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20 May 2013
Posted by ajcolores , in 401 K Plans

You spend thousands of hours caring for your loved ones and accumulating wealth. You should spend a few hours implementing...

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Frequently Asked Questions:

A. It depends on your plan and the laws that impact your plan. In some instances, when you leave the company, the vested portion of your account (see question above) is payable to you following the next valuation of the plan. Some plans are "valued" on an annual basis, while others are done on a semi-annual, quarterly, or even a daily basis. Before you leave employment, check with your employer for details.

A. Yes, the IRS does impose limits on these amounts which are adjusted for inflation annually. Your 401(k) payroll deduction limit for 2000 is $10,500. Also the total contribution amount which can be added to both retirement plans is either $30,000 or 25% of compensation, whichever is less.

A. There are several disadvantages to taking a loan from your retirement plan. The dollar amount "loaned" is no longer invested in stocks and bonds. Yes you are paying yourself interest, but you don't get ahead paying yourself interest, you do get ahead when someone else pays you interest. Think about it. The money you "borrow from yourself" is 401(k) money and thus pretax money. However, when you make 401(k) loan payments, you are making these loan payments from current pay which is after-tax money. Once your payment is in your 401(k) account, it is again considered pre-tax money, which will be taxed again when you take retirement distributions. So, not only have you lost out on the stock and bond earnings you could have made had you not disturbed your money, you also are being taxed twice on the amount. Think about this as well. If you leave your employer, your plan may require you to repay the loan. If you cannot repay, it will be treated as a taxable distribution - subject to all withholding and penalty taxes. Another option you may wish to consider is a home equity loan. The interest on home equity loans is usually deductible if you borrow under $100,000. Your retirement money continues to earn undisturbed. Some home equity loans may be available at better interest rates. Of course, like your mortgage, your home is the collateral for a home equity loan. This is a risk you must weigh. So, be sure you know all of the advantages and disadvantages of any loan you are considering before you sign on the dotted line.

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