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Taking Money Out Of 403B

January 18, 2010

Taking Money Out of A 403b – Just the Facts 403b plans were put into place by congress in 1978. A 403b retirement plan allows a worker to save for retirement through a company sponsored retirement savings program. 403b plans allow you to save while investing and deferring current income taxes until later withdrawal of the funds upon retirement. For employees of companies that offer 403b plans, they can choose to have their wages paid directly into the account. Some employers even match part or all of the employee’s contribution. The funds that are deducted from your payroll receive tax deferral treatment while invested in the retirement plan. If you leave your employer prior to retirement, or at time of retirement you can do a 403b rollover into IRA. This IRA account is a self directed retirement account and will offer more in If you have a 403b and are finding yourself facing money troubles, you may be wondering what the rules are about tapping into some of that cash. As you probably already know, virtually all employers have severe restrictions in place concerning withdrawals. The heaviest restrictions are for those people who are still with the company and are under the age of 59 1/2. typically the IRS imposes a 10% penalty for early withdrawals. When can you take money out of a 403b retirement account? Here are the facts:

Fact #1: You may start taking money out of your 401K at age 59 1/2 without paying penalties: Once you reach the age of 59 1/2, you may start withdrawing funds from your 403b. You still must pay taxes on the income at the standard income tax rate, however. Remember, the money in your 403b represents deferred income, not tax-free income. However, if you want to withdraw from your plan before that age, you will be subject to a 10% excise tax – along with owing income taxes on the money, of course.

Fact #2: You are required to start taking money out at age 70 1/2 or after retiring, this is caled required minimum distributions (R.M.D.) Account owners are required by law to start withdrawing from their accounts by April 1 of the calendar year after turning 70 1/2 (or by April 1 of the calendar year after retiring, whichever comes later). The distribution amount varies and is based upon life expectancy tables created by the IRS.

Fact #3: You can borrow up to 50% of your vested 403b balance: Depending upon your plan, you may be eligible to take out a loan against your 403b. This usually requires a $1,000 minimum loan amount. You must pay a reasonable rate of interest on this loan. However, the interest paid goes right back into your account – so, you are effectively paying yourself this interest. There is a maximum payback period of five years and payment amounts must be equal and evenly spread out (e.g., quarterly).

Fact #4: There are exceptions to the 10% early-distribution penalty: In some cases, you do not have to pay a penalty for withdrawing money early from your account. Such reasons include: the employee’s death, the employee’s total and permanent disability, separation from service in or after the year the employee reached age 55, a qualified domestic relations order, and for deductible medical expenses (exceeding the 7.5% floor). Note that some employers may disallow one, several, or all of these “hardship causes.” Know the facts about your 403b plan 403b rollover options  and you will be prepared to access the money in your account at the most appropriate time and in the way most beneficial to you.

Published At: Isnare Free Articles Directory http://www.isnare.com Permanent Link: http://www.isnare.com/?aid=409424&ca=Finances Posted in Uncategorized

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403B Retirement Plan Rollovers

January 13, 2010

403B Retirement Plan Rollovers

A 403B rollover is the reassignment of a lump-sum distribution from a qualified Retirement plan into another qualified plan (typically an IRA). Retirement Plan Rollovers typically occur once employees leave a job or retire early. When a
Distribution is rolled over, qualified plan participants and IRA owners are able to remain Accumulating funds on a tax-deferred basis because the funds are simply moved from one qualified Plan to A new qualified plan. If Executed appropriately no taxes or penalties apply. Generally, any amount from a participant’s account in an eligible retirement plan can be rolled over.

Eligible Qualified plans Encompass the following:
• IRAs
• pensions
• profit-sharing plans
• SEPs
• SIMPLE plans
• 403(b) plans
• 401(k) plans

Receiving qualified plans can also include any of these eligible plans, although qualified employer plans are Not obligatory to accept Retirement Plan Rollovers.

Direct and Indirect 403B Rollovers

A 403B retirement Plan rollover can be accomplished in one of two ways: Directly or indirectly. A direct retirement Plan rollover transfers Funds directly from the trustee of the distributing plan to the trustee of the receiving plan. A Participant is not involved with the transaction, other than to initiate it. All qualified plans must
Include an option that allows participants to directly transfer eligible plan funds to another plan or Another trustee. Once funds have been rolled over, they are governed by the rules of the new plan into Which they have been deposited.

An indirect retirement Plan 403B rollover is one in which the plan fund funds are dispersed to the individual participant, Who then deposits them with a another trustee. The participant has 60 calendar days in which to deposit
The funds into the new plan. If the rollover is not concluded during the 60-day period, then an actual Distribution is deemed to have been made, and taxes and applicable penalties apply. The IRS may Waive the 60-day requirement where the failure to waive it would be against equity or good Conscience. For example, a waiver might be granted if a person could not complete a rollover within The prescribed time period due to casualty, disaster, or other events beyond his or her reasonable Control. Participants who elect an indirect rollover from a qualified employer plan must be aware of the
Mandatory 20 percent withholding requirement—20 percent of the rollover will be withheld by the Distributing trustee as federal income tax. This tax is forced even if the participant plans to roll over The distribution later to another qualified retirement plan or to an IRA. The 403B rollover rules require that the full amount withdrawn, including the 20 percent withheld, be Deposited into the new plan. To the degree that the participant does not make up the 20 percent, then a Distribution is deemed to have been made and is taxed accordingly.

Example One:
John receives a $10,000 retirement Plan rollover distribution from his 403(b) plan after leaving his job. The employer Withholds $2,000, so John actually receives a check $8,000. If he wants to roll over the complete $10,000 To postpone including that amount in income, he will have to get $2,000 from another source to add to
The $8,000 he actually received. If John rolls over only $8,000, he must include the $2,000 not rolled Over in his income for the distribution year. John may also be subject to the 10 percent premature Distribution penalty tax if he is under age 59½.
It should be noted that the 20 percent withholding rule only applies to rollovers from qualified Employer plans; it does not apply to rollovers from IRAs. Also, only one rollover is usually allowed In any 12-month period.

403B Rollovers to Roth IRAs

A Plan distribution from a qualified employer plan that is eligible for rollover treatment can now be rolled Over directly to a Roth IRA. Previously, such distributions could be rolled over only to regular IRAs, And then the regular IRA could be converted to a Roth.

To roll over a distribution from a qualified Retirement plan to a Roth IRA, the following two requirements must be met:
• The distribution from the qualified employer plan must be one that is eligible for rollover
Treatment (i.E., it cannot be a required minimum distribution).
• The individual’s income must be below $100,000.*
* The income limit for conversion of qualified plan assets into Roth IRAs is eliminated after 2009.

Retirement Plan Distributions

Taxation of Distributions
The income taxation of distributions from qualified plans and IRAs (other than Roth IRAs) follows a Simple rule: Funds that were not taxed before distribution will be taxed once they are distributed. In Other terms, if a plan participant made nontaxable contributions to a plan and the earnings grew tax Deferred over the years, the entire amount of those earnings and those contributions will be taxable When distributed.

Case in point #1
This year, Tim earned $70,000 and contributed $10,000 to his 401(k) plan, which reduced his taxable Income to $60,000. For the next ten years, Jake contributed $10,000 each year to his 401(k) account. At retirement, Jake’s 401(k) plan had grown to $150,000. Since Tim contributions were fully Deductible when made, any distributions he receives, together with the earnings on his contributions, are Fully taxable. Several individual IRA or SEP-IRA plans may contain both deductible and nondeductible Contributions. Or, in the case of a few traditional IRAs, only nondeductible contributions may have Been made. Accordingly, when these amounts are distributed, a portion of the distributions will be Taxable and a portion will be tax free. The nondeductible contributions represent the person’s cost Basis (or investment in the contract). These amounts, when distributed, are not taxed. Only that part of
The distribution that represents deductible contributions, if any, and interest earnings will be taxed When distributed.

Illustration #2
Linda owns a traditional IRA and has made $3,000 in nondeductible contributions to the plan for the Past 20 years. When she reaches age 60, she decides to retire and take a lump-sum distribution from Her IRA. She can recover an amount equal to her cost basis ($60,000) tax free; the remaining amount Will be considered interest wages and will be subject to ordinary income taxation.

Roth IRAs

A Roth IRA is the mirror image of a traditional IRA. Rather than providing the upfront tax savings on Contributions, which is the characteristic of the traditional IRA, the Roth IRA allows Tax levy savings on the Other end—when the participant withdraws the account funds. In other words, Roth IRA owners can Render nondeductible contributions only. However, these contributions and their earnings are fully tax
Free when withdrawn, as long as the account has been held for at least five years and the owner is 59½ or older.

If these two requirements are not met and a withdrawal is taken, the withdrawn earnings on invested Roth contributions are subject to tax and a penalty. In this case, the withdrawal will be taxed on a First-in, first-out (FIFO) basis, which means that contributions will be considered the first amount that Is withdrawn .Only when aggregate withdrawals exceed total contributions are those amounts subject To potential tax and penalty.

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403B Rollover Choices

January 12, 2010

403B Plan Rollovers.  A rollover is the transport of a lump-sum distribution from a qualified Retirement plan into another qualified plan (typically an IRA). 401K Plan Rollovers typically occur once employees leave a job or retire early. When a Distribution is rolled over, qualified plan participants and IRA owners are able to carry on Accumulating funds on a tax-deferred basis because the funds are simply moved from one qualified Plan to A new qualified plan. If Executed appropriately no taxes or penalties apply. Generally, any amount from a participant Eligible Qualified plans Encompass the following: • IRAs • pensions • profit-sharing plans • SEPs • SIMPLE plans • 403(b) plans • 401(k) plans Receiving qualified plans can also include any of these eligible plans, although qualified employer plans are Not mandatory to accept Retirement Plan Rollovers. Direct and Indirect Rollovers A retirement Plan rollover can be accomplished in one of two ways: Directly or indirectly. A direct retirement Plan rollover transfers Funds directly from the trustee of the distributing plan to the trustee of the receiving plan. A Participant is not involved with the transaction, other than to initiate it. All qualified plans must Include an option that allows participants to directly transfer eligible plan funds to another plan or Another trustee. Once funds have been rolled over, they are governed by the rules of the new plan into Which they have been deposited. An indirect retirement Plan rollover is one in which the plan fund funds are dispersed to the individual participant, Who then deposits them with a brand new trustee. The participant has 60 calendar days in which to deposit The funds into the new plan. If the rollover is not concluded during the 60-day period, then an actual Distribution is deemed to have been made, and taxes and applicable penalties apply. The IRS may Waive the 60-day requirement where the failure to waive it would be against equity or good Conscience. For example, a waiver might be granted if a person could not complete a rollover within The prescribed time period due to casualty, disaster, or other events beyond his or her reasonable Control. Participants who elect an indirect rollover from a qualified employer plan must be aware of the Mandatory 20 percent withholding requirement—20 percent of the rollover will be withheld by the Distributing trustee as federal income tax. This tax is forced even if the participant plans to roll over The distribution later to another qualified retirement plan or to an IRA. The rollover rules require that the full amount withdrawn, including the 20 percent withheld, be Deposited into the new plan. To the degree that the participant does not make up the 20 percent, then a Distribution is deemed to have been made and is taxed accordingly. Example John receives a $10,000 retirement Plan rollover distribution from his 401(k) plan after leaving his job. The employer Withholds $2,000, so John actually receives a check $8,000. If he wants to roll over the total $10,000 To postpone including that amount in income, he will have to get $2,000 from another source to add to The $8,000 he actually received. If John rolls over only $8,000, he must include the $2,000 not rolled Over in his income for the distribution year. John may also be subject to the 10 percent premature Distribution penalty tax if he is under age 59½. It should be noted that the 20 percent withholding rule only applies to rollovers from qualified Employer plans; it does not apply to rollovers from IRAs. Also, only one rollover is normally allowed In any 12-month period. Rollovers to Roth IRAs A Plan distribution from a qualified employer plan that is eligible for rollover treatment can now be rolled Over directly to a Roth IRA. Previously, such distributions could be rolled over only to regular IRAs, And then the regular IRA could be converted to a Roth. To roll over a distribution from a qualified Retirement plan to a Roth IRA, the following two requirements must be met: • The distribution from the qualified employer plan must be one that is eligible for rollover Treatment (i.E., it cannot be a required minimum distribution). • The individual’s income must be below $100,000.* * The income limit for conversion of qualified plan assets into Roth IRAs is eliminated after 2009. Retirement Plan Distributions Taxation of Distributions The income taxation of distributions from qualified plans and IRAs (other than Roth IRAs) follows a Simple rule: Funds that were not taxed before distribution will be taxed once they are distributed. InOther terms, if a plan participant made nontaxable contributions to a plan and the earnings grew tax Deferred over the years, the entire amount of those earnings and those contributions will be taxable When distributed. Illustration #1 This year, Tim earned $70,000 and contributed $10,000 to his 401(k) plan, which reduced his taxable Income to $60,000. For the next ten years, Jake contributed $10,000 each year to his 401(k) account. At retirement, Jake’s 401(k) plan had grown to $150,000. Since Tim contributions were fully Deductible when made, any distributions he receives, as well as the earnings on his contributions, are Fully taxable. A few individual IRA or SEP-IRA plans may contain both deductible and nondeductible Contributions. Or, in the case of certain traditional IRAs, only nondeductible contributions may have Been made. Accordingly, when these amounts are distributed, a portion of the distributions will be Taxable and a portion will be tax free. The nondeductible contributions represent the person’s cost Basis (or investment in the contract). These amounts, when distributed, are not taxed. Only that part of The distribution that represents deductible contributions, if any, and interest earnings will be taxed When distributed. Case in point #2 Linda owns a traditional IRA and has made $3,000 in nondeductible contributions to the plan for the Past 20 years. When she reaches age 60, she decides to retire and take a lump-sum distribution from Her IRA. She can recover an amount equal to her cost basis ($60,000) tax free; the remaining amount Will be considered interest income and will be subject to ordinary income taxation. Roth IRAs A Roth IRA is the mirror image of a traditional IRA. Rather than providing the upfront tax savings on Contributions, which is the feature of the traditional IRA, the Roth IRA tax savings on the Other end—when the participant withdraws the account funds. In other words, Roth IRA owners can Present nondeductible contributions only. However, these contributions and their earnings are fully tax Free when withdrawn, as long as the account has been held for at least five years and the owner is 59½ or older. If these two requirements are not met and a withdrawal is taken, the withdrawn earnings on invested Roth contributions are subject to tax and a penalty. In this case, the withdrawal will be taxed on a First-in, first-out (FIFO) basis, which means that contributions will be considered the first amount that Is withdrawn .Only when aggregate withdrawals exceed total contributions are those amounts subject To potential tax and penalty. s account in an eligible retirement plan can be rolled over.

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The Best Retirement Decision Made

January 3, 2010

Relax During Retirement By Rolling Over Your 403B to an Annuitie

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With the downturn in the economy affecting so many people I know, I’ve become even more grateful than before that my husband and I both have pretty stable positions in relatively recession-proof industries. However, with stock values tumbling, the ones I grew concerned about most are my parents. Since they’ve been retired for over a decade, and I know their property taxes keep increasing and increasing while their income remains fixed, I wondered how they were coping.

Apparently, I needn’t have worried too much about them. Just as I was trying to find a way to tactfully broach the subject of money, Mom and Dad excitedly called to tell me of their plans to visit Italy for the first time. Well! They’re obviously not too anxious about their funds disappearing.

It turns out my folks have followed some good investing advice. They’ve never been wealthy—my dad worked for the same small firm his entire career—but they’re fortunate enough to be comfortable. And now they’re thoroughly enjoying retirement, even though their stocks aren’t paying the same dividends as before. The advice they followed was basic: diversify. One of the instruments they chose to invest in was a deferred annuity. There are many types of annuities; what my parents chose was a product that they were able to invest in, tax-deferred, while they were working. During that time, the interest was compounded on both principal and earnings without taxes and without risk. Now that they’re retired, that long term growth is paying off with a guaranteed income.

My parents have enjoyed a number of years of retirement, and I certainly hope they enjoy many more. The increase in life expectancy means all of us need to plan to live off retirement savings for quite a while. Among the types of annuities available, a deferred annuity allows the option of a guaranteed income stream for life. This guarantee has allowed my parents, and others who were fortunate enough to get good advice early, as they did, to relax about enjoying their retirement years. I started a modest annuity of my own a number of years ago; now I am about to rollover my 401k into an annuity so I can have a retirement vehicle that I will not have to worry about outliving my income while I am retired.

Source: http://www.ArticlePros.com/author.php?Elle Wood 

Contact: mikekench@gmail.com

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