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401k Rollover: 401K Plan, After Tax Contribution, Annuity, Rules And Advice
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Published: December 5, 2006
Many people come to depend upon it eventually for financial security. It represents the product of years of wise investing. For many, 401ks will help make the transition into retirement much easier.
So what exactly is a 401k? Or, more specifically, what is a 401k rollover?
To start, a 401k is an “employer-sponsored retirement plan” designed to provide tax advantages on an employee's retirement savings. Basically, a 401k's taxes are deferred, or put off, until the plan owner takes a distribution from the plan, usually after he or she passes the age of 59 and a half.
One only should opt for a 401k rollover under certain circumstances. After all, 401k rollover rules exist to help regulate the process. For example, when one retires or suffers the misfortune of becoming disabled, he or she has the option of created an IRA from a 401k rollover, but not before such a situation occurs. Another 401k rollover rule will help to clarify the concept. If one were to switch jobs, what becomes of the money that, up until then, had been saved in a 401k? One can roll, or transfer, the 401k plan assets to a 401k rollover IRA.
The concept of a rollover annuity is closely related to the 401k rollover process. Basically, a 401k rollover annuity is a contract between a person and an insurance company where the person pays a specified amount for the rollover annuity. In return, the person will receive payments in the future for the stated period of time in the 401k rollover annuity contract. One can choose from a variety of 401k rollover annuity options.
The issue of taxes and a 401k rollover plan are some considerations one should keep in mind. What most people do not realize is increased contributions, or putting more money into a 401k, usually implies lower federal and state income taxes. This is because, in most cases, one can deduct these contributions from his or her taxable salary. A lower taxable salary means lower taxes to pay.
Many people make pretax contributions to a 401k. The law limits this amount to $15,000 at the most. However, for those who can financially afford a larger contribution, making after-tax contributions can provide an optimal way to increase the amount in one's 401k.
Before making any significant decisions concerning a 401k, most are best off consulting with a financial expert or accountant for preliminary advice. After all, one is dealing with an eventual financial support system after retirement. That being said, one can take certain steps to educate him or herself, especially since a wide variety of print and electronic sources are available on the details of a 401k.
Sources:
Annuity. 2006. About, Inc. 2 Dec 2006 <http://retireplan.about.com/od/glossaryofterms /g/def_annuity.htm>.
Easing the Bite of 401(k) Contributions. 2006. SmartMoney.com. 2 Dec 2006 <http://www.smartmoney.com/retirement/401k/inde x.cfm?story=contribution>.
401(k) Retirement Plan. 2006. StreetAuthority, LLC. 2 December 2006 <http://www.streetauthority.com/terms/num/401k. asp>.
So what exactly is a 401k? Or, more specifically, what is a 401k rollover?
To start, a 401k is an “employer-sponsored retirement plan” designed to provide tax advantages on an employee's retirement savings. Basically, a 401k's taxes are deferred, or put off, until the plan owner takes a distribution from the plan, usually after he or she passes the age of 59 and a half.
One only should opt for a 401k rollover under certain circumstances. After all, 401k rollover rules exist to help regulate the process. For example, when one retires or suffers the misfortune of becoming disabled, he or she has the option of created an IRA from a 401k rollover, but not before such a situation occurs. Another 401k rollover rule will help to clarify the concept. If one were to switch jobs, what becomes of the money that, up until then, had been saved in a 401k? One can roll, or transfer, the 401k plan assets to a 401k rollover IRA.
The concept of a rollover annuity is closely related to the 401k rollover process. Basically, a 401k rollover annuity is a contract between a person and an insurance company where the person pays a specified amount for the rollover annuity. In return, the person will receive payments in the future for the stated period of time in the 401k rollover annuity contract. One can choose from a variety of 401k rollover annuity options.
The issue of taxes and a 401k rollover plan are some considerations one should keep in mind. What most people do not realize is increased contributions, or putting more money into a 401k, usually implies lower federal and state income taxes. This is because, in most cases, one can deduct these contributions from his or her taxable salary. A lower taxable salary means lower taxes to pay.
Many people make pretax contributions to a 401k. The law limits this amount to $15,000 at the most. However, for those who can financially afford a larger contribution, making after-tax contributions can provide an optimal way to increase the amount in one's 401k.
Before making any significant decisions concerning a 401k, most are best off consulting with a financial expert or accountant for preliminary advice. After all, one is dealing with an eventual financial support system after retirement. That being said, one can take certain steps to educate him or herself, especially since a wide variety of print and electronic sources are available on the details of a 401k.
Sources:
Annuity. 2006. About, Inc. 2 Dec 2006 <http://retireplan.about.com/od/glossaryofterms /g/def_annuity.htm>.
Easing the Bite of 401(k) Contributions. 2006. SmartMoney.com. 2 Dec 2006 <http://www.smartmoney.com/retirement/401k/inde x.cfm?story=contribution>.
401(k) Retirement Plan. 2006. StreetAuthority, LLC. 2 December 2006 <http://www.streetauthority.com/terms/num/401k. asp>.
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