401k Contribution Limits 2018

Posted on by Ryan

Everything you need to know about your 401k contribution Limits 2018. Most families don’t have the advantage of multiple tax sheltering opportunities. A small business, a farm, or nine children are available to only a few, so tax reducing techniques may difficult to come by. As a result, perhaps the single greatest tax sheltering device that most families possess today is their 401k retirement plan.

In this article, we will discuss 2018 contribution limits. (Related: 401k contribution limits for 2019). We will also assess 401k catch-up contributions and 401k matching rules.

401k Max Contributions

For 2018 the 401k limits are set at $18,500. This is the maximum annual 401k contribution allowed by law. This is a figure that has climbed 65% from $10,000 in 1999, thereby allowing participants to have larger retirement plan tax deductions than ever.

401k contribution limits 2018 will remain the same as in 2017. With 2018 contribution limits now attached to certain inflation indexes, the IRS and Treasury departments have determined that there will be no increase in 2018 maximum contributions. Many experts were expecting a decrease of 2018 401k contribution limits, primarily because of the somewhat deflationary environment we currently find ourselves in. It is important to note that all future adjustments will also be tied the same index. Check out our article on the rules for 401k distributions.

401k Catch-Up Contributions

In addition to the above, 2017 401k catch-up contributions are $6,000. The 401k catch-up gives participants 50 years old and older the ability to sock away a little extra before retirement. The 2018 401k catch-up will also remain at $6,000. Future catch-up contributions will be indexed for inflation in the same way deferrals are currently.

401k Matching Rules

If you’ve been a part of a retirement plan recently, you may have lost your 401k match. Many businesses, both small and large, have simply found that cutting the retirement plan match makes sense to the ongoing health of the business. Employers are looking under every stone for ways to save money, and 401k matches are not immune.

A 401k match typically involves employer contributions to the employee’s account based upon the employee’s deferral. Many employers match dollar-for-dollar, where others contribute less, i.e. 50¢ on the dollar.

Employers are allowed by law to match up to 6% of the employee’s salary. For example, if an employee makes $50,000 per year, the maximum employer match to the employee’s 401k account would equal $3,000. For those of you who are self employed read about the safe harbor 401k plan!

401k Contribution Limits 2018 Summary

401k contribution limits for 2017 and 401k contribution limits for 2018 are set at $18,000 and $18,500 respectively.
Catchup contributions for 2017 and 2018 are set at $6,000.
401k Matching rules allow for matching up to 6% of the employee’s salary.

Fidelity 401k Loan – Everything You Need To Know

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For many when starting their new job thought of participating in a 401k plan was exciting. A place to store thousands and thousands of dollars, safe and secure, awaiting retirement. Then life happened. The transmission went out. Your son broke his arm. The tree fell onto the house. And that was just last month! Now what? Well, you invade the 401k, of course. But, as a wise man once said, “It is characteristic of wisdom not to do desperate things.” So, before we do desperate things, let’s look at some of the pros and cons of taking out a fidelity 401k loan.

Taking A Fidelity 401k Loan – Pros & Cons

First the pros:

401k loans are fairly easy, if your employer offers it. Actually, it is almost too easy. Please remember, you are borrowing from your future. Your entire retirement may depend on the precedent set by you on this matter.
No interest. If you do pay interest, it goes right back into the account. That’s a pretty good price to pay for money.
No formal application to fill out and no waiting for approval. Since there is no credit check or waiting lines at the bank, the process can be done very quickly.

Now the cons:

Human behavior. Yes, this is what gets us all. We are capable of deceiving ourselves into thinking, “just this time”. “It will never happen again”. Well, it generally does happen again. And when it does, we may wish we
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had acquired the funds from a different source. This leads us to our next bullet……
A 401k loan default. If you terminate your employment, your loan will need to be paid back almost immediately. If you don’t pay back the loan, the borrowed funds are considered a 401k distribution. And you will have federal income tax due on your tax return, and also a 10% penalty to boot.
Possible unforeseen fees. Pay attention to the fine print and ask questions. Several times.
Loan Limits. Most often the amount you can borrow from your 401k plan is the lesser of $50,000 or 50% of your plan balance.
You will have to pay it back. Now that statement seems obvious, but repeat the phrase, “I will have to pay this back” repeatedly before you initiate the paperwork.
Not all plans allow for 401k loans. Even though the law allows borrowing from a 401k, your employer doesn’t have to.

401k Loan Fidelity – What are some alternatives?

First, do you really need the money? Is a 401k loan absolutely necessary? Absolutely?
Can you borrow the money from a family member?
Can you sell something of value that you don’t really need anymore? This is often the best way to raise some cash.
Have you considered a home equity loan?
Can you extend the current debt that you’re borrowing against your 401k for?
Do you have any low-interest credit cards? Yes, credit cards. Really. Not all would agree, but in most situations I would advise the use of a credit card rather than taking out a 401k loan.

Yes, 401k loans are fairly straightforward. You borrow the money from yourself, and you pay it back over time. You can do it. It is legal, but just remember that you may not like the consequences.

401k Distribution Rules – Everything You need to Know

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401k Distribution Rules

As you read thru this article keep something in mind………the IRS has permitted tax benefits to families by way of the 401k for many years. Primarily intended to permit individuals to salt away extra cash for their own retirement, participants have responded. 401k plans now make up the largest employer-sponsored retirement account type in existence. Knowing the 401k distribution rules will help you decide the best path for you.

But, you’re reading this because it is now time to retire or it is time to tap the 401k for some much needed cash.

Whatever the reason, care must be taken to abide by the 401k distribution rules. Otherwise, Uncle Sam may become more involved in your life than you ever believed he could be.

In an attempt to simplify the concepts of 401k withdrawals, I have boiled them down to two types.

1. Early 401k withdrawals and,
2. Withdrawals made at the age 59½ or older.

Let’s start with……

Early 401k Withdrawal

An early 401k withdrawal has the likelihood of creating two taxable situations on your tax return.

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In addition to paying Federal income tax on the amount withdrawn, 401k early withdrawal penalties at a rate of 10% on the distribution amount will generally be required of you as well.

Congress had enough foresight (I can’t believe I actually wrote that) in the early years to understand that if participants were going to contribute to their own 401k account, they should have some access to their money.

So Congress put in a 401k hardship rule (this hardship rule also exists for 403b plans and 457 plans). These rules make allowances for early 401k withdrawals in a limited number of situations. Here are the exceptions:

Expenses for medical care for an immediate family member.
Costs directly related to the purchase of a principal residence.
Payments of directly related educational fees, including room and board, for the next 12 months of post-secondary education for the employee or an immediate family member.
Payments necessary to prevent the eviction of the employee from his/her residence.
Funeral expenses.
Certain expenses relating to the repair or damage of an employee’s principal residence.

“It’s important to note that the above exceptions simply specify conditions when a participant may have access to 401k funds. They are not exceptions to penalties or tax.”

401k withdrawal penalties will not apply if distributions before age 59½ are made in any of the following circumstances:

Payments made to the beneficiary after the death of the participant.
Disability of the participant.
Substantially Equal Periodic Payments after separation from service.
Payments made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55. More on this below.
Payments made to an alternate payee under a qualified domestic relations order.
Distributions to a participant for medical care up to the amount allowable as a medical expense deduction.
Distributions to correct excess contributions, match, or deferral.

Although the IRS makes provisions for early distributions, your employer’s plan does not have to allow those distributions. Many employers do not allow premature distributions because of the added administration costs incurred.

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As briefly noted above, a 401k withdrawal penalty does not apply to employees who separate service from their employer in or after the year they have reached the age of 55 (for qualified public safety employees that age gets moved back to age 50!)

Let’s re-phrase this exception. The 401k distribution rules state that you can begin taking a 401k early withdrawal in the year you turn 55 or later from your current employer only. Therefore, it may make good financial sense to roll older 401k’s into your current employer before you retire.

Distributions at age 59½ or Older

If your intent is to withdraw 401k assets at retirement, 401k withdrawal laws allow for these three options. Each item assumes that you’re at least 59½ and you are no longer employed by your employer.

Take a lump sum. Your provider will write you a check after holding out 20% of the balance. This 20% is simply a required tax deposit on the 401k distribution. As you file your taxes the following year, the withdrawal will be included in your total income via a 1099 tax form. Whether the 20% Federal tax withheld is enough or too much depends on your particular tax situation for that year.
Do nothing. Leave your plan assets with your employer. There is no tax consequence as no money is withdrawn.
Rollover 401k to IRA. There is no tax implication of this is done correctly.

401k withdrawal rules can be extremely complicated. Contact your financial advisor or CPA for more help.

Using 401k For Down Payment – Is It Right For You?

Posted on by Ryan

After adding money to your 401k plan over several years, you may have built up a lot of money inside your 401k accounts. These accounts could be a desirable supply of funds for investing in a home. Nevertheless, there tend to be rules as well as restrictions upon withdrawals from the 401k accounts. Fortunately, there may be a way for you to make use of the money within your 401k plan. One great way is using 401k for down payment.

Some 401k programs allow participants to consider a loan from the funds inside the 401k. Usually, the 401k plan will limit the quantity of the loan to some certain percentage from the total balance. This implies that you cannot borrow all the money inside your plan, are just some of it. Nevertheless, this quantity may be significant enough to become useful for the long-term objectives. Check out our 401k calculator to see the impact loans can have on future earnings.

Borrowing From 401k Plan

Here’s a screenshot showing what loans you have available through your 401k plan if you’re using Fidelity.

When a person borrow money from the 401k plan, you borrow the cash from yourself. In additional words, the money is withdrawn out of your account as well as distributed for you. That means there isn’t a credit check as well as your credit score doesn’t impact in your loan rate of interest. This is because, there isn’t any risk in order to any lender. You are repaying yourself. Actually, the curiosity you pay about the loan goes straight into your personal 401k accounts. It does not go into any financial institution or loan provider.

Be Aware Of The Rules When Using 401k For Down Payment

However, it doesn’t mean you are able to control how so when you pay back the mortgage. The INTERNAL REVENUE SERVICE has requirements that must definitely be met concerning 401k financial loans. As this kind of, the plan may have a set rate of interest that you need to pay whenever you repay the actual loan. Additionally, you should make well-timed, regular obligations, just like every other loan. Usually, most 401k programs require that you simply make regular monthly obligations to be able to fulfill this particular requirement.

When using 401k for down payment you need to be aware of possible negative situations that may arise. It is necessary that a person make your own 401k program loan obligations. While you will find no lenders involved, and therefore there isn’t any damage for your credit score or credit history, there could be substantial taxes repercussions with regard to failing to settle the mortgage as decided. Any mortgage principal that isn’t repaid is recognized as a distribution through the IRS. Which means that the entire amount associated with any delinquent loan stability is taxable because ordinary earnings. Even worse, if you’re under grow older 59 1/2, then your distribution is going to be considered an earlier distribution and could be susceptible to a 10 % tax fee.

“Using 401k For Down Payment Does Have Its Advantages!”

I would advice against using 401k for down payment, if you already have the cash sitting around. Otherwise, the advantages of using 401k for down payment to purchase a house are extremely advantageous to many people. Nevertheless, it is essential to realize that though it is financing to yourself, it continues to be an actual loan, also it must end up being repaid. If you’re able to do do that, then borrowing using 401k for down payment can be a smart method to finance your house purchase.

Should I invest in my Company Sponsored 401K Retirement Plan?

Posted on by Ryan

Should I invest in my company’s 401k plan? The answer is YES!!! Take advantage of your company sponsored 401k retirement plan.

Government programs for retirement income, like social security, are becoming very unpromising. And retirement healthcare has been so up in the air lately in the political world. So many changes…who can keep track?! A Company paid Pension Plans are almost extinct now, too!

Well one thing that I do know is that no one is guaranteed to pay for your future…except for you! If your employer doesn’t offer a 401k, then you should think about planning for retirement without a 401k plan.

Reasons why to invest in your company sponsored 401k retirement plan

Most plans have a match % (which means they give you the matched amount for FREE! If you don’t invest at least the matched amount, you are missing out on free money!
The money is invested pre-tax, out of your paycheck before the taxes are taken out.
Yes, the plan is often based on funds that are based on the stock market (so there is some risk involved), but that means the potential for growth is big! Remember, the bigger the risk, the bigger the potential returns.
You do usually have the power to choose your risk and diversify! Many companies offer “safer” choices for employees nearing retirement (usually funds recommend to have more aggressive investment strategies when you are younger, and safer ones as you get older.
The fund always has an investment manager or help person that you can ask questions to! They can help you pick what is best for you, your family and your future!
You can use our free 401k calculator to find out how much money you should be saving, based on your age and expenses.

Have you been putting any money into your 401k, yet? Do you wish you would have started sooner?