Retirement questions.


What is 401 K: In the subsection 401K which is a part of the internal revenue code (IRC) set into law in 1978. 403b and 457b are named from their subsections in the tax laws.

what is the difference between 401K and Individual Retirement Account (IRA): 
401K and IRA (Individual retirement account) are accounts, you can use to save money for several years. They have tax benefits to save money for your retirement and future. You can only open a 401K or IRA, if you have an income from working. Both saving plans are pretax and you can only be tax after you withdraw the money. You are allowed to contribute $18,000 maximum per year. Remember to get your employer's match. Always, roll over your 401K to IRA when you leave your present company. You can only invest in options available in the company's plan.

IRA:
You can only open IRA by yourself. Contribute a maximum $5500 per year. You can convert it to Roth IRA, but you have pay taxes during conversion. Money isn't taxed until you take it out at retirement. You can invest in a 401K and an IRA at the same time. 

The difference  between a traditional 401K and Roth 401K? The Roth 401K is very new. Both bills has the name of the senator who sponsored the bills in congress. Both a tradition 401K and a Roth 401K are available through employers who offer this benefits.

Traditional 401K:
Employers can match your contributions. Taxes will be taken out at retirement. It is very beneficial, if you are in a lower tax bracket. You can start taking money out at age 59 and half. Minimum withdrawals required age 70 and half. 

Roth 401K:
Employers can match contributions in a separate account that will be taxed income, when you take the money out. Money is taxed before you invest it, but the earning and withdrawals are tax-free in retirement. It is beneficial, if you are in a higher tax bracket. You can take money out at age 59 and half, when your account has been open in five years. You can roll over your money to a Roth IRA to avoid withdrawal requirement at age 70 and half. 

What to do, if you lose your job, leave your job:
Nobody want to find out what happens, when you lose your job or leave your job. 
1). Do nothing: you can leave the money in the current plan, if your former employer will allow it. But, you might pay higher fees and you cannot contribute to the account. 
2). You can roll over your money into a new employers plan: There are limits and rules regulating this plan.
3). You can do a direct roll over into an IRA: Direct the fund into your retirement and don't touch the money or you will be penalized with taxes. If you have an existing IRA, you can roll your 401K balance into the account. If you don't have an account, open an IRA through a brokerage firm, or a mutual fund company. 
Please, whatever you do, do not cash out your 401K or Roth 401K. You will pay major taxes and penalties-if you withdraw the money before retirement.


Data was obtained from Ramsey solutions.

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