Assuming you are familiar with the basics, you're ready for more intermediate topics. Not all of these will apply to everyone, so you need to see which ones cover your situation.
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Vesting. Employer plan contributions (e.g the match) may be subject to vesting. (Your payroll deductions are not, though.) This means that you have to remain employed for a period of time to receive the money if you leave employment. Vesting can be either gradual, or all at once, usually on a calendar-year basis. Something to think about if you are changing jobs; it may be wiser to do this after vesting time elapses.
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Rollovers. You can convert one retirement account into another, within broad limits. You can roll over employer plans into individual plans, or vice versa, or just change who holds your account. Rollovers have to be of the same type, traditional vs. Roth, unless you convert. Rollovers typically are done in cash, though sometimes you can keep the same funds or individual stocks by doing an in-kind rollover. The best way to do a rollover is directly between custodians, since if you get a check made out to you, you'll have taxes withheld, and have to make up for those. Rollovers are a good way to deal with old 401k accounts; roll then over into a traditional IRA, or your new 401k if they allow that. Rollovers don't count as contributions and so don't affect annual contribution limits.
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Conversions. You can convert a traditional IRA into a Roth IRA if you pay taxes on it as earned income. There's no penalty even if you are less than 59.5. But it could be a lot of taxes, since it would be counted as a bonus on your regular income, so a high marginal rate. You also can't take money out of the account to pay these. This is only recommended if you have low income in a year when you do this; for example, early retirement years. You can also "undo" a conversion if you change your mind, with a "recharacterization."
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How do you make a Roth IRA contribution even if you make too much to be eligible to contribute? (That's about $118K AGI for a single filer.) The not-so-obvious solution is: the Backdoor Roth uses a loophole to convert a nondeductible traditional IRA to a Roth IRA, as there is no income limit for such contributions or conversions. The only limit on backdoor Roth contributions is: they don't work well when you also have traditional IRAs, so a good reason to avoid these if you see a Backdoor Roth in your future. (If you do have a traditional IRA, try to roll it into your 401k to clear this situation.)
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Distributions. So, you want to get money out, eh? If you are 59.5 or older, problem solved; request a distribution. (You can take money out of a 401k once you turn 55 if you retired from the job with the 401k.) You'll have taxes withheld from a traditional account, but no taxes from Roth (as long as the Roth is at least five years old). If you are under 59.5, then you will also a pay a 10% tax penalty, unless this is one of the approved loopholes for traditional or Roth IRAs, which include medical bills, higher education expenses, and up to $10K for a house downpayment. Remember that you can always withdraw Roth IRA contributions with no taxes and no penalties. 401k rules are generally more restrictive, and don't have the education / downpayment exceptions.
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401k loans. At the discretion of your employer, you might be able to take a loan of up to 50% of your 401k balance, and then repay it (to yourself!) with interest. This sounds more appealing than it really is, though; you may lose the ability to make new contributions; you lose investment gains on the money loaned; and if you leave employment, the loan balance may become payable in 60 days, or else will be treated as a distribution with taxes and penalties. So, while people do these, think twice.
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Government / nonprofit accounts. Here's a handy decoder ring to government plans. tl,dr: 403b? Like a 401k. 457b? Also like a 401k. But you might have both! And, no penalty on 457b withdrawals, just taxes. Thrift Savings Plan (TSP)? Like a 401k. (People with a TSP probably also are eligible for a FERS pension, too.) 401a plan? Despite the name, this is only sort of like a 401k, with more employer control and fewer choices.
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Small-business and self-employment plans. A SIMPLE IRA is an oxymoron: an individual retirement plan with employer contributions, for companies with up to 100 employees. The employee owns the IRA, can defer a percentage of payroll, and the employer puts money into it, either a match or directly. A SEP-IRA can be used by either small business or self-employed people. Employer contributions can be up to 25% of income or $53,000. Employees can also contribute to a SEP-IRA. It's also possible for self-employed people to make a solo-401k, which is like a do-it-yourself 401k, only you can give yourself generous employer contributions in some cases, up to $54,000 if you make a lot of self-employment income.
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Funding early retirement. Want to get your IRA/401k money penalty-free before age 59.5? Here's how. We already mentioned taking out Roth contributions, as well as the age 55 loophole on 401ks upon retirement. You can also do a conversion ladder, where you take money from a traditional account, convert it to Roth, pay the taxes, then withdraw it penalty-free after five years. You put money in each year to take it out five years later, basically. Last but not least, you can do a series of substantially equal period payments, e.g. annually. There are a number of rules about how much you can take, and whether you can change this. You can start this at any age, but once you start, you can't put more money in, though. Needs careful planning.
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For most people, the relevant advice would be: roll over 401ks if you leave a job; convert to Roth only if you can afford the taxes; don't use 401k loans unless you understand the costs and risks; Backdoor Roth IRAs are you friends.
Hope you enjoyed this. There are a still a few more advanced topics that only apply to special circumstances or to people older than the typical reddit users, but a subject of another post.
Submitted May 30, 2017 at 04:36PM by yes_its_him http://ift.tt/2qwKOAN
