How long do I have to roll over a retirement distribution?
You must complete the rollover by the 60th day following the day on which you receive the distribution. (This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution). The IRS may waive the 60 day requirement where failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. To obtain the waiver in most cases, a request for a letter ruling must be made which include the applicable user fee. Refer to Internal Revenue Bulletin 2006-01 to get the Internal Revenue Procedure for requesting a letter ruling. A written explanation of rollover must be given to you by the issuer making the distribution. For information on distributions which qualify for rollover treatment, refer to Tax Topic 413, Rollovers from Retirement Plans. For information on the Direct Rollover Option, refer to Chapter 1 of Publication 590, Individual Retirement Arrangements (IRA's).
References:
- Publication 17, Your Federal Income Tax
- Publication 575, Pensions and Annuity
- Tax Topic 413, Rollovers from Retirement Plans
Can I take an IRA deduction for the amount I contributed to a 401(k) plan last year?
No. A 401(k) plan is not an IRA. However, the amount you contributed is not included as income in box 1 of your W-2 form so you don't pay tax on it in the year you make the contribution. For more information, refer to Tax Topic 424, 401(k) Plans, Publication 575, Pension and Annuity Income, or Publication 560, Retirement Plans for Small Business.
References:
- Publication 575, Pension and Annuity Income
- Publication 560, Retirement Plans for Small Business (SEP, Simple, and Qualified Plans)
- Tax Topic 424, 401(k) Plans
Need help, what if I can't withdraw funds penalty free from my 401(k) plan to purchase my first home?
If I can't withdraw funds penalty free from my 401(k) plan to purchase my first home, can I roll it over into an IRA and then withdraw that money to use as my down payment?
Yes, if you are receiving a distribution from a 401(k) that is eligible to roll over into a IRA and you meet all of the qualifications for an IRA distribution for a first-time homebuyer. Your plan administrator is required to notify you before making a distribution from your 401(k) plan whether that distribution is eligible to be rolled over into an IRA. To see if you qualify for a distribution to be used as a first-time homebuyer, refer to Chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs).
References:
- Publication 560, Retirement Plans for Small Business (SEP, Simple, and Qualified Plans)
- Publication 575, Pension and Annuity Income
- Publication 590, Individual Retirement Arrangements (IRAs)
- Tax Topic 424, 401(k) plans
- Tax Topic 558, Tax on early distributions from retirement plans
- Tax Topic 412, Lump-sum distributions
If I retire or am laid off before I am 59 1/2, can I withdraw the funds accumulated in a 401(k) plan, without having to pay a 10% penalty?
In most cases, if you withdraw funds from your 401(k) plan before you are 59 1/2, you must pay the 10 percent additional tax on early distributions from qualified retirement plans on any amounts that are not rolled into an IRA. However, there are some exceptions listed in Publication 560, Retirement Plans for Small Business, and Publication 575, Pension and Annuity Income.
References:
- Publication 575, Pension and Annuity Income
- Publication 560, Retirement Plans for Small Business
- Tax Topic 558, Tax on Early Distributions From Retirement Plans
- Tax Topic 412, Lump-Sum Distributions
Can I withdraw funds penalty free from my 401(k) plan to purchase my first home?
If you are under the age of 59 1/2, you cannot withdraw funds from your 401(k) plan to purchase your first home without being subject to a 10 percent additional tax on early distributions from qualified retirement plans. However, depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) plan as well as other plan rules.
References:
- Publication 575, Pension and Annuity Income
- Publication 560, Retirement Plans for Small Business
- Tax Topic 424, 401(k) Plans
- Tax Topic 558, Tax on Early Distributions From Retirement Plans
This is the first year that I received retirement benefits. Are any of my benefits taxable?
If you receive retirement benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partly taxable in the year received. Refer to Tax Topic 410, Pensions and Annuities, for detailed information, or Publication 575, Pension and Annuity Income. For social security and equivalent railroad retirement benefits, refer to Tax Topic 423 or Publication 915, Social Security and Equivalent Railroad Retirement Benefits.
References:
- Publication 575, Pension and Annuity Income
- Publication 915, Social Security and Equivalent Railroad Retirement Benefits
- Tax Topic 410, Pensions and Annuities
- Tax Topic 423, Social Security and Equivalent Railroad Retirement Benefits
What happens to non-vested money in 401k after employment termination?
Some employers puts conditions on matching of 401k. Applying vesting schedule to matching amount is one of the popular way. Remember that what you contribute to 401k is your own money and vesting does not apply to it and it applies to only matching amount contributed by your employer.
So when you leave your job, your non-vested money (of matching money) will be taken away by your employer. Not only that earnings on that non-vested money is also taken away.
That's why employers use this way as retention tool.
What is 401k?
A 401k is a retirement plan offered by employer to its employees where employees can save and invest their money. Of course you employer has to offer this plan and most offer this plan or comparable other retirement plan. With your authorization, fixed money is cut from your each paycheck before tax and put into your 401k account. This account is normally held by brokerage/bank/finance company like Fidelity, Vanguard, Etrade etc.
You are allowed to contribute maximum upto $15500 for year 2007. For those with age over 50, there is extra catchup contribution limit of $5000.
On top of this your employer may match certain part of your contribution which is extra free money! Never miss that! Also it may have vesting schedule.
NOTE: Remember in 401k tax is deferred, not eliminated!