted emotional challenges that surface due to their loss of identity. It’s common for a person in a management position of a large company to discover that many of the people they considered friends prove to have been what I refer to as “positional acquaintances.”

Once that person retires and no longer holds a position on the company’s organization chart, the remaining people on the chart begin to interact with the new leader and no longer interact with the retiree.

So regardless of whether the threat to your enjoyment of Phase 4 is financial and/or emotional, below is a list of potential remedies that should be helpful tools as you attempt to position yourself for an enjoyable victory lap of your life’s journey.

7 Remedies To Help You Enjoy Your Retirement

  1. Develop hobbies or participate in community service activities that will provide you with an outlet to use your time and talent.
  2. Diversify your group of friends to include individuals who are not from work.
  3. Be a disciplined contributor to your retirement plan. During Phase 2, always contribute at a minimum the amount that your employer will match. During Phase 3, consider contributing the maximum amount permitted.
  4. Consider phasing out of your career and/or commencing on a new career that is aligned with your time, talents and passions. Continuing to earn an income can afford you the option of delaying access to your retirement funds and Social Security benefits.
  5. Become familiar with your Social Security options. Waiting to access your monthly benefits until you’re 70 years of age can generate a 75 percent increase of your monthly benefit at age 62. With today’s life expectancies, doing so could provide significantly more retirement benefits to you or your spouse during your lifetimes.
  6. Examine your current lifestyle and determine what is important to you. Where possible, trim unnecessary activities and related expenses and begin shaping your desired retirement lifestyle.
  7. Leverage tax law to subsidize the cost of your chosen lifestyle. The American Taxpayer Relief Tax Act of 2012 added a complexity of additional tax brackets and disappearing tax deductions that are tied to income levels. As a result, tax bracket management, where you accelerate or defer income into low tax bracket year and deductible expenses into high tax bracket year has become more important. Proactive tax bracket management, coupled with disciplined investment of realized tax savings, can significantly enhance the cash flow available to you during your victory lap.

By applying the strategies above, the increased amount of cash you could realize during retirement could be the difference between enjoying your retirement or not enjoying it. Consider taking some of these steps today in order to enhance your chances of living your dream in the future.

Retirement Planning Help

If you’re unsure of what your future retirement holds, contact Rea & Associates. Our team of Ohio personal tax professionals can help you evaluate where you’re at currently and can help you map out where you want to go on your retirement journey.

Author: Frank Festi, CPA, CFP (Medina office)

 

Want to gain more tips for retirement planning? Check these blog posts out:

Retirement Is Knocking … Are You Ready To Answer The Door?

Will You Be Ready for Retirement?

What Are The Rules For Taking A Distribution from My 401(k) Plan?

 

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Why Should You Review Your Retirement Plan Documents Now?

Tuesday, March 4th, 2014

“If it’s not broken, don’t fix it.” A lot of people adhere to this philosophy, but in some cases, a review of how something works is not only helpful, it is required. If a business’s retirement plan seems to be working fine, and there doesn’t appear to be anything out of place, many employers believe there is no reason to review the provisions of the plan. This may be the case for a plan that was recently established, but it is always a good idea to review provisions every few years to ensure the plan is still meeting the goals of both the employer and its’ employees.  (more…)

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What Are Some Changes Plan Sponsors Can Expect To See In 2014?

Tuesday, November 26th, 2013

Every fall, just as we can expect the leaves to change colors and the weather to turn colder and a little dreary, we can also anticipate changes we will see coming in the following year with respect to employee benefit plans.  (more…)

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