- The Finance Gourmet

Roth 401k and Roth 457 Plans

January 17, 2023July 16, 2022 by Finance Gourmet

By now, many people are familiar with the basic concepts of a 401k retirement savings plan. But did you know there are different kinds of 401k plans? Do you know what a 457 plan is, or what its variation, the Roth 457 plan is? If you already have a good understanding of regular 401k plans, or traditional 401k plans, then it’s pretty easy to see the difference. If not, don’t worry, we’ll walk you through it step by step. Standard Features 401k and 457 Plans The regular parts of a 401k plan are relatively well known. An employer must start and run the 401k plan. Contributions made to the 401k plan are traditionally made with pre-tax dollars. That means that you pay no taxes on the amounts you contribute to a 401k plan. Also, no capital gains taxes or taxes on dividends are due while the money grows inside of the 401k savings plan. In exchange, you cannot withdraw money from a 401k plan prior to age 59 1/2 except in very specific circumstances without penalty. In addition, you will have to pay taxes on the money as you withdraw it from the account. And, finally, once you turn 70 1/2 …

How To Use Roth 457 Plans

January 17, 2023April 23, 2022 by Finance Gourmet

When it comes to retirement planning, 457 plans are kind of the neglected younger sibling of the better known 401k plans. Both are employer sponsored retirement plans, meaning your employer has to set them up for you, unlike an IRA or Roth IRA which are individual retirement plans. However, a 457 plan is a special retirement savings plan in that it is only allowed for certain organizations, specifically governmental employers and non-profit employers. The non-profit 457 plans are known as non-governmental 457 plans and are less flexible. For governmental 457 plans, the main advantage is that unlike 401k plans, there is no 10 percent penalty for withdrawing money from a 457 plan prior to age 59 1/2 like there is for a 401k savings plan. However, withdrawals from a 457 plan are taxable, just like withdrawals from a 401k plan are taxable. Which brings us to the Roth 457 savings plan. Roth 457 Retirement Plan As you can probably guess from the name, a Roth 457 plan has similar tax-advantages to a Roth IRA, or Roth 401k, namely that withdrawals from the account are tax-free, rather than taxable. In exchange, you do not get the up-front tax savings from your …

401k Contribution Limits 2022 and 2023

October 31, 2022March 22, 2022 by Finance Gourmet

401k contribution limits prevent higher income taxpayers from stuffing too much money tax-free into their 401k plans. Each year, the IRS adjusts tax numbers due to either tax law changes, or statutorily mandated adjustments. However, in some cases, the tax amounts are tied to inflation so that they automatically adjust. In many cases, numbers are only modified for the current tax year when a certain limit or threshold is met. Limits for 401k contributions are indexed to inflation and adjusted every year in this manner, provided there is enough change caused by inflation to modify the numbers. 2022 401k Contribution Limits The current 401k contribution limits for 2022 were set by the IRS in late 2021. These limits are tied to an economic index that measures the overall cost of living. The index is designed to rise with inflation. By tying 401k contributions to the index, Congress doesn’t have to pass a law to change the 401k income limits or maximum annual 401k contribution amounts for 2022. The 2022 maximum 401k contributions limits are higher than they were in 2020 because there was enough inflation during the year to cause an increase. Check out this close look at the details of Acorns …

Where Is My PERA 401k History?

December 13, 2021 by Finance Gourmet

the history of pera 401k accounts is missing

Did you login to PERA 401k account and find all of your historical data missing? Do you wonder where your PERA 401k history is on the website? I had the same questions when I tried to log in and plan out buying some PERA retirement years with the 401k. Turns out, there is an easy answer to why all of your PERA 401k data is missing. PERA Changed Custodians If you have a balance in the PERA 401k, then you got the same mailers, emails, and notifications I did. You probably took a quick look at them and figured it wouldn’t matter and decided to ignore them, like I did. That is where the answer lies, however. The PERA Board of Trustees decided they could do better for PERA members. For an organization as large as PERA, doing better usually means lower expenses. 401k Blackout Period Once PERA figured out that they wanted to change 401k custodians, they needed to figure out how. For better or worse, the process of changing 401k administrators is highly regulated with a whole host of rules that must be followed. One of the rules that migrating 401k plans must follow is the imposition of …

Retirement Tax Triangle for Better Retirement Planning

November 15, 2021 by Finance Gourmet

Financial advisors make their bread and butter from retirement planning. Unless you’re wealthy (or young), chances are that most of your money is in your retirement savings and home equity. That makes your retirement accounts the main interest of most financial advisors, so it’s in their best interest to make it sound complicated. Unfortunately, they are right. There are a bunch of little tricks to good retirement planning. Fortunately, most of them are easy to straighten out, like the tax triangle. Retirement Taxes Welcome to Retirement. Oh, while you’re here, we need to tax those 401(k) withdrawals. All too many new retirees find themselves surprised that withdrawals from their 401k accounts are fully taxable. It’s an easy mistake to make. After all, when you contributed money to your 401k it was tax-free (technically, pre-tax, but same difference). And, while all of that money sat in your 401k earning interest and dividends, it was tax-free. So, why wouldn’t it keep being tax-free? Unfortunately, that’s the deal you make with the IRS. A 401k plan is actually a tax-deferred account. As the name implies, the IRS allows you to defer, or wait, to pay the taxes. It is a huge advantage and …

New 2022 Tax Numbers Released – Good News for Taxpayers

January 22, 2023November 12, 2021 by Finance Gourmet

The IRS just released the new tax inflation adjustments for 2022. As you are likely aware the IRS adjusts some tax deductions and income limits for inflation each year. The new 2022 tax numbers are higher across the board thanks to higher inflation numbers than the last few years. New 2022 Standard Deduction The Trump tax changes implemented under the Tax Cuts and Jobs Act made the standard deduction higher and eliminated some itemized deductions. As a result, far more people take the standard deduction on taxes than did before. The law did remove the limitation for itemized deductions that do remain. 2021 standard deduction numbers can be found here. The standard deduction for 2022 for married filing jointly is $25,900. The standard deduction for 2022 for single filers is $12,950. New 2022 Tax Brackets The tax brackets for 2022, more formally known as the Marginal Rates, reflect higher starting incomes for each tax bracket in 2022. 2021 tax brackets information is here. New 2022 Tax Brackets Single Filer New 2022 Tax Brackets Married Filing Jointly New 2022 Flexible Spending Accounts (FSA) Limits The new limit for Flexible Spending Accounts, or FSA accounts, is $2,850 with a maximum carryover of …

401(k) Plan Blackout Period

December 8, 2021September 23, 2021 by Finance Gourmet

With the meltdown of the banking industry just the latest in a long line of shenanigans that Main Street remembers happening thanks to Wall Street, it is no wonder that ordinary people are nervous about their finances. In particular, many people are worried about their 401(k) and how they will ever be able to retire if things keep happening to their hard-earned savings and investments. That is why getting an official looking letter in the mail or delivered at work informing you of your “rights” and about an upcoming blackout period can make even savvy investors nervous. Fortunately, it is usually nothing to worry about. 401K Changing Plan Administrators All 401(k) plans are administered by a third-party. This arrangement protects workers retirement savings by ensuring that the company does not have any access to the money invested by workers in their defined contribution plans like a 401k plan. The third-party is a financial company such as a mutual fund company, insurance company, bank, or brokerage, which takes on the responsibility of accepting deposits, investing money into the proper funds or other investment choices, and keeping track of those investments. And, when the time comes, this third-party is also in charge …

How To Start Retirement Savings

January 26, 2021September 14, 2020 by Finance Gourmet

One of the things that comes up in financial planning is that getting all of the information and facts can be difficult. This, all too often, leads to financial paralysis where you don’t end up doing anything at all, because you don’t understand all the details. Ironically, a lot of the information that ends up being “too much,” is for edge cases that don’t affect the average American saving for retirement. How To Start Saving For Retirement Now Retirement savings, investing, and planning is one area where complicated topics can needlessly paralyze people from taking action. Occasionally, financial companies themselves accidentally cause this confusion. Not long ago, I was talking with someone about retirement savings. The issue, for this particular person was the commercial talking about “Your Number.” If you remember this commercial, the point was that you should know how much money you will need when you retire. The goal, was to get you to schedule an appointment with one of their financial advisors or brokers to find your number. Since the person I was talking to didn’t know his number, he was stuck on what to do for retirement. The ironic part is that you don’t need to …

Difference Between a Rollover and a Transfer

August 2, 2022May 11, 2020 by Finance Gourmet

When it comes to rollovers or transfers between 401k accounts and IRA accounts, one word makes a lot of difference. So, what exactly is the difference between a rollover and a transfer? A 401k rollover requires that 20 percent of the amount being rolled over be withheld for taxes, even though the IRS still requires the account owner to deposit 100 percent of the amount within 60 days to avoid taxes and penalties. This means that the account owner has to come up with that 20% on his own, and be sure to deposit it with the 80% proceeds he actually receives. A 401k transfer requires no withholding and moves the funds tax-free. As a result, a 401k transfer is better than a 401k rollover in most cases. Likewise, an IRA rollover gives the account owner 60 days to deposit any rolled over funds into a new IRA account. IRS rules limit each taxpayer to only one rollover per year. An IRA transfer moves the money directly to a new qualified retirement plan account with no delays and with no one per year limits. While many of these rollovers are handled electronically, some are done by a check made out …

2023 Required Minimum Distributions

September 11, 2023April 10, 2020 by Finance Gourmet

If you have an IRA or 401k and you are over 70 1/2-year-old, you need to take a required minimum distribution, or RMD, from your retirement account each year. However, with the coronavirus pandemic, Congress passed specific relief for certain kinds of retirement accounts creating different rules for your 2023 RMD. New 2023 RMD Rules Normally, taxpayers over the age of 70 1/2 years old have to take money out of their retirement accounts like IRAs and 401k plans. The reason is simple. The IRS doesn’t want that money sitting there untaxed forever. So, when you get into retirement, it wants to tax that money that you enjoyed paying no taxes on for all of those years. With the coronavirus pandemic of 2020, however, Congress looked to provide some relief to taxpayers in the form of $1,200 payments, small business loans, and relaxing the rules on accessing and using retirement plan money. One of those benefits is the suspension of required minimum distributions, or RMDs, for 2020. All RMDs, regardless of the owner’s age, or how many required minimum distributions have already been taken are suspended for 2020. In other words, there are no required distributions during 2020. If you …