Post by Admin/YBB on Dec 21, 2020 18:52:00 GMT -6
#RetirementSavings. WORKPLACE plans are business & corporate 401k [pre-tax], Roth 401k [after-tax]; school, university & nonprofit 403b [pre-tax], Roth 403b [after-tax]; private & public 457. These allow significant annual contributions through payroll deductions. Law allows auto-enrollment, auto-escalation & default fund choices [typically target-date funds (TDFs)]. Plans differ widely on investment choices [often limited] & fees [employers may absorb some fees]. INDIVIDUAL RETIREMENT ACCOUNTS include Traditional IRA [T-IRA] with deductible & nondeductible contributions, & Roth IRA [R-IRA] with nondeductible contributions. Spouses must have separate T-IRAs & R-IRAs [note ”I” for “individual”]. IRAs have lower annual contribution limits & those apply to the combination of all T-IRAs & R-IRAs; income limits also apply. All offer tax-sheltered growth & have over-50 catchup. Roth versions have tax-free withdrawals in retirement. All except R-IRA are subject to required minimum distributions [RMDs]; inherited accounts have complex RMD rules & a popular stretch-trick was recently eliminated. If the workplace plan is poor, then contribute enough to get employer match, then use T-IRA/R-IRA, & then workplace plan. ANNUITIES are less popular now but may be used if other venues are all used up.
ROTH CONVERSIONS from 401k to Roth 401k, & T-IRA to R-IRA, are taxable. BACKDOOR ROTH conversion can be used by those ineligible to contribute to R-IRA by funding empty T-IRA & then converting to R-IRA. WITHDRAWALS from T-IRA are taxed on pro-rata basis [using deductible & nondeductible portions] & all T-IRAs by a person are considered as one for this purpose; contributions from R-IRA can be withdrawn tax free at any time. Early withdrawal PENALTIES apply [before 59.5] but there are some exceptions. IRS Form 8606 keeps track of basis [the nondeductible portion], contributions, withdrawals, conversions. LOANS from workplace plans are possible but they become due in case of job change or loss. Some plans allow moving T-IRA to 401k/403b. After retirement, or on job change, 401k, 403b & government 457b [only] can be rolled-over/direct-transferred into T-IRA [nontaxable event] or R-IRA [taxable event]; Roth 401k & Roth 403b can be rolled-over/direct-transferred into R-IRA [nontaxable event]; some plans also allow in-plan rollovers [i.e. transfers out of plan to T-IRA/R-IRA while working]. Be aware that bankruptcy & creditor PROTECTIONS are strongest for workplace plans. #PersonalFinance , 12/7/20 Late-AM.
ROTH CONVERSIONS from 401k to Roth 401k, & T-IRA to R-IRA, are taxable. BACKDOOR ROTH conversion can be used by those ineligible to contribute to R-IRA by funding empty T-IRA & then converting to R-IRA. WITHDRAWALS from T-IRA are taxed on pro-rata basis [using deductible & nondeductible portions] & all T-IRAs by a person are considered as one for this purpose; contributions from R-IRA can be withdrawn tax free at any time. Early withdrawal PENALTIES apply [before 59.5] but there are some exceptions. IRS Form 8606 keeps track of basis [the nondeductible portion], contributions, withdrawals, conversions. LOANS from workplace plans are possible but they become due in case of job change or loss. Some plans allow moving T-IRA to 401k/403b. After retirement, or on job change, 401k, 403b & government 457b [only] can be rolled-over/direct-transferred into T-IRA [nontaxable event] or R-IRA [taxable event]; Roth 401k & Roth 403b can be rolled-over/direct-transferred into R-IRA [nontaxable event]; some plans also allow in-plan rollovers [i.e. transfers out of plan to T-IRA/R-IRA while working]. Be aware that bankruptcy & creditor PROTECTIONS are strongest for workplace plans. #PersonalFinance , 12/7/20 Late-AM.