Payout options in the realm of annuities tend to be guaranteed by the insurance company providing the annuity, and may come in many forms depending on the investor’s preference. Annuities can pay income to the annuitant in a few ways. One of the ways is to turn the entire balance of the annuity into a pension-like income stream for life, or jointly on two lives. The payout tends to be higher than the safe withdrawal rate than investors can use in an investment account, and it provide guarantees and surety where it wouldn’t exist otherwise. You can also elect to have these payments start off slightly lower, and then to increase at a guaranteed rate, to keep up with the cost of living. Continue reading...
Periodic distribution is a planned intermittent payment of cash from a 401(k). If you choose to have your money distributed periodically, you will usually have a choice between monthly, quarterly, or even annual payments. Money distributed periodically is not subject to the same 20% withholding the lump-sum payment is. The periodic payments are treated as wages, and, because plan participants taking these payments in retirement may find it easy to calculate what their income will be for the year, they can instead plan for their actual tax bracket, or opt-out of withholding if they prefer. Continue reading...
Usually such withdrawals will be in the form of income payments, but there may be other options. If the plan administrator allows it, you can make non-recurring (one-time) withdrawals from a pension fund. This is usually not allowed, however. The regular qualified plan distribution rules will apply as far as the IRS is concerned, and they may charge a 10% penalty if the withdrawals are taken before age 59½. After you retire, you’ll typically have two options: a fixed monthly payment for the rest of your life (also known as a Life Annuity), or a lump-sum payment. Continue reading...
Periodic distributions are one of the main ways that former employees enjoy the benefits of a Cash Balance plan. Yes, you can take periodic distributions from your cash-balance plan. As opposed to the other option (lump-sum distribution), opting for the periodic distribution can help you sleep better at night, knowing that you have a fixed stream of income for the rest of your life. This Life Annuity option is mandated by law to be an option to participants of a cash balance plan. Continue reading...
It is possible to withdraw money from an Individual Retirement Account without incurring a penalty, but it should be used as a last resort. If you withdraw the money before age 59½, you will pay both a 10% penalty and regular income taxes on the amount you withdraw from a Traditional IRA. However, there are special circumstances that allow you to make withdrawals without being charged the 10% penalty. These circumstances might include: paying for college expenses (whether for you, your grandchildren, etc.), paying for costs associated with a disability, medical expenses (must be greater than 7.5% of your adjusted gross income), and first-time home purchase. Continue reading...
SIMPLE IRAs have the same withdrawal rules as Traditional IRAs, with one notable exception. SIMPLE IRA contributions and earnings may be withdrawn at any time, but there are certain penalties that apply. If you are under the age of 59½, you must pay a 10% penalty fee in addition to income taxes on your withdrawal. If the early withdrawal occurs within two years of receiving your first employer contribution, the 10% penalty is increased to 25%. Continue reading...
RMDs are withdrawals that are mandatory for an individual to take from an IRA or 401(k) after the person has reached 70 ½. The government created laws that help and encourage people to save for their retirement by deferring taxes on the growth on certain qualified retirement investment accounts. On Traditional IRAs and 401(k) accounts, they are only waiting to get the tax revenue from distributions/withdrawals that are fully taxable as income. Continue reading...
This is rarely an option, but the IRS does allow it. In general, you can’t withdraw money from a Pension Plan before you retire. You also may not be able to make non-recurring withdrawals after retirement, unless it is a lump-sum settlement. If your plan allowed it, the IRS would treat it just like withdrawals from a 401(k). Withdrawals before 59 ½ would be penalized with a 10% early withdrawal tax. Continue reading...
In a “life with period certain” annuity payout option, the insurance company will pay the annuitant a set income for as long as the annuitant lives. If the annuitant dies before the “period certain” expires, the company will continue to pay the income to the beneficiaries until the period certain expires. If the period certain is 20 years, it would be called a “Life with 20 Years Certain” payout option. Continue reading...
Generally a life insurance company will have to pay a death benefit once the contestability period of two years has passed. Policies may have certain exclusions, such as suicide or death while committing a felony, but these will appear in the contract language. Even if it turns out that an insured person lied about smoking or their age, the insurance company will have to pay a death benefit that will simply be reduced to account for the premiums paid and what should have been the correct risk rating for the person. Most life insurance will pay out a death claim if death occurs for any reason after the contestability period has passed. Continue reading...
SEP IRAs are subject to the same withdrawal rules as Traditional IRAs. SEP IRA contributions and earnings may be withdrawn at any time, but there are penalties that may apply, using the same rules as those applied to Traditional IRA withdrawals. If you are under the age of 59½, you must pay a 10% penalty fee in addition to income taxes on your withdrawal. Of course, there are certain exceptions to the penalties: first time home-buyers expenses up to $10,000, medical bills, educational expenses, and a few others. Continue reading...
Distributions taken from a Roth during retirement are not subject any income taxes. Interestingly, the “cost basis” or contributions made to a Roth can be taken out at any time, including before age 59 ½, without tax or penalty. Contributions are recorded on IRS form 5498 and a copy is mailed to you, but you need to keep up with your contributions if you might want to tap into your Roth early. The earnings that accumulate must satisfy the 59 ½ requirement and the five year rule, or be used for first-time homebuyers expense, to avoid the 10% penalty and taxation. The five year rule says that the earnings in a Roth may be taxable if the Roth account is under 5 years old. Continue reading...
In general, this won’t even be an option for many. Cash balance plans do not permit partial withdrawals. If you have separated from service at the employer, you can take your entire vested amount with you. You can cash out your balance and pay income taxes on it, as well as a 10% IRS penalty if you’re younger than 59 ½. This penalty may also be avoided if you separated a from service after age 55; these rules are the same for 401(k)s and other qualified plans. Continue reading...
It depends on the 401(k) plan, but in general the answer would be “yes,” if you’re willing to pay the penalty. It is generally a pretty bad idea to withdraw 401(k) money early. If you withdraw the money before age 59½, the money will be subject to a 10% penalty in addition to regular income taxes. There are exemptions from the penalty, but there fewer exemptions in a 401(k) than an IRA. In an IRA the penalty can be waived for first-time homebuyer’s expenses up to $10,000, or even for educational expenses, but in a 401(k) the 10% penalty will still be levied if withdrawals are made for these reasons — and a plan may not even permit such withdrawals. Continue reading...
Variable annuities generally provide investors with downside protection for a fee (the insurance guarantee), while also providing market exposure that may give the investor upside potential. A variable annuity is characterized by offering market exposure, and the risk and upside potential that comes with it, in the form of “separate accounts” which are institutional-level mirrors of retail mutual funds. Typically a variable annuity will not deplete the amount of your initial investment with sales charges, and may even credit your annuity with an initial bonus amount of several percent. Continue reading...
The most basic difference is that the Roth contributions are made after-tax while the Traditional IRA contributions are usually deductible from income. Both Roth and Traditional IRAs provide for tax-deferred growth of your assets. However, the contributions you make into your IRA are pretax (or, more accurately, tax-deductible), and contributions you make to your Roth IRA are after-tax. The annual contribution limits for each are usually the same, and, in fact, a person can contribute up to this amount in either of these combined in a given year. Continue reading...
Most pensions will not allow in-service withdrawals but some will allow loans. While you are working for your employer, you typically may not withdraw money from your Defined Benefit Plan. The IRS permits plan loans if the plan administrator permits it. In-service withdrawals are possible after age 62, meaning money can get taken out before separation from service. If you leave your employer before retirement, the funds are usually kept in a Trust until you reach retirement age (or until a specified age at which you can start to receive the benefits). Continue reading...
A Bank Statement is a report issued to an account holder on a regular basis, such as monthly, which contains the account balance as of the date of the report and usually a history of transactions for the period. A Bank Statement will usually be mailed, either by the postal service or electronically, to a banking customer every month. The statement will represent a summary of the bank’s records for the recent month on a particular account, and will probably show all transactions posted to the account, along with the ending balance of the account as of the date of the mailing. Continue reading...
Withdrawal rules for Keoghs will be essentially the same as rules for IRAs and 401(k)s. Once you are age 59½, you may begin to make penalty-free withdrawals and only pay income taxes on the amount you withdraw, similar to a traditional IRA. If you decide to withdraw money before age 59½, you may have to pay a 10% penalty fee in addition to income taxes on the amount of your withdrawal. Of course, there are exceptions. One exception for most qualified plans is for employees who separate from service at or after age 55: this is the early retirement exception, and the 10% penalty will not apply. Keoghs will technically use the early withdrawal rules for 401(k)s and not IRAs, which differ slightly. Continue reading...
A non-current asset is an asset on the balance sheet that is not expected to convert into unrestricted cash within a year’s time. Non-current assets may include such things as intellectual property and production/operations equipment - meaning they likely do not have a need to convert to cash. From a balance sheet standpoint, non-current assets are capitalized rather than expensed - meaning the company can allocate the asset’s cost of the asset over the number of years for which the asset will be used, instead of allocating it all in the year it was purchased. Continue reading...