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Can I Take a Loan From My Pension Plan?
Generally this won’t be an option that your plan allows, but the IRS has approved it if the employer wants to. Generally speaking, you cannot. Hypothetically, if allowed in the plan document, and if the pension fund had enough of a surplus to handle such withdrawals, the IRS might find it permissible. The laws concerning such loans are the same for all qualified accounts, such as 401(k)s. An enrolled actuary would need to help you define when a loan might be allowable in particular deferred benefit plan. A Pension’s main goal is to pay out in retirement for the duration of the obligation, which may be your life and possibly the life of your spouse. Because of the massive liability they shoulder, pensions are inherently rigid and uncompromising when it comes to loans and withdrawals. Continue reading...
What Happens If I Withdraw Money From My Cash-Balance Plan Before I Retire?
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...
Can I Take a Loan From my Cash-Balance Plan?
The IRS permits such loans, but it is rare to find a plan that allows it. In the vast majority of cases, you cannot. Though the IRS permits it, the administrative burden of a defined benefit plan is already significant for an employer, and it is much more likely that they will not make a provision for loans in the plan document. As far as the IRS is concerned, generally speaking, these plans have the same rules as other qualified plans. If a small partnership or LLC with a cash balance plan wants to put loan provisions into their plan document, they can do it. Continue reading...
What are My Self-Employed 401(k) Investment Options?
As with other retirement plans, this will mostly depend on the options available to you through your custodian. Solo 401(k)s will have an array of asset exposure available to you, but it may come only in the form of mutual funds. This is not unlike many larger 401(k)s. The way these plans are bundled as simple and straightforward products, without so many bells and whistles that they will attract the attention of the IRS, may cause them to be slightly more plain vanilla than the options available in some 401(k)s. Continue reading...
What Part of the Contribution into My IRA is Tax-Deductible?
Traditional IRAs can get interesting if you or a spouse is covered by a qualified plan at work. You are able to deduct all of your contributions into a Traditional IRA as long as you (or your spouse) are not a participant in an employer-sponsored retirement program. If either of you are, there are certain regulations you should be aware of. The amount of your contribution that can be tax-deductible is determined by your (and your spouse’s) modified adjustable gross income (MAGI). Continue reading...
What is the Difference Between Cash-Balance Plans and Other Retirement Plans?
Cash Balance plans are Defined Benefit plans, but are not much like Pensions as you may know them, or other types of retirement plans, for that matter. On one side of the retirement isle you have defined contribution plans, such as 401(k)s and SEPs and so on, where the contributions are certain, or at least ascertainable, while the ending balance or benefit of each employee’s account is unknown, or at least does not have to be (and in most cases isn’t). Continue reading...
How Can I Establish a SIMPLE IRA?
A SIMPLE IRA must be established by an employer with fewer than 100 employees. An employer can establish a SIMPLE IRA if they have no more than 100 employees who earned $5,000 or more during the preceding calendar year. The employer cannot have any other type of qualified retirement plan going while a SIMPLE IRA is in effect. SIMPLEs should be established between Jan 1 and October 1 of the first year of the plan, unless the business started after that. Plans can be set up relatively quickly and can even use automatic enrollment if employees are given the ability to opt-out. Continue reading...
Are Social Security Benefits Taxed?
Many people do not realize that their Social Security Benefits may be taxed. If you have a taxable income in retirement above a certain threshold, up to 85% of your social security benefits can be taxed. The calculation for the threshold income actually includes half of your social security benefits. Whether or not you trigger taxation on your benefits will depend on your “combined” income, which is a sum of your adjusted gross income (taxable income, which can include taxable sources such as qualified retirement plans), your nontaxable interest (from Muni bonds in particular, Roth IRAs are excludable), and half of your household Social Security benefits. Continue reading...
How Do Deductible and Non-Deductible IRAs Differ?
It is possible to make non-deductible contributions to an IRA, even if you have a qualified plan at work. Traditional IRAs are a good place to stash retirement money because of the tax treatment. Some people will choose to make contributions even when they are not deductible, which gives us two kinds of Traditional IRAs: deductible and non-deductible. Deductible IRAs provide a way to lower your taxes because you can deduct contributions to your IRA from your income. Nondeductible IRAs do not allow you to deduct your contributions, but they still retain their tax-deferred growth. Unlike a Roth, these after-tax contributions will be taxed upon withdrawal as income. Continue reading...
Who Can Put Money into an IRA?
There are some income limits and contribution limits on who can contribute to an IRA. Generally speaking, as long as you or your spouse is earning taxable income, you can contribute money to an IRA, be it a Roth or a Traditional IRA. There are limits at which you cannot contribute to a Roth IRA (in 2016, the limit is $132,000 for a single filer and $194,000 for a married couple). There are also income limits at which you are no longer able to deduct contributions to a Traditional IRA, but these are only applicable if you or your spouse has a qualified retirement plan at work. Continue reading...
What is an Accountant’s Opinion?
An Accountant’s Opinion, also called an Auditor’s Opinion, is a formal document signed by a certified accountant after a review of a company’s books. Companies may be required to have an audit from an independent and unbiased third-party accountant, perhaps annually before a report to shareholders or the submission of financial documents to regulatory bodies or lending institutions. At the conclusion of a review or audit, the auditor issues an Accountant’s Opinion (or Auditor’s Opinion) letter. The two outcomes that are most common: Qualified or Unqualified. Continue reading...
What Are the Basics of Mutual Funds?
Mutual funds come in many varieties, but here are some basics to keep in mind to help you find your way. While most people have definitely heard the term mutual fund, many people do not understand how they work and how to use them. With over 10,000 mutual funds available in the marketplace today, the average person may have a hard time selecting appropriate mutual funds for his or her portfolio, determining a good asset mix, and understanding all of the charges associated with buying, owning, and selling mutual funds. Continue reading...
What is Investment Interest Expense?
IIE is deductible from taxes, and is usually used to deduct the interest paid on a margin loan used to buy taxable securities, when there is a gain to offset. Investment interest expense is the term for interest which has been paid in order to hold an investment position. It comes into play when filing taxes. An individual can list interest expenses on a Form 1040. The most common place to incur an interest expense when investing is through the use of margin in an investment account. Continue reading...
What is Housing Expense Ratio?
When deciding whether to issue a mortgage loan to a customer, a bank or lender will look at the housing expense ratio, which is the annual cost of the mortgage payments, including all insurance and expenses related to owning the property, divided by the gross income of the individual. Gross income is used because tax deductions can be taken for mortgage payments. If a proposed mortgage leaves the borrower with a housing expense ratio (HER) over 28%, they will usually not be approved for this mortgage loan. The HER is found by dividing all annual costs associated with the new home with the gross annual income of the (proposed) borrower. Continue reading...
Can I Withdraw Money From My Cash-Balance Plan?
It’s not likely that a cash-balance plan will allow for early withdrawals. Generally speaking, you can’t withdraw money from a Cash-Balance Plan before you retire unless it is to roll over assets to a new employer’s plan or a personal IRA. Once the money is in another account, you could potentially have full access to it, minus the 10% IRS penalty if you’re under 59 ½. Loans from a cash balance plan may be permitted if they abide by the same rules as 401(k) loans — and if the IRS and the DOL will allow you to consider your vested amount in your hypothetical account as adequate collateral. Continue reading...
What is a Student Loan?
Expenses for tuition, room, and board at a secondary education institution can be loaned to a student and paid off over time in the form of a student loan. Tuition and other college expenses have inflated at a much faster rate than the rest of the consumer price index. These institutions can charge more and more as they experience student housing crunches and an ever-growing demand for college education. Continue reading...
What is a Leveraged Loan?
A leveraged loan is a commercial loan that is generally created by a few participants, and packaged and offered by one or several investment banks. Leveraged loans are typically targeted at companies that already have a significant amount of debt and may be limited in their options to access capital elsewhere. They are considered on the higher end of the risk spectrum. Continue reading...
What is Lifestyle Inflation?
Lifestyle inflation is a term used in personal financial planning for the tendency of people to increase their spending and standard of living right along with any raises and monetary resources, even if it’s is at the detriment of any plans for debt reduction or long-term savings. Monetary inflation describes the phenomenon when more money has no more utility value than a lesser amount used to because the cost of goods is going up. Lifestyle inflation is when people select higher-priced goods and lifestyle spending habits when they have the money available to do so. Continue reading...
What is the minimum investment in a typical hedge fund?
Hedge funds can require initial investments that are quite large. This may be somewhere between $250,000 to $10,000,000. They will generally only accept Accredited Investors, meaning high net worth individuals that pass SEC standards which exempt the fund from some reporting and disclosure requirements. While the minimum investment varies, most Hedge Funds will accept only so-called accredited investors. Continue reading...
Can I Withdraw Money From My Defined Benefit Plan?
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...