There was a sneak preview of the Dept of Labor’s preliminary guidance on setting up 401k default investment options. These situations occur when 401k participants fail to select an investment option for their 401k contributions or a 401k default fund is used in 401k plans with automatic enrollment features. Currently, 401k plan sponsors are rethinking their default fund decisions because they are concerned about the risk associated with their fiduciary responsibility and about the risk of the earnings performance of the default investments of those participants who failed to choose any.

When a participant fails to make a choice, the default fund is the choice made for them by the plan’s fiduciaries. And because the participant is NOT making the decision when a default investment is used, the plan fiduciaries are responsible to prudently invest their funds. Many plan sponsors feel that their decision on the default investment is protected by the safe harbor exemption of Internal Revenue Code Section 404c. Section 404c provides an exemption to plan sponsors from liability for investment decisions when participants are given the choice to choose their own investments. Section 404c transfers liability to plan participants for their choices of investment options. Here, sponsors believe that by not making an active choice, the participant has decided to take the default investment.

And if the default investment is a Stable Value or Money Market Fund, the participant does not loose any of his principal. Plan sponsors feel that the participant’s funds are not at risk and so neither are they.

Because the participant is not making the decision when a default investment is used, there is no 404c defense for plan fiduciaries. Also, sponsors are required by ERISA to invest with a reasoned, thoughtful process for evaluating risk and returns and for providing investment options that are diversified and prudent.

Under the forthcoming guidance — which, said a Dept of Labor law specialist in the Office of Regulations and Interpretations, is subject to change - 401k fiduciaries are given a safe harbor on 401k investment management decisions and any breach that is “the direct and necessary result of investing a participant or beneficiary’s account” in a default investment. Investment managers and advisers, on the other hand, are solely responsible for any decisions they make with regard to the 401k investments or any resulting losses and do not get that kind of relief.

In order to qualify for that 401k safe harbor, however, 401k fiduciaries must allow participants:

- the opportunity to move their investments into an alternate account - provide advance notice of the default investment and - invest the assets in a certain kind of qualified default investment.

Moreover, that choice, which can be a lifecycle fund or a managed account, among others, must limit the presence of employer stock in the portfolio, as well as allow funds to be transferred out of the default.

The 401k fiduciary responsibility associated with selecting funds for the default investment options in a 401k plan has now been tempered with this new preliminary safe harbor.

One less furrowed brow for 401k plan sponsors.

About the Author

Want to retire with $1,127,376.04? Visit Solo 401k Retirement or Women’s Solo 401k Reirement Contact Lawrence Groves at Lawrence@solo-k.com or call 727-277-4137

Tags: 401k contribution limits, 401k contribution, 401K beneficiary, 401k rollovers

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The question of IRA vs 401k leaps to mind when setting up a small business retirement plan. Do you know the differences between plans? What does the Internal Revenue Code allow and restrict? Why should you even care? Because if you sell fixed indexed annuities and want to capitalize on one of the hottest specialty markets going today (setting up retirement plans for small business owners with 1 to 9 employees), you’ll want to brush up on IRA vs 401k and other important considerations.

First, consider that a small business retirement plan, now more than ever, is the best way to defer large amounts of tax-deductible dollars. Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), self-employed taxpayers now have unprecedented incentives to save for retirement. A business owner’s decision is quite literally whether to keep company profits… or send them off to Uncle Sam.

OWNER GETS MORE

It’s no secret the allure of a small business retirement plan is directly related to benefits available to the owner. The greater the owner’s share of the overall plan, the greater the interest. Before the new tax legislation, restrictions on owner’s benefits in small plan design often resulted in even fewer benefits for the employees. But the tools are now in place to ratchet up the owner’s benefits and still create a workable plan for the employees. So, should the plan be an IRA or a 401k? Let’s examine IRA vs 401k separately.

SIMPLIFIED EMPLOYEE PENSION

The simplest small business retirement plan for self-employed taxpayers and the easiest to set up and maintain is the Simplified Employee Pension (SEP). You may establish a SEP if you earn self-employment income, regardless of whether you have employees. A SEP is an Individual Retirement Account (IRA) and if maintained for more than one person becomes a group of IRAs.

All contributions to a SEP are tax deductible as a business expense. As an IRA the plan’s earnings are not taxed until they are withdrawn at retirement. As usual, withdrawals prior to age 59 ? with this and other plans incur a 10% penalty. A SEP-IRA does not permit loans or salary deferral contributions. Also, the individual annual contribution limit for 2006 is the lesser of 25% of compensation or $44,000, and contributions may be reduced or skipped altogether in lean years.

INDIVIDUAL 401(k)

Another handy tool in the EGTRRA toolbox is the Individual or Solo 401(k). This small business retirement plan is ideally suited for businesses in which the owner or owners (and their spouses if working at the business) are the only employees. The biggest reason for opening a one-person 401(k) is the higher contribution limits allowed, plus the fact that contributions are based on revenue generated by the business.

The maximum tax-deductible employer contribution is 25% of gross eligible payroll. For 2006 the maximum effective salary deferral contribution for employer plus employee is $44,000 plus a catch-up contribution of $5,000 for individuals age 50 and over. Loans are permitted subject to limits and rules, and paperwork may be just a filing of the streamlined IRS Form 5500-EZ when plan assets exceed $100,000.

NEVER A BETTER TIME

The new tax law creates a multitude of opportunities with more than 60 new provisions to strongly encourage the startup and funding of your small business retirement plan. Variations in plan design allow opportunities to suit independent contractors, sole-practitioner professionals, small retail owners — virtually every type of small business imaginable. Answer the question of IRA vs 401k and you’re on your way.

For small business owners in search of large tax breaks, it doesn′t get any better than this. There has never been a better time than right now to convert current taxes into assets, defer tax payments, and generate large amounts of retirement income. And for you as the fixed indexed annuity specialist, this market is virtually untapped.

About the Author

http://www.Free-Insurance-Leads.com Gary Le Mon is a wholesale distributor of fixed indexed annuities for Allianz, American Equity, Sun Life Financial, and ING. See also Insurance-Lead-Programs.com

Tags: 401k early withdrawals, 401k distributions, 401K calculator, 401k rollovers

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One of the prime advantages of the 401K retirement plan is that it provides tax benefits to the investor, and apart from that the employee has the freedom to choose how much of his or her salary should be put towards this fund. However, some companies give an upper ceiling as to the amount, since apart from what the company sets aside for the 401K plans, the employer has to put aside an equivalent amount.

An employee’s salary is taxed after the 401K retirement plan deduction has been made. For example, if one earns $5,000 per month, and chooses to set aside 10% in a 401K, then tax is not charged on the entire $5,000 - only on $4,500.

There are other retirement investment plans, but the 401K retirement plan is preferred over others, as it is flexible in varied ways. It allows the employee to roll over the money in case they quit their job. This may be rolled into the new employer’s 401K plan trust, or into the individual account.

Also, the 401K retirement plan investor can select what kind of investments to channel funds into. These include mutual funds, bond funds or varying maturities, and money market funds. Some plans permit people to invest their funds in company stocks, US series EE saving bonds, and other options. The options are there and it’s up to each individual to see what suits them best, as long as they are saving for their future.

Tags: 401k distributions, 401k laws, 401K beneficiary, 401k contribution

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The question of IRA vs 401k leaps to mind when setting up a small business retirement plan. Do you know the differences between plans? What does the Internal Revenue Code allow and restrict? Why should you even care? Because if you sell fixed indexed annuities and want to capitalize on one of the hottest specialty markets going today (setting up retirement plans for small business owners with 1 to 9 employees), you’ll want to brush up on IRA vs 401k and other important considerations.

First, consider that a small business retirement plan, now more than ever, is the best way to defer large amounts of tax-deductible dollars. Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), self-employed taxpayers now have unprecedented incentives to save for retirement. A business owner’s decision is quite literally whether to keep company profits… or send them off to Uncle Sam.

OWNER GETS MORE

It’s no secret the allure of a small business retirement plan is directly related to benefits available to the owner. The greater the owner’s share of the overall plan, the greater the interest. Before the new tax legislation, restrictions on owner’s benefits in small plan design often resulted in even fewer benefits for the employees. But the tools are now in place to ratchet up the owner’s benefits and still create a workable plan for the employees. So, should the plan be an IRA or a 401k? Let’s examine IRA vs 401k separately.

SIMPLIFIED EMPLOYEE PENSION

The simplest small business retirement plan for self-employed taxpayers and the easiest to set up and maintain is the Simplified Employee Pension (SEP). You may establish a SEP if you earn self-employment income, regardless of whether you have employees. A SEP is an Individual Retirement Account (IRA) and if maintained for more than one person becomes a group of IRAs.

All contributions to a SEP are tax deductible as a business expense. As an IRA the plan’s earnings are not taxed until they are withdrawn at retirement. As usual, withdrawals prior to age 59 ? with this and other plans incur a 10% penalty. A SEP-IRA does not permit loans or salary deferral contributions. Also, the individual annual contribution limit for 2006 is the lesser of 25% of compensation or $44,000, and contributions may be reduced or skipped altogether in lean years.

INDIVIDUAL 401(k)

Another handy tool in the EGTRRA toolbox is the Individual or Solo 401(k). This small business retirement plan is ideally suited for businesses in which the owner or owners (and their spouses if working at the business) are the only employees. The biggest reason for opening a one-person 401(k) is the higher contribution limits allowed, plus the fact that contributions are based on revenue generated by the business.

The maximum tax-deductible employer contribution is 25% of gross eligible payroll. For 2006 the maximum effective salary deferral contribution for employer plus employee is $44,000 plus a catch-up contribution of $5,000 for individuals age 50 and over. Loans are permitted subject to limits and rules, and paperwork may be just a filing of the streamlined IRS Form 5500-EZ when plan assets exceed $100,000.

NEVER A BETTER TIME

The new tax law creates a multitude of opportunities with more than 60 new provisions to strongly encourage the startup and funding of your small business retirement plan. Variations in plan design allow opportunities to suit independent contractors, sole-practitioner professionals, small retail owners — virtually every type of small business imaginable. Answer the question of IRA vs 401k and you′re on your way.

For small business owners in search of large tax breaks, it doesn’t get any better than this. There has never been a better time than right now to convert current taxes into assets, defer tax payments, and generate large amounts of retirement income. And for you as the fixed indexed annuity specialist, this market is virtually untapped.

About the Author

http://www.Free-Insurance-Leads.com Gary Le Mon is a wholesale distributor of fixed indexed annuities for Allianz, American Equity, Sun Life Financial, and ING. See also Insurance-Lead-Programs.com

Tags: 401K beneficiary, 401K calculator, 401k laws, 401k rollovers

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There was a sneak preview of the Dept of Labor’s preliminary guidance on setting up 401k default investment options. These situations occur when 401k participants fail to select an investment option for their 401k contributions or a 401k default fund is used in 401k plans with automatic enrollment features. Currently, 401k plan sponsors are rethinking their default fund decisions because they are concerned about the risk associated with their fiduciary responsibility and about the risk of the earnings performance of the default investments of those participants who failed to choose any.

When a participant fails to make a choice, the default fund is the choice made for them by the plan’s fiduciaries. And because the participant is NOT making the decision when a default investment is used, the plan fiduciaries are responsible to prudently invest their funds. Many plan sponsors feel that their decision on the default investment is protected by the safe harbor exemption of Internal Revenue Code Section 404c. Section 404c provides an exemption to plan sponsors from liability for investment decisions when participants are given the choice to choose their own investments. Section 404c transfers liability to plan participants for their choices of investment options. Here, sponsors believe that by not making an active choice, the participant has decided to take the default investment.

And if the default investment is a Stable Value or Money Market Fund, the participant does not loose any of his principal. Plan sponsors feel that the participant’s funds are not at risk and so neither are they.

Because the participant is not making the decision when a default investment is used, there is no 404c defense for plan fiduciaries. Also, sponsors are required by ERISA to invest with a reasoned, thoughtful process for evaluating risk and returns and for providing investment options that are diversified and prudent.

Under the forthcoming guidance — which, said a Dept of Labor law specialist in the Office of Regulations and Interpretations, is subject to change - 401k fiduciaries are given a safe harbor on 401k investment management decisions and any breach that is “the direct and necessary result of investing a participant or beneficiary’s account” in a default investment. Investment managers and advisers, on the other hand, are solely responsible for any decisions they make with regard to the 401k investments or any resulting losses and do not get that kind of relief.

In order to qualify for that 401k safe harbor, however, 401k fiduciaries must allow participants:

- the opportunity to move their investments into an alternate account - provide advance notice of the default investment and - invest the assets in a certain kind of qualified default investment.

Moreover, that choice, which can be a lifecycle fund or a managed account, among others, must limit the presence of employer stock in the portfolio, as well as allow funds to be transferred out of the default.

The 401k fiduciary responsibility associated with selecting funds for the default investment options in a 401k plan has now been tempered with this new preliminary safe harbor.

One less furrowed brow for 401k plan sponsors.

About the Author

Want to retire with $1,127,376.04? Visit Solo 401k Retirement or Women’s Solo 401k Reirement Contact Lawrence Groves at Lawrence@solo-k.com or call 727-277-4137

Tags: 401k contribution, 401k early withdrawals, 401k loans, 401K beneficiary

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Did you know you can use your 401K or self directed IRA retirement accounts that you either implemented through an employee-employer plan, or opened up yourself, to fund the purchasing of real estate notes? Many people are “dipping″ into their retirement accounts because they have learned that real estate notes offer them the ability to increase the dividends usually earned through such retirement accounts, securely and reliably.

Will you be among the ‘wisest’ of real estate investors and look into the “viability″ of real estate notes as an investment strategy to best increase the dividend-earning power of your retirement money? The Internet provides you with access to all of the information you need to learn how real estate notes can help you to “retire-in-style” without the “risks′ unlike so many of the other investment opportunities out there today.

The benefits of real estate backed notes are they:

1. Generate passive income.

2. Are secured by real property.

3. Are taxed at low long term capital gains of 15%.

4. Can be purchased with a self directed 401k or self directed IRA.

Another quick note about real estate note investment gains earned inside an IRA or 401k:

Gains earned and tucked back into the IRA/401k are earned on a tax deferred basis and are taxed at ordinary income tax rates at the time of distribution starting at the age of 59 ?. Gains earned off your real estate note investments inside your Roth IRA or Roth 401k occur on a tax deferred basis and distributions are earned tax free at the time of distribution. If you use a Roth IRA/401k, you’ll have years of tax-deferred growth on your investment - and NO TAXES at the time of distribution.

How does that stack up against 15% long term capital gains? Right… There is no comparison.

If you are already over the age of 59 ? and have a Roth IRA that has been open more than 5 years, then you are perhaps in the sweetest spot of all, as all your gains filtered through your Self Directed Roth IRA can be distributed to you tax free without any waiting periods. This could be the ultimate leverage and a way to grow your personal wealth.

Real Estate Backed Notes could just be your “hot” ticket to financial success in “cool” times.

About the Author

With over 9 years of Internet marketing experience and the owner of 3 online businesses, Joshua Geary is among the most read authors on the Net for the subject self directed IRA. His article “IRA Options for Real Estate Investors” has been read by 4500 online readers.

Tags: 401k contribution limits, 401k laws, 401K beneficiary, 401k loans

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An employee contributes to a 401K plan with pretax salary. This means that
this account appreciates without taxation until you retire or leave the
company. So, 401K contributions are not included in your reported income.

In essence, you receive an immediate tax deduction for your contribution.

Many employees offer an automatic payroll deduction, so there isn’t any extra
effort involved for you. Matching contributions or partial matching
contributions are other incentives offered by employers. For instance, my
employer matches every one of my dollars with a quarter. Sounds like small
potatoes, but remember the beauty of compound interest.

Of course, there are rules and regulations. You are typically limited to a
percentage of your income or $10,500 annually, whichever is less. So what
happens if you leave your company? You have 3 options: leave it as it is,
roll it over into another tax-deferred retirement account such as an IRA or
withdraw it all. However, early withdrawal penalties, that is before age
59-1/2, are stiff. Usually, it’s a 10% penalty plus any taxes owed. So, if at
all possible avoid withdrawing any funds before age 59-1/2.

Your 401K portfolio should be chosen carefully, weighing age and risk
factors. The older you are, the less stock you should have in your portfolio.
Many financial advisors suggest that your portfolio percentage of stocks
should be your age subtracted from 100. Therefore, a 25-year-old’ s portfolio
should consist of 75% stocks. However, if you′re not comfortable with that
level of risk, then simply chose fewer stocks. Do remember this: over the
last century the stock market has returned an average of 11% (this includes
all wars and the Great Depression). Your plan will most likely offer 4 to 7
investment options of mutual funds, stocks, bonds, etc. for your portfolio.
My company provides 10 options of which I have chosen 5.

Chose wisely and consider how much risk you are willing to take. Most of all,
you need to be comfortable with your choices. If you need further assistance
in choosing your investment options, check out www.morningstar.com or the
MorningStar books at your local library.
aware of your options. For now, we’re focusing on 401K and 403B retirement
plans. These two plans are essentially the same except that for-profit
companies use 401Ks and non-profit companies, such as the government, use
403Bs.

An employee contributes to a 401K plan with pretax salary. This means that
this account appreciates without taxation until you retire or leave the
company. So, 401K contributions are not included in your reported income.

In essence, you receive an immediate tax deduction for your contribution.

Many employees offer an automatic payroll deduction, so there isn′t any extra
effort involved for you. Matching contributions or partial matching
contributions are other incentives offered by employers. For instance, my
employer matches every one of my dollars with a quarter. Sounds like small
potatoes, but remember the beauty of compound interest.

Of course, there are rules and regulations. You are typically limited to a
percentage of your income or $10,500 annually, whichever is less. So what
happens if you leave your company? You have 3 options: leave it as it is,
roll it over into another tax-deferred retirement account such as an IRA or
withdraw it all. However, early withdrawal penalties, that is before age
59-1/2, are stiff. Usually, it’s a 10% penalty plus any taxes owed. So, if at
all possible avoid withdrawing any funds before age 59-1/2.

Your 401K portfolio should be chosen carefully, weighing age and risk
factors. The older you are, the less stock you should have in your portfolio.
Many financial advisors suggest that your portfolio percentage of stocks
should be your age subtracted from 100. Therefore, a 25-year-old’ s portfolio
should consist of 75% stocks. However, if you’re not comfortable with that
level of risk, then simply chose fewer stocks. Do remember this: over the
last century the stock market has returned an average of 11% (this includes
all wars and the Great Depression). Your plan will most likely offer 4 to 7
investment options of mutual funds, stocks, bonds, etc. for your portfolio.
My company provides 10 options of which I have chosen 5.

Chose wisely and consider how much risk you are willing to take. Most of all,
you need to be comfortable with your choices. If you need further assistance
in choosing your investment options, check out www.morningstar.com or the
MorningStar books at your local library.

ABOUT THE AUTHOR

Tags: 401k rollovers, 401k distributions, 401K calculator, 401k laws

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If you have an online brokerage account you can find out from your broker which funds you can buy without paying a commission. Unlike stocks many of the funds can be bought at no charge through an online broker. Not every one so you have to check before you put in your order to buy.

Some investors may still want to trade stocks even though the risks of losing their money is a lot greater when you just buy common stock. If you have a retirement account it is best to keep some money in a safe investment and only commit money that you can afford to lose into stocks.

Working from home I have had a lot of time to study the stock market and how some of the sectors operate. Each group of stocks or sector of the economy has some months that are better than others so when these companies report earnings during a soft season for them their stock price drops. The decline in price is abrupt for the first few days after the earnings news comes out then it tapers off from going down so fast. While that stock is going down due to a poor earnings report another stock is going up because it had a good earnings report.

There are many other variables that act upon the price of a stock. Some affect the stock favorably while another may not. Some of the influences on the price of a stock include: a change in interest rates by the Federal Reserve, consumer sentiment toward the economy, unemployment rate, the price of energy, etc. These variables all act to move the stock market.

When you are doing your research and trying to decide which companies to invest in also look at where the stock for the companies that you are considering is on a chart. If they look like they are at 52 week highs and have been there for a while you may want to hold off on buying it until it pulls back some. Stocks almost never go up forever there is usually the pull-back period when the buying opportunities are presented.

Tags: 401K calculator, 401k contribution, 401K beneficiary, 401k loans

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Of course it would, and there are ways for the savvy investor to combine their 401k and real estate investing.

First, you could borrow funds from your 401k. This is not necessarily the best way to combine your 401k and real estate investing, but it might be worth looking into if you have no other available funds for investing. Realize that there are limits on the amount you can borrow, and the interest you pay won?t be deductible, as it would with a typical mortgage. Choose this option only after doing your homework.

The second method of combining your 401k and real estate investing is the IRA roll-over. If your 401k allows you the benefit of rolling over into an Individual Retirement Account, this may be the best way for you to go. Select a specific type of IRA- called a ?Self-Directed IRA? to roll your funds into.

The Self-Directed IRA is a very powerful investment vehicle that allows you to direct exactly how your money is invested, within certain limits. For instance, you could direct that the money be invested in a REIT (real estate investment trust), an apartment complex, or a strip mall. When you sell and realize a profit, the increase in the IRA is tax-deferred. This is a huge benefit, and you should really consider this method of combining your 401k and real estate investing.

One downside to the roll-over - you would be giving up the employer contribution portion of your 401K deposits, if any. Another reason why you should weigh this option carefully before deciding to use it to combine your 401k and real estate investing.

Finally, and the simplest method of combining your 401k and real estate investing, is to ask your 401k account manager if they allow the funds to be invested in REIT?s directly. Some do, and this is a low risk, high return strategy for a lot of investors.

Whatever you do, don?t make a hasty decision to combine your 401k and real estate investing. Each of the above methods has a different risk/reward ratio, and you should familiarize yourself with them first, before risking your hard-earned money.

Tags: 401k early withdrawals, 401k advice, 401K calculator, 401k contribution

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The key to maximizing the benefit of an individual 401(k) plan is to couple it with a profit sharing plan. That way you′ll get the benefit of contributing your own money through the 401(k) deferrals, plus the company will add its matching and profit sharing contributions. In addition, the company can usually deduct the contribution as a business expense, saving you taxes both on the business and personal sides of the transaction.

These contribution totals can quickly add up if maximized over a period of several years. The individual 401(k) deferral limit for 2006 was $15,000 for those under 50 at the end of the calendar year and $20,000 for those age 50 or older. A corporation may also contribute 25% of total compensation for the owner and spouse. This limit is slightly less for unincorporated companies or sole proprietorships, based on the individual’s compensation amount. The 401(k) contribution does not count against the company’s profit sharing contribution and vice versa. There is a total aggregate limit, however, of 100% of total compensation or $44,000 in 2006.

There are other advantages to setting up an individual 401(k) and profit sharing plan. The contribution amount is discretionary, not fixed, allowing you to reduce contributions during lean times. Loans and hardship withdrawals are also allowed under most 401(k) plans. Rollovers from other retirement accounts (IRAs, employer-sponsored plans) can usually be transferred into the 401(k), making recordkeeping and investing easier by consolidating everything in one account.

Despite these benefits, there can be some disadvantages to setting up an individual 401(k) plan. It can become significantly more expensive if you ever hire any full-time employees in the future. You would then be required to contribute on their behalf, as determined by the 401(k) non-discrimination rules. Be sure you will not need additional full-time help as your business grows before committing to an individual 401(k) plan.

There is also a significant amount of paperwork involved with setting up a 401(k) or any type of retirement plan. Most companies simply pay an administration fee to a third-party pension firm or financial institution to handle the administration and tax filings for them. The fees for an individual 401(k) plan are usually only a couple hundred dollars since the owner and possibly a spouse are the only participants.

If you are a small business owner who does not plan to have any full-time employees, you should strongly consider setting up an individual 401(k) plan. Adding a profit sharing plan can boost the amount of your maximum contribution each year and will let you build up your retirement savings very quickly. The contributions are tax-deductible to your business and tax-deferred on the individual side, giving a double tax benefit to business owners who save for retirement with a 401(k) plan.

Tags: 401k laws, 401k early withdrawals, 401k distributions, 401K calculator

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