What you should know about your 401k to effectively manage and maximize your savings

401k Basics: From Contributions, to Loans and Distributions

The TDS Library



For most people, a 401k will be a vital part of their retirement yet many do not take the time to understand how a 401k works, how to manage it effectively, or their options for taking distributions from the 401k once they retire. From contributions, to loans and distributions, here is what you should know about your 401k to effectively manage and maximize your 401k retirement savings from your first contribution all the way to your last distibution.

401k

401k Contributions and Management

If you've never had a 401k retirement plan before there are some things that you'll need to learn. It's not like opening up an account at your local bank. Yes, there's some paperwork, but there are also some terms and considerations that you may not know. You'll need to become familiar with administrators, learn about your investment options, find out about matching funds and beneficiaries. Don't let a lack of knowledge keep you from benefitting from a 401k retirement plan. There's nothing so complicated that you won't be able to understand it. Just learn about it one step at a time.

401k Definitions

Most of us will come across words that we've never heard before when we learn about 401k's. Words and phrases like "ERISA", "lump-sum distribution" and "rollover". They're easy to understand once you've been exposed to their definitions. This article will help you understand the most commonly used 401k terms. Read more...

How to Set Up Your First 401k

Your company offers a 401k plan. It is a great way to save, but like any tax advantaged government program there are some hoops that you'll need to jump through. Your company's HR department will try to help, but they're not 401k experts. So you'll need to take some time to learn exactly how a 401k works. Find out what you can and cannot do with a 401k. When and how you can access your money. Where it can be invested. Here is what you need to know to maximize your 401k savings for retirement. Read more...

Traditional 401k Basics

A 401k plan is designed to do two things: help you save for retirement and reduce your current year taxable income. It can include contributions from both the employer and the employee. The employee reduces his taxable income by the amount contributed to the plan. Each year the IRS sets limits as to how much an employee can contribute to the plan and deduct from their taxes. The employer may also choose to contribute. Usually as a match or partial match to the employee's contribution. Investments within the plan grow tax free and are taxed when money is withdrawn from the account. With certain exceptions, assets may not be withdrawn without penalty before the employee reaches age 59 1/2. Read more...

Roth vs Traditional 401k

They sound like the same thing, but there are some very important differences between a Roth 401k and a traditional 401k. Those differences can mean that one is much more appropriate for you. How and when you're taxed are the key elements. You need to understand the similarities and differences to get the most out of the investment in your retirement. Failure to choose correctly between a Roth and a traditional 401k could have a major impact on your investment's performance. Read more...

401k Contribution Basics

There are rules as to who can contribute to a 401k and how much they contribute. The rules aren't complicated, but you need to know them if you're going to get the most from your 401k retirement plan. The limits are based on how much you earn during the year. Read more...

Choosing Beneficiaries for a 401k Plan

Choosing beneficiaries for your 401k plan could be one of the most important decisions you make. It can make a big difference in how your 401k is distributed if you die. It is not as easy as HR department might say. Can you choose non-relatives as a beneficiary? How about a minor? What happens if you don't list a beneficiary? Find out how to make sure your money goes where you want if you pass away. Read more...

What If Your Employer Doesn't Contribute?

Should you still contribute to a 401k plan if your employer doesn't contribute? Some financial planners argue that you're better off paying income taxes before the money earns more money. Especially if your employer doesn't contribute. But, is that true in all cases? Consider the factors that can help you decide whether accumulating tax deferred is better than paying taxes now. Read more...

Should I Contribute to a 401k When the Market Is Bad?

When the stock market is dropping it's hard to justify adding to your 401k plan. Should you continue to contribute (or even close) your 401k plan when the market is bad? Many people will make the wrong decision. The historical statistics can help you answer that question. And you might be surprised by what the stats show. Read more...

Contribute to a 401k or Pay Off Debt?

When you don't have enough income for everything you have to make some choices. Especially if you're paying interest on debts. Is it wise to stop contributing to a 401k in order to pay off debts? There's a way to tell and the math isn't that complicated. Choosing the right path now could make your financial life much easier. Read more...

401k Loans

Sooner or later most of us need a loan for one thing or another. So rather than borrow from someone else and pay high interest rates, wouldn't it make sense to borrow the money from your 401k retirement plan? In effect you'd be borrowing from yourself? In some cases it does make sense. But not always. Before you borrow from your 401k plan you need to know more about what tax laws and rules apply.

401k Loans

Most plans allow you to borrow money from your 401k and pay the money back over time. It seems like a good place to borrow - from yourself. Low rates and you're paying interest into your own account. What could be better. But before you take a 401k loan you need to know all the rules and regulations to avoid creating a problem later. There are some drawbacks to a 401k loan that you need to consider before you get started. Read more...

401k Loan Trap

401k loans are popular. But there are some rules that could come back to bite you under certain circumstances. Before you take out a 401k loan you need to know about the 401k layoff trap. If you're not careful losing your job could cost you a lot of money, too! Read more...

How a 401k Loan Affects Future Wealth

You borrow from your 401k and you pay back the loan. No big deal. Seems like a win/win. Right? But experts say that can affect how much you have available when you retire. If that's the case you need to understand how a 401k loan can affect how much you have accumulated when you retire. Read more...

Using Your 401k to Pay Off Debts

High interest credit card debt can make it almost impossible to pay your monthly bills. Is it wise to withdraw money from your 401k to pay off high interest credit card debts? And, if you do, could the withdrawal qualify as a 'hardship'? Read more...

Using a 401k Loan to Buy a Car

Many people finance an auto purchase. You can borrow from the dealer, your bank or from your 401k plan. Borrowing from your 401k is like borrowing the money you've already saved. Is there any reason you shouldn't use a 401k loan to buy a car? Before you make a decision there are some things about a 401k loan that you need to know. Read more...

401k Loan vs. a Second Mortgage

Does it make sense to pay off a 401k loan with a second mortgage? The mortgage interest is deductible. The interest on a 401k loan is not. Is that reason enough to make the switch? Here's how to make an intelligent decision. Read more...

Using a 401k Loan to Repay a Personal Loan

Which is better? Borrowing from someone else or from your retirement plan? No one answer is right for everyone. Borrowing from your 401k will probably mean a lower interest rate now. But a smaller fund when you retire. There are ways to decide which is best for you. Read more...

Using a 401k Loan to Pay for Remodeling

Financing a home remodeling project through a 401k loan could be your best choice. But, not always. There are certain things to consider before you make up your mind. For instance, could the fact that the interest rate on a 401k loan be lower than from a bank be a problem instead of a benefit? And what happens to the loan if you leave your employer? Read more...

401k Distributions

You've been adding to your 401k retirement account for years. Month by month. Dollar by dollar. Now it's time to begin distributions. Before you begin any distributions you'll need to learn the rules. Since your 401k is a tax advantaged plan, failure to make proper distributions could cost you.

401k Retirement Distributions

Now that you're nearing retirement it's time to find out how your 401k will be distributed when you do retire. At age 70 1/2 there's something called a required minimum distribution. You'll need to know how to calculate it. If you don't follow the distribution rules you could face IRS penalties and extra taxes! Read more...

What to Do With Your 401k When You Leave Your Job

Whether you've taken another job, been laid-off or fired, you're leaving your old employer. You'll have many decisions to make. Among them is what to do with your 401k plan. Can you leave it with the current administrator? Or do you have to take it with you? You have a number of different options. Some are better than others. We'll explain how to decide what's best for you. Read more...

Can I Lose My 401k If My Employer Goes Under?

Friends say you could lose your 401k if your employer goes bankrupt. That the company lenders can take your account. Understanding how your 401k works and who owns the account can put your mind at ease. Let's see what the law says. Read more...

Summary

A 401k retirement plan can be the cornerstone to a comfortable retirement. Used properly it's a wonderful tool. Like any tax-advantaged plan there are certain rules that you'll need to follow. But with a little education you'll easily be able to manage your 401k retirement plan and use it to support a long and happy retirement.


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