Retirement Options for Your 401k

retirement and 401kYou’ve been contributing to a 401k plan for years. And, your employer was good enough to add some matching funds. But now that you’re getting ready to retire it’s time to start thinking about the distribution of that 401k plan. So what should you do with your 401k once you retire?

There are two sets of rules governing your 401k plan. Both the IRS and your plan administrator have a say in what you can do with the account. The IRS controls how your choices affect your taxes. The plan administrator has a say in how you invest and how you can withdraw assets.

If you’re 59 1/2 or older you can withdraw funds from your 401k without tax penalty. Under some circumstances you can withdraw a lump sum penalty free if you’re over 55. Note, you’re avoiding penalties, not ordinary income taxes. The penalty for early withdrawal is 10% of the amount withdrawn.

Some retirees want to delay taking withdrawals as long as possible. Mainly to help their savings compound without the negative effect of taxes. Generally it makes sense to delay taxes.

Beginning the year you turn 70 1/2 you must begin taking minimum distributions. The amount is related to your life expectancy. Your plan administrator can provide you with the IRS table. To get a rough estimate of your required distribution divide 1 by the number of years of your life expectancy. Then multiply that by the value of the assets in the 401k plan.

Once you retire, most financial advisors will recommend that you take your money out of the 401k plan. Either as a one time distribution or as a rollover into an IRA account. The reason is to avoid plan fees and to give you greater flexibility in investing your funds.

If you decide to keep your funds within the 401k plan you’ll need to adhere to their rules. Those rules will affect both your options for distribution and your investment choices. Check with your plan administrator to find out how to withdraw funds. Most will allow you to make periodic or regularly scheduled withdrawals. There may also be rules regarding when and how often you can change your distribution options. Some also have rules regarding minimum distributions.

As mentioned, withdrawals will be added to your taxable income unless they’re rolled over into a qualifying IRA.

For many retirees, rolling into an IRA is their best choice. You’ll have lower fees, more investment choices, similar distribution rules and still be compounding tax free.

If you plan on taking your distribution in cash, you’ll need to do some tax planning. Taking a regular distribution will allow you to spread the taxes and keep you in the lower tax brackets. Taking a lump sum distribution could throw you into a tax bracket designed for the wealthy. Your distribution will also be reduced by a 20% withholding which you can apply to your next year’s tax bill.

A popular option is to take part or all of your funds in a distribution and buy an annuity. There are various types of annuities. Retirees prefer ones that provide a guaranteed lifetime income. Proponents point out that with an annuity you can’t outlive your money. But you should recognize that not all annuities are indexed for inflation. Your monthly guarantee might look good today, but buy much less in 20 years if prices rise (and it’s likely they will).

No one choice is best for everyone. This might be the time to get some professional advice. The decision you make is the culmination of years of saving and will affect your finances for the rest of your life.

There are many variables to consider. How much you’ve saved. Your investment philosophy. Your income needs. Your expected longevity. Your tax situation. Even your children’s financial situation can affect your decision.

Gary Foreman is a former financial planner who founded The Dollar website and newsletters. He’s been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and  Gary also edits The Dollar Stretcher newsletters filled with ways to stretch your day and your dollar.

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How to Protect Your Greatest Asset – Your Home

houseYour biggest investment is likely your home. You can protect it – in ways that go beyond staying current on the mortgage.

A home is more than a financial investment. It is an emotional investment. The feeling of owing your dream house is the experience of a lifetime. You relish having something that’s all yours – a place where your own style statement tells the world who you are.

If you are a cash-strapped consumer, debt relief must be your first step to secure this prize. Pay down your home loan, with the goal of being debt-free.

Beyond that, however, hazards lurk that are not strictly financial. They are physical. Failure to protect against them can turn your dream into a nightmare. Only through careful consideration of threats and a systematic approach can you protect your home.

There are three crucial areas to focus on: access control (security), fire prevention-response and maintenance.

Access Control. Break-ins are down in the U.S. by 3.7% last year, the latest in a multi-year slide, according to Justice Department statistics. Nevertheless, in terms of raw numbers, burglaries and home invasions still happen often.  By the tabulations from, using federal numbers, 2.5 million break-ins occur annually in the nation or one every 13 seconds.

Keeping out criminals and other unwanted persons is very important. Security measures, from locks to alarms, determine who has access to what and when. They range for sophisticated to traditional, from door handle locks and deadbolts to electric or magnetic locks. You also can protect the home with adequate lighting system, near entry areas, to dissuade burglars from busting in. Then there are alarms, which alert the police or security companies that intruders are on the premises.

Crooks aren’t the only ones to worry about. Babysitters and maintenance people also have combinations for your alarms and locks because they have legitimate business in your house. But they won’t work for you forever. What if they – or someone they know – later look at your home as a target?

Keep changing your lock codes frequently in order to prevent a wanted guest from becoming an unwanted one later.

Fire Prevention and Quick Response. Fire is the single largest cause of property loss in the United States. The National Fire Protection Association says that, in 2013, the nation had 487,500 building fires, causing 3,240 civilian deaths, 15,925 civilian injuries and $11.5 billion in property damage.

Property insurance pays for replacing or repairing fire damage. But the better idea is to stop a fire from spreading and seriously harming your dwelling. Alarm systems linked to fire departments or security services are a big help, especially when you are away. In addition to smoke alarms, consider installing carbon monoxide sensors in the home, and heat sensors in the attic, as well. It gives an alert to dangerous heat levels in the home.

Maintenance. Little things can get out of hand: mildew, termites, drainage. Your house must be maintained from time to time to bolster its value in the market. It’s good to fix problems sooner rather than later.

You can arrange sprinkler systems to ensure proper landscaping and water consumption. Master control computers can remind you of repetitive maintenance, such as when to clean gutters and change HVAC filters.

Your home is your castle. But it needs a good moat.

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