401K Catchup

If you're sick of hunting the web for 401K Catchup help, you're at the right place! This page is loaded down with explanations on how 401k's work plus there are all kinds of tips, tricks and questions asked most often you can go over and hopefully learn from. We hope you find this page to be helpful and informative for you! Choosing the right retirement program can be a bit overwhelming if you don't know what to look for, so we've set this page up with as much 401 k information as we could get for you and made sure it's easy and painless for you. Here you go...

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Why it's smart to have a 401k:

There are many advantages to saving for retirement through your workplace retirement savings plan, including a potential match from your company, as well as professional management of your investments. The best reason to save in your plan is plain and simple: it's up to you to save and invest for your own future.

Here are seven more reasons:

* You can increase your take home pay, really
* A company match can help your investments grow
* Automatic payroll deduction makes it easy to save
* Most of your plan's investment choices are managed by professionals
* Most plans allow access to your contributions in an emergency
* Account services keep you informed
* Your money can go with you, job to job

401K Catchup Tips:

Anyone who has separated from service from a company with a 401(k), and is entitled to withdraw funds without penalty, may take a lump sum withdrawal of the 401(k) into a taxable account. Until 1999, the tax laws allowed people to use an income averaging method to spread that lump sum over five years for tax purposes. However, that option is no longer available; the entire withdrawal must be reported to the IRS as income in the year of the withdrawal. Alternately, an entire account can be transferred directly from the 401(k) custodian to an IRA custodian, and the account will continue to grow tax deferred.

Important Terms:

Passive Enrollment (a.k.a., automatic enrollment or negative elections): When employees are automatically enrolled in the 401k plan as soon as they meet the plan's eligibility standards. Default investments (usually a money market fund) and a default contribution rate (usually 3% to 5% of the person's compensation) are preset by the employer. All passively enrolled employees must be immediately notified of their new 401k participant status, and they must be given the opportunity to change from the default contribution rate and/or investment selection (and, of course, given the opportunity to withdraw from the plan entirely). The small amount of money that was placed in the 401k for a new employee who cancels participation soon after automatic enrollment must stay in the plan until the person's employment is terminated.

Asset Allocation Fund: Income and capital appreciation are dual goals for funds with this objective. Managers often use a flexible combination of stocks, bonds and cash; some, but not all, shift assets frequently based on analysis of business-cycle trends.
Automatic Enrollment: (see Passive enrollment, below)

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Important Rules To Know:

General Distribution Rules:
Hardship distributions. A 401(k) plan may allow employees to receive a hardship distribution because of an immediate and heavy financial need. Hardship distributions from a 401(k) plan are limited to the amount of the employee’s elective deferrals and generally do not include any income earned on the deferred amounts. If the plan permits, certain employer matching contributions and employer discretionary contributions may also be included in hardship distributions. Hardship distributions cannot be rolled over to another plan or IRA.

A distribution is treated as a hardship distribution only if it is made on account of the hardship. For purposes of this rule, a distribution is made on account of hardship only if the distribution is made both on account of an immediate and heavy financial need of the employee and is necessary to satisfy that financial need. The determination of the existence of an immediate and heavy financial need and of the amount necessary to meet the need must be made in accordance with nondiscriminatory and objective standards set forth in the plan.

A distribution on account of hardship must be limited to the distributable amount. The distributable amount is equal to the employee’s total elective contributions as of the date of distribution, reduced by the amount of previous distributions of elective contributions.

Immediate and heavy financial need. Whether an employee has an immediate and heavy financial need is to be determined based on all relevant facts and circumstances. A distribution made to an employee for the purchase of a boat or television would generally not constitute a distribution made on account of an immediate and heavy financial need. A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee.

401 k explained:

A 401(k) plan is a retirement savings plan that is funded by employee contributions and (often) matching contributions from the employer. The major attraction of these plans is that the contributions are taken from pre-tax salary, and the funds grow tax-free until withdrawn. Also, the plans are (to some extent) self-directed, and they are portable; more about both topics later. Both for-profit and many types of tax-exempt organizations can establish these plans for their employees.

**Disclaimer** The information on this page is as accurate as we could get it but is meant for information purpose only. It's not meant to be legal advice in which you use to make financial decisions. For any legal or financial matters, you should seek out a certified 401k or investment company or individual.

Other words associated with this page and topic would be: Maximum Pretax 401K Contribution, retirement planning, or Roth 401K Max