Q: Can I tap into a retirement account to help with my down payment?

A: Ideally, the money you use for a down payment should be savings you’ve specifically set aside for a home. but if a lender demands more up-front cash than you expected, an Individual Retirement Account or 401(k) may be the only place you can turn for another $10,000, $20,000 or more.

If that’s the case, tap a Roth IRA or Roth 401(k) plan first.

Since contributions to Roth plans are fully taxed before they’re made, you can withdraw however much you’ve put into those accounts at any time without incurring any penalties or additional taxes.

If you’ve held a Roth IRA for at least five years, you can withdraw an additional $10,000 in earnings without paying any penalties or taxes to buy or renovate a first home. The next place you should turn is a traditional IRA, which will allow you to withdraw up to $10,000 for the purchase of a first home without penalty.

If you and your spouse each have a traditional IRA, then you can take $10,000 or a total of $20,000 from your two accounts penalty-free. but since contributions to traditional retirement accounts such as this are tax-deductible, you’ll have to pay income tax on withdrawals that exceed those limits.

Any withdrawals above the limits are subject to income tax and a 10 percent penalty until you reach 59½ years old.

Q: Can I take money from my 401(k) plan?

A: Your employer’s traditional 401(k) plan is the last place you should turn for a down payment.

It has no special provisions for down payments, and any “hardship withdrawals” are fully taxed and incur a 10 percent penalty until you turn 59½.

The better option is to take a loan out against your 401(k) account. you can usually borrow up to $50,000 or half the value of the account, whichever is less, and take up to five years to pay it back.

The interest you’re charged, which is generally a couple of percentage points above the prime rate, goes into your retirement account and the monthly payments are deducted from your paycheck. You’re talking about a new monthly expense that will reduce the amount you can afford to borrow for a home.

<a href="http://www.lvrj.com/real_estate/consider-other-funds-before-using-401-k-for-house-down-payment-138702389.html?ref=389tag:news.google.com,2005:cluster=http://www.lvrj.com/real_estate/consider-other-funds-before-using-401-k-for-house-down-payment-138702389.html?ref=389Sat, 04 Feb 2012 10:07:20 GMT”>Consider other funds before using 401(k) for house down payment

It’s a long journey, but you can get started with the right account.

Want to get started down the right retirement road?

One of the best things you can do today to improve your chances of a comfortable retirement is to open a Roth IRA and start contributing regularly (automatically, if you can) to a diverse set of investments.

The Roth IRA is not an investment though, like a stock or bond. A Roth IRA is simply an account within which you can hold your investments. Why would you want to hold your investments in this account versus just buying them straight up? The answer is simple: fewer taxes.

Roth IRA Basics

The Roth Individual Retirement Account (or IRA) was created in the late 90s to provide a tax break and encourage you to save money for your own retirement.

The main difference between the Roth IRA and other tax-related retirement accounts (like the 401K or traditional IRA), which allow you to avoid tax on contributions, is that the Roth allows you to avoid taxes when the money is withdrawn in retirement.

If saving a lot of money on taxes sounds like a good idea to you, then a Roth IRA is going to serve you well. Picture yourself with a healthy Roth IRA account in retirement. Now see yourself taking money from that account each month to cover your living expenses and what ever else you need. Now see yourself not paying any tax on those withdrawals. Nice, right?

Another difference between the Roth IRA and the 401K is your ability to control the investments. With your company 401K you’re pretty much stuck with the investments that your administrator will offer you. on the contrary, you can open a Roth IRA where ever you like, and it can contain just about every investment type under the sun.

Not everyone can participate in this type of account though. To be able to contribute your adjusted gross income (check your latest tax return) must be less than $122,000 if you file your taxes individually or $179,000 if you file with your spouse as a couple. FYI – those are 2011 numbers. Be sure to check the latest numbers.

Roth IRA Annual Contribution Limits

Additionally, you can’t just throw a bunch of money into this account all at once. Contributing too much will trigger an excess contribution tax and penalty.

For some reason the government felt the need to force you to slow-play your savings efforts. Right now (2011) you can contribute up to $5,000 each year to your Roth IRA. like the income limit above, this changes periodically so pay attention to dates. Also, there is a “catch-up” rule that allows folks 50 and older to contribute an extra $1,000 each year.

Where to Open a Roth IRA

Most banks and large financial institutions will offer Roth IRAs. I typically don’t advise this route as not only are the accounts typically restrictive, some come with administrative fees. Just stay away from the banks when it comes to your retirement accounts.

You could also open a Roth IRA with a mutual fund company like Vanguard. Keep in mind that these companies typically have minimum contribution limits in the thousands. Also, they only offer their investments. So for instance, you couldn’t have a Roth IRA with Vanguard and invest in individual stocks. not necessarily a bad thing. Just a difference.

If you have a small amount to begin investing, you may want to start with a discount online broker like Scottrade or Sharebuilder. They have no-fee IRAs with very low minimums, if any.

I could go on an on about why the Roth is a good retirement account, but I think you’ve got the basics down now. There’s no reason not to own one really. All that’s left to do is figure out what investments you actually want inside your account. We’ll leave that lesson for another time.

Do you have a Roth IRA? What’s your favorite thing about the account?

photo by moyerphotos

Tagged as: investing, retirement, roth ira, taxes

Begin Your Retirement Savings Journey with a Roth IRA

401k and IRA Rollovers – Direct IRA Rollover Rules – 20% IRA Withholding Law

What is a Direct IRA Rollover?

A Direct IRA Rollover is when your 401k retirement savings (or 401k distributions) are transferred directly from your old employer’s account to your own Individual Retirement Account through a trustee-to-trustee transfer. this means the money never actually reaches your hands, it is wired from your old 401k administrator to your new one. With this method, no taxes are withheld and you will NOT have to pay any penalties

If you own your employer’s company stock as part of your retirement savings portfolio, you have 2 options available:

1. you can transfer your company’s stock directly to your IRA Rollover Account without liquidating the stocks.

2. you can sell the stocks at current market prices and rollover the cash to your IRA Rollover Account. you will NOT have to pay any taxes on this, provided you do the rollover WITHIN 60 days.

What if i take a 401k Cash Distribution and do NOT Rollover into IRA?

If you take the cash from your old employer administered 401k plan instead of rolling it over to a Rollover IRA, you will have to pay early withdrawal penalties (10%) and a 20% tax withholding fee. For example, consider this scenario:you Receive 401k Cash Distribution = $100,00020% Required Withholding Tax = $(20,000)Your Check in the Mail = $80,00010% Early Withdrawal Penalty Fee = $(10,000)Federal Income Tax Extra of 10% = $(10,000)7% Local State Income Tax = $(7,000)You Receive = $53,000

* The above example assumes the 401k retiree is less than 59 and 1/2 years old and has to pay the 10% Early-Withdrawal Penalty fee. However, if you are older than 59 and 1/2, this 10% early-withdrawal penalty fee does NOT apply to you. The above example also assumes a Local State Tax rate of 7% (varies from state to state) and a Federal Tax Rate of 30% (20% Withholding Tax + 10% Federal Income Tax)

20% IRA Withholding Law

If you change your job or officially retire, the total 401k Retirement Savings you receive could be less than you expect. this is because companies by law are required to withhold 20% of your entire 401k savings account for tax purposes. this applies only to qualified retirement plans and includes 401k plans, 403b plans and other profit sharing plans.

This law is implemented to discourage retirees from withdrawing money from their plans early on and let it earn the power of compounding interest. this 20% IRA Withholding law can be overridden by doing a 100% Direct IRA Rollover to your own Individual Retirement Account (IRA).

The 20% Withholding Law does NOT apply to:

- SEP-IRA- SARSEP-IRA

Your Age and IRA Withdrawals

- if you quit your current job with no intention of returning (aka “Separation from Service”) during or after the age of 55, you are allowed to make withdrawals from your retirement savings account without paying the 10% early withdrawal penalty. Read your 401k Summary document to determine whether you are allowed to make any withdrawals in the course of your employment contract. most employers do not allow employees to withdraw money from their 401k plans during their working life.

Do you or your financial advisor maintain a Roth IRA? if so, we have great tools, articles & resources on our website http://www. definerothira. com

401k and IRA Rollovers – Direct IRA Rollover Rules – 20% IRA …

Roth Ira Options Trading

You can trade in stocks only through the stock brokers. you can open an account only if you are a US citizen, or, a resident alien. In both cases you need to provide your valid social security number. you must have become a major, at least 18 years old in your state of residence before you can apply for opening a trading account. Roth Ira Options Trading

Usually there are four main types of stock trading accounts. they are individual accounts, joint accounts, IRAs —Individual Retirement accounts, and Education Savings accounts. you have to select one of these accounts according to your personal needs and circumstances. you must be ready to deposit a minimum of $ 2,500 irrespective of the account you open. you can fund your account via free electronic transfer directly from your current bank account. you can also pay by check or wire transfer.

The individual investment account can be opened in the name of one person. Joint account can be opened for two people. It is also mandatory that both the persons should have reached the age of majority in their state of residence.

The third type of stock trading account is IRA or individual retirement account. It is a personal retirement savings account. It offers tax advantages to investors. you can deposit a part of your earnings into a tax-deferred brokerage account. your contributions are also tax-deductible.

Individual retirement account-IRA– is of three types.

The first type is traditional IRA. In this account, you can defer the payment of taxes on your earnings until you start taking the money out. The money that you put in is tax deductible in the year you put it in. The investors who are up to the age of 50, or under by the end of the year, can currently contribute up to $ 5000 every year, but those who are up to the age of 70 can contribute $ 4,000.

The benefit of investing under the traditional IRA is that you do not have to pay any taxes on what you earn till the time you start withdrawing the money. This process is known as tax deferment. This account makes sense because by the time you retire, you may be in a lower tax bracket. In that case, you will have to pay less in taxes on earnings from your IRA account. Roth Ira Options Trading

The second type of retirement category account is Roth IRA. This account is similar to the traditional IRA except that you pay taxes on the money you put in while you can withdraw money without paying any tax. Those who are up to the age of 50 can currently contribute up to $5,000 every year and those who are up to the age of 70 can contribute up to $4,000. you should opt for a Roth IRA if you think you will be in a higher tax bracket when you retire. if you invest under a Roth IRA, your investments can grow tax-free. you can withdraw money after a period of 5 years from the date of opening your account without paying any tax with the proviso that you have turned 59. The withdrawal can also be tax-free if it is used for a first time home purchase up to a limit of $10,000. you will, however, have to pay 10% penalty if you withdraw early.

The third type of account in retirement category is Rollover IRA. a Rollover IRA is a holding account. if you transfer funds or stock from a retirement plan such as a 401(k) or 403(b), the money or stock can be allowed to stay in the Rollover account for a period of 60 days. thereafter you will have to place the funds into another retirement plan. you can control your account during these 60 days. It must be noted that you cannot avail of this facility more than once a year

The fourth type of account is Education Savings Account or ESA. This account can be opened as a trust to pay educational expenses of the designated minor beneficiary and no contributions can be made after the beneficiary has reached the age of 18. The total contributions cannot exceed $2,000.

The trading account opening process with a stockbroker is very simple. It can be completed minutes. you can choose your own username and password to log into your account and then enter your personal information. you also need to read and confirm the account opening agreement. thereafter your broker sends you verification email, which you have to respond to confirm having received it. This will ensure that the address you provided was correct. Roth Ira Options Trading

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Roth Ira Options Trading – Stock Trading Account | Article …

How to choose the best Individual Retirement Account

Feb 3, 2010 Rebecca Lake

An individual retirement account (IRA) allows taxpayers to save for retirement in place of, or in addition to, an employer-sponsored retirement plan. a traditional IRA and a Roth IRA each have specific advantages and disadvantages. Determining which type of IRA to invest in is based on a number of factors, including income, your tax filing status, age, and individual retirement goals.

Determining Eligibility

The IRS has established specific guidelines regarding contributions to traditional IRAs. anyone with earned income may contribute up to a $5,000 to a traditional IRA annually; however, each individual’s ability to deduct the maximum contribution is based on their filing status and adjusted gross income.

The IRS rules for Roth IRA contributions are slightly different. Not everyone is eligible to contribute to a Roth IRA. To be eligible to contribute the $5,000 maximum to a Roth IRA, adjusted gross income must be no more than $105,000 for single filers and $166,000 for those who are married filing jointly. for 2010, the amount for married filing jointly increases to $167,000.

Age Considerations

Contributions can be made to a traditional IRA up until age 70. Beginning at age 70 1/2, the IRS requires that individuals begin taking a required minimum distribution from their traditional IRA. if the required minimum distribution is not taken, the funds in the account are subject to a fifty percent tax penalty.

With a Roth IRA, contributions can continue beyond age 70 and there is no point at which a minimum distribution is required. The ability to continue making contributions might appeal specifically to someone who plans on leaving their Roth IRA to a spouse or other beneficiary, as it allows them to continue growing their savings tax-free.

Tax Advantages of Traditional IRAs

With a traditional IRA, contributions are tax-deductible for those individuals who don’t currently participate in an employer-sponsored retirement plan, such as a 401(k). for those who do participate in an employer-sponsored plan, the maximum amount that may be deducted is determined by their modified gross adjusted income (MAGI).

Tax Advantages of Roth IRAs

While contributions to a Roth IRA are not tax deductible, any withdrawals made after age 59 1/2 are not subject to income tax as long as the original contributions were made at least five years prior.

Withdrawal Penalties

The IRS assess specific penalties for withdrawals made prior to age 59 1/2. Early withdrawals from a traditional IRA are subject to a 10% early withdrawal penalty and regular income tax. Qualified withdrawals after age 59 1/2 are still subject to regular income tax.

Withdrawals of earnings from a Roth IRA before age 59 1/2 are also subject to the same ten percent penalty and regular income tax. Contributions to a Roth IRA may be withdrawn any time without paying the ten percent early withdrawal penalty or income tax.

Funds may be withdrawn from a traditional IRA may be converted in order to convert to a Roth IRA, but withdrawn funds are subject to a 10% early withdrawal penalty as well as regular income tax.

Exempt Withdrawals

There are certain instances where IRA withdrawals may be made without incurring a ten percent withdrawal penalty or taxation. Funds may be withdrawn from an IRA in any amount to pay for qualified education expenses, including tuition, fees, supplies and equipment, and room and board. up to $10,000 may be withdrawn to purchase a first home. In these instances, the 10% early withdrawal penalty would not apply but funds may still be subject to regular income tax unless.

Choosing the right type of IRA requires some planning and strategy on the part of investors, and the pros and cons of both traditional and Roth IRAs should be weighed carefully before making a decision. each can help investors to reach their retirement goals and protect their financial future.

Source: Internal Revenue Service IRA Online Resource Guide, 2009

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  Traditional vs. Roth IRA for Retirement Savings – penywise

Comparing Traditional vs. Roth IRAs: How to Choose the Best …

Starting in 2010, the federal government has new rules that encourage converting a traditional IRA to a Roth IRA. This has been discussed ad nauseam throughout the financial media. However, one important consideration not usually discussed is the impact a conversion has on your state taxes. Here in Massachusetts converting a traditional IRA to a Roth IRA will also be subject to state income taxes. as such, the cost of this levy should also be considered.

Massachusetts tax law does not allow a deduction for contributions to a traditional Individual Retirement Account. (Why would Massachusetts want to allow a deduction and encourage something as frivolous as retirement savings?) If you convert your IRA account to a Roth IRA, the portion of your IRA account relating to contributions previously taxed in Massachusetts will not be subject to state income tax. However, untaxed contributions as well as any accumulated earnings and appreciation in your IRA will be subject to the 5.3% Massachusetts income tax. Under the federal guidelines, you will be allowed to pay any tax on this conversion in the current year, or defer it and pay half in 2011 and half in 2012. This two year payment option has also been adopted in Massachusetts.

Here are two examples as provided by the Massachusetts DOR:

“A taxpayer eligible to make a 2010 rollover, has a $20,000 traditional IRA, which is comprised of $10,000 of contributions that were deducted for federal purposes but subject to Massachusetts tax, and $10,000 of accumulated earnings or appreciation. If the taxpayer rolls over the traditional IRA into a Roth IRA, the entire $20,000 would be included in federal gross income in the taxable year beginning in 2010. However, the taxpayer may elect to defer the inclusion in federal gross income ratably over the two succeeding taxable years: $10,000 for the taxable year beginning in 2011 and $10,000 for the taxable year beginning in 2012.

Section 2(a)((3)(A) of chapter 62 provides that only the portion of the rollover previously not subject to Massachusetts taxation, in this case, the $10,000 of earnings and appreciation, will be included in Massachusetts gross income in 2010. If the taxpayer elected to defer payment of federal income tax, the taxpayer must also defer the inclusion in Massachusetts gross income ratably over the two succeeding taxable years: $5,000 for the taxable year beginning in 2011 and $5,000 for the taxable year beginning in 2012.”

In my case, much of my IRA account is a rollover from a 401(k) account. I did receive a deduction in Massachusetts for these contributions. as such, if I chose to convert to a Roth IRA, the entire amount of the conversion will be subject to Massachusetts income tax of 5.3 percent. This is a big consideration. If you are planning on moving to a no income tax state upon retirement, i.e. Florida or New Hampshire, you may not be subject to state income taxes upon drawing of the IRA accounts. Consequently, a conversion may subject you to Massachusetts income tax now where as not converting you may not be subject to state income taxes at all.

Massachusetts also taxes Roth IRA conversions

I have a retirement plan from my former employer. Is it better to roll this over to an IRA or keep it where it is?

When you change jobs you should consider all of your options. First, you can withdraw all of the funds in a lump sum. I generally do not advise this unless you are in dire straits and need the money. if you are younger than 59 you will likely face a 10 percent federal penalty for early withdrawal and the entire balance will be taxed as ordinary income.

A second option is to leave the funds where they are, but if your balance is $5,000 or less, your employer may force you to remove the funds from the plan. if your balance is higher and you leave the funds, your investment choices are limited to only those options in the plan.

A third option is to roll over the funds to an Individual Retirement Account, or IRA. by doing this, you continue the tax deferred nature of the funds. you can transfer the funds to an IRA that you already have or open a new Traditional IRA to receive the funds.

Some employers will send you a rollover check for the proceeds from your account. if so, be sure to deposit those funds into an IRA within 60 days to avoid getting taxed.

Generally, the best way to roll over funds from your employer’s retirement plan is with a direct rollover. this is a seamless transfer of assets from your former employer to your new IRA custodian.

Saving your nest egg after getting a new job

A Roth IRA is a type of retirement investment account that an individual can start withdrawing from at the age of 59 and a half without paying taxes on it. Open a Roth individual retirement account by visiting a local financial institution with tips from a futures and options floor trader in this free video on personal finance. Expert: mark Griffith Bio: mark Griffith has graduated in economics and philosophy at Clare College, Cambridge. He has been a futures and options floor trader at LIFFE (London International Financial Futures Exchange). Filmmaker: Paul Volniansky

1. Personal Finance & Investing : How Do Bonds Work?
2. Personal Finance & Investing : How to become Wealthy
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Personal Finance & Investing : How Does a Roth IRA Work? | Finance

You have to do something today to make sure that you will have enough funds when you retire from employment. it does not really matter whether you are a simple employee or a businessman. the target retirement income amount may vary but the fact remains that we all need some amount of money to live on during the time when we are no longer able to work for a living. an Individual Retirement Account or an IRA is one of the instruments that you can use to take charge of the way your retirement income instrument is set up. an IRA allows you to choose from a host of retirement acounts and employ a variety of investment strategies in order to come up with the kind of retirement income accumulation that you intend.

As compared with a 401k plan, an IRA provides more options and allows for more flexibility. This means that you are not limited to particular investment instruments or investment strategies that are put in place by your employer as in the case of 401k plans. Those whose employer 401k programs are set in place and managed using sound financial planning analysis are in good shape. Those, however, who would much rather make the investment decisions themselves would be better off with their own personal IRA. This makes not only stock and bond market instruments but other instruments as well including index funds.

An individual account would be a good option for you if you are financially savvy and know how to read the economic scenario quickly. you have to know how to do your own financial planning analysis if you are to maximize earnings on your IRA. you would not want to miss out on great opportunities to earn more on your money by having to dilly-dally around on an investment decision. it is important to have a good grasp of investment concepts when you decide to set up your own individual retirement account.

This entry was posted on Sunday, February 28th, 2010 at 9:11 pm and is filed under about retirement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Personal IRA – Taking Charge of Your Retirement Income

If you’re looking to retire, a Roth IRA may be exactly what you’ve been looking for. however you should look at the pluses and minuses of the Roth IRA over a standard IRA. If you don’t know, an IRA is an individual retirement account, primarily used for accumulating wealth for retirement.

Roth IRAs are different than standard IRAs however in multiple ways. First, there are eligibility requirements that must be met. Income guidelines are one of the Roth IRA contribution rules which is different than the age rule required by a standard IRA. That means that in order to contribute, a person has to make less than a certain income each year.these income tables change from time to time and you should look at the latest requirements for this year.

Next, learn about the advantages and disadvantages that you face having a Roth IRA. One advantage is tax-free withdrawals from your Roth IRA at any time. on the other hand, any contributions you make are unfortunately not tax deductible.

a Roth IRA may be passed onto heirs, unlike Social Security benefits.We see it becoming more and more the IRA of choice for people wanting more flexibility. another benefit is that a Roth IRA will help you be better prepared for retirment. Something else you may be interested in knowing is that starting in 2010, there are no restrictions on converting a traditional IRA into Roth IRA contributions

You will like the amount of flexibility that comes with investing for your future in a Roth IRA. Starting a Roth IRA can be beneficial, but only you will know if it’s right for your family after investigating the pro’s and con’s. however, its universally important to save for your retirement. If you are going to choose a traditional IRA over a Roth IRA you must be confident that the money you are contributing won’t be needed prematurely. To start investing your future in a Roth IRA, talk to an accountant.

Confused about the different kinds of IRA accounts for you retirement investing? To find out about the different types of IRA’s and which one is the best IRA Investment for you, go to IRA comparison.

Tags: roth ira contribution, social security benefits, roth ira contribution rules, ira contribution rules, roth ira contributions, roth iras, roth ira information

Roth IRA Information for You and Your Family | IRA Comparison