Frequently Asked Questions
Can I borrow money from my 401(k) plan?
Many employers allow you to take a loan from your 401(k) plan at a set rate of interest. However, make sure you understand the costs before you take advantage of this option. The money you put into the plan is pre-tax. When you withdraw it from the plan at retirement, you pay tax on your contributions and earnings for the first time. When you repay a loan from a retirement account, you pay with after-tax dollars. At retirement, you will pay taxes again on the money you used to repay the loan.
That's not all the bad news. The money you borrowed is not invested, meaning it isn't growing.
Should I invest in an IRA or 401(k)?
A company sponsored retirement plan with a matching contribution by the employer is normally the best choice. IRAs can be a useful way to supplement your retirement plan.
Can I contribute to an IRA and my 401(k) at the same time?
Yes. You can contribute $5,500 to a traditional or Roth IRA and maximize your
401(k) contributions without any penalty.
What happens to my 401(k) if I change jobs?
You have a number of options available to you when you leave an employer, including leaving the assets where they are, rolling them over to an IRA, moving them to your new employer, or taking a lump-sum distribution. Each of these options have their own pros and cons. Before you make a decision, research each option to determine which one is right for you.
Is there any way I can take money out of my IRA before I retire?
In most instances, if withdrawals are made before age 59½, there is a 10% early distribution penalty. However, there are situations where funds can be taken from an IRA without tax or penalty. You can withdraw funds from any IRA penalty-free to pay for a first-time home purchase or higher education. If the funds withdrawn from a Roth IRA are used for a first time home purchase, and the account has been open for at least five years, the withdrawal will also be tax-free. Certain exceptions also exist for circumstances involving death, disability, and medical expenses.
Can I convert my existing traditional IRA to a Roth IRA?
Yes, you can make a conversion. And starting in 2010, the $100,000 eligibility income cap that previously applied to individuals who converted a Traditional IRA to a Roth IRA has been lifted and investors will be free to implement a conversion regardless of income level. Married individuals filing separately are also now able to convert.