Roth 401(k) Plans At A Glance

Roth 401(k) Plans At A Glance

A Roth 401(k) plan is a retirement savings option that combines aspects of a Roth IRA plan Another contrast between a Roth 401(k) plan and a traditional 401(k) plan is that the former allows the account holder to make contributions with both pre-tax and post-tax dollars. This means that the account holder, through their employer, can make contributions at any time just as long as those contributions do not exceed the 401(k) limit.

Traditional 401(k) plans only accept contributions made with pre-tax dollars meaning that contributions are taken from the employee’s wages before the employee receives them. Another difference between to two 401(k) plans is that the distribution of funds from a Roth 401(k) must occur when the account holder has reached the age of 70.5. However, if the account holder transferred the Roth 401(k) into a Roth IRA after leaving employment, the funds can be withdrawn upon reaching the age of 59.5.

The availability of Roth 401(k) plans was intended to be terminated at the close of 2010 under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This act made considerable amendments to the Internal Revenue Code including Sections 401 and 402A. However, under the Pension Protection Act of 2006 (PPA), the availability of Roth 401(k) plans has been extended.

What Are 457 Plans

What Are 457 Plans

A 457 deferred compensation plan is a retirement plan which allows government, and some non-government, employees to save money for retirement. The 457 plan must be offered by the employer as a retirement option in order to create an account. The Internal Revenue Service (IRS) does not consider the 457 deferred compensation plan to be a qualified retirement plan. A qualified retirement plan is any plan the meets the basic requirements under Section 401A of the Internal Revenue Code and the 401(k) plan 457 plans do not permit employers to make matching contributions as with a 401(k) plan.

This means that the amount of the retirement package received annually at retirement age is based solely upon the contributions made by the employee into the 457 account. Unlike a 401(k) retirement plan, an employee with a 457 deferred compensation plan can make withdrawals at any time and not be penalized for the withdrawn amount. The employee must still pay federal income taxes on that money withdrawn, but he or she will not have to pay an excise tax. An excise tax is a 10 percent penalty placed on the funds taken out of a 401(k) plan.

Most 457 deferred compensation plans allow employees to have the option to create 401(k) plans and 403(b) plans to help prepare for retirement. This means that the employee can make contributions up to the mandated limit as set by the IRS. For 2009 and 2010 the limit is $16,500, meaning an employee can make annual contributions of up to $16,500 in all three accounts without being penalized. However, non-government 457 plans do not permit 457 contributions to be transferred to many retirement plans, i.e. a 401(k) plan.

457 plans function as they do because of the changes made under the Non-governmental 457 plans are available to some non-profit organizations and educational institutions. The reason these non-government organizations are able to utilize 457 plans is because they cannot offer any other non-qualified deferred compensation plans for retirement. However, some of these organizations, depending on which 457 plan they offer may be subject to additional taxes.

One such tax is noted under Section 409A of the Internal Revenue Code which was passed in 2004. Also, the contributions placed in a 457 deferred compensation plan cannot be placed in a trust under the Internal Revenue Code because the funds set aside for retirement in this plan must remain in the ownership of the account holder.

401(k) Plans At A Glance

401(k) Plans At A Glance

A 401(k) plan is an employer administered retirement plan which is listed under the Internal Revenue Code as a qualified retirement plan. The section of the Internal Revenue Code to allow people to save for retirement in a 401(k) withdrawal Another type of 401(k) plan is a Roth IRA

Yet another plan that is similar to a 401(k) is a 457 plan. These plans are available to government employees and some non-government organizations. The Internal Revenue Services does not consider 457 plans to be qualified retirement plans. However, like a 401(k), 457 plans allow the account holder to contributions into a deferred compensation retirement plan. The funds, whenever they are withdrawn, are always subject to federal income taxes.

Easy Guide to 401(k) Withdrawals

Easy Guide to 401(k) Withdrawals

 As 401(k) plans are designed for the retirement of an employee, there are specific regulations, limitations, and penalties associated with any 401(k) withdrawals. Any distributions made from a 401(k) withdrawal are to be made when the account holder is at least 59.5 years old. This places the account holder close to retirement age and therefore more able to plan his or her retirement. Many employers do not permit 401(k) withdrawals if the employee is under the age of 59.5 for tax purposes.

401(k) withdrawals made before the mandated withdrawal age are subject to taxes imposed by the Internal Revenue Service (IRS). One such tax is the excise tax which is equal to 10 percent of the 401(k) withdrawal amount. This tax may be avoided if the withdrawn amount is less than the limit of an allowable deduction under Section 213 of the Internal Revenue Code. Section 213 allows deductions to be made on specified medical care (e.g. hospital stays or

Another reason that money maybe taken out of a 401(k) plan is if the employee changes jobs. In this situation, the employee typically makes a full 401(k) withdrawal so that the contributions can be placed in a new 401(k) plan with a different employer. Employees typically do not pay any taxes on this transfer unless the employee first “cashes out”, or withdraws the money completely and does not place it in another 401(k) through a rollover.

The employee, even if he or she changes jobs, may continue to make contributions to a 401(k) plan with a former employer. This has to be permitted by the former employer and the employee must be under the age of 65 and have at least $5,000 in the 401(k) plan.

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