Wed, February, 6, 2008 at 11:42 AM I am often asked what things people should be doing and why when it comes to personal finance. Everything seems to come at you at once, and taking care of your finances can be a lot of work – work that most people do not want to do. As a result, people tend to do nothing because everything seems so daunting. So, here we go on a list of things to get you started.
Wed, January, 30, 2008 at 12:21 PM Although I usually remind you to get a Roth IRA (loads of tax advantages – do it today) and contribute to a 401(k) because you get so much money out of them in retirement, today I have a reason for you to contribute: THE TAX SAVER'S CREDIT!
There are three basic rules to get this credit:
By the way, you can file an amended return (Form 1040X) up to three years after the original filing date to claim tax breaks you missed in the past. This credit was introduced with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and made permanent by the Pension Protection Act of 2006.
I would take this credit... if I qualified for it :/ To Lizzie (and other readers outside the US – this is United States Federal Tax specific – sorry)
Disclaimer
What Isn’t
This blog is NOT financial advice. I am not a financial guru. I do not speak at seminars. I do not write books (yet). I am not a Certified Financial Planner (CFP) nor am I a Certified Public Accountant (CPA). I do not even have a business degree!
What Is
This blog is about MY money, usually focusing on how I spend less of it, how I invest it, and sometimes how I make more of it. This is that neighborly talk you have about money. Sometimes the advice is sound. Sometimes the advice is stupid. You judge that for yourself. What works for me may not work for you. This is an open discussion about my financial life and what I would do in certain situations. Agree or disagree, leave comments and I will respond to them or write further entries regarding them.
About Me
My name is Jason. I am 24 years old. I graduated with a Bachelor of Science in Computer Science, but I have an interest in money and things related to it. I am currently employed full time and single (from a financial standpoint). I want to know how to earn more of it, save more of it, protect it, invest it, avoid taxes, etc.
401(k), Retirement, Roth IRA, Savings, Taxes, Traditional IRA Mon, January, 28, 2008 at 11:41 AM $821.60 per week is my gross pay ($42,723.20/year)
-$82.16 per week goes to 401(k) (Rockwell matches 75% up to 8% of your pay and I contribute a little more) ($4,272.32/yr)
After taxes, medical insurance, dental, optical, Social Security, Medicare, etc. My take home pay is:
$535.22 ($27831.44/yr)
-$8.22 per week goes to my Employee Stock Savings Plan (ESSP) ($427.23/yr)
-$40.00 per week goes to a down payment on a house ($2,080.00/yr)
-$8.25 per week is set aside for any additional income tax I might have to pay in the future ($427.23/yr)
-$96.25 per week is set aside for a Roth IRA ($5000/yr)
-$17.75 per week is set aside for an emergency cash fund ($910.62/yr)
-$126.75 per week is set aside for rent and homeowners insurance ($6,580.00/yr)
-$42.00 per week is set aside for car care ($1450 insurance, $500 repair, $125 registration/smog, $90 AAA) ($2165.00/yr)
-$81.00 per week is set aside for all bills (necessary and unecessary) ($4150.00/yr)
-$31.75 per week for food (this REALLY forces me to control my eating out habits) ($-1651.00/yr)
After all this, I have approximately $2,200 of income to spend on whatever I want to. I seperated it into the following categories:
My budget does not take into account:
Mon, January, 28, 2008 at 11:33 AM After reading Rich Dad Poor Dad I felt one thing in particular: entertained. At best the information "gets you to think about your money" and at worst the more advanced information Kiyosaki presents is just downright dangerous and/or useless to the average person. I would think seeing a huge credit card statement or a paycheck "gets you to think about your money." The one thing I did notice about the book is that people who rave about the book have not really done anything to change their lives and habits. They are still in the same (or worse) financial situation six months after reading the book than just before reading the book.
Keep 10% of everything you make for yourself. PAY YOURSELF FIRST. Why should you be paying other people with your hard earned money. Pay yourself first. Take the amount of money you receive in your paycheck (the part after taxes and insurance and Medicare and Social Security) and keep 10% of that for yourself. 10% means move the decimal point to the left. If your paycheck is $528.23 then keep $52.82 for yourself.
Take advantage of the easy stuff! This step also takes advantage of tax breaks and free money. Max out your employer matching to your 401(k). Let's say your employer matches 50% of your contributions up to 6% of your pay. You put 6% of your pay into the 401(k) and you get an additional 3% free for your retirement! (Often you must work for the same company a certain number of years before you get to keep the company's matching funds - this is called being "vested.") Second, take advantage of our current federal tax situation by contributing funds to a Roth IRA. Any earnings, dividends, interest, and gains you make will be withdrawn TAX FREE when you retire. Taxable accounts can be taxed between 15% to 33% when you withdraw them.
Do not spend more money than you have. That is my bedrock advice. Take the amount you have left after keeping 10% for yourself, funding your 401(k), and funding your IRA. This is the money you have for living. If you get paid monthly, multiply your average take home paycheck by 12. If you get paid weekly multiply your average take home paycheck by 52. This is how much money you have to spend in a year.
This is a first step and you can add more categories if you want. Make your "simple" budget today. It takes about 30 minutes. I have employed this very scheme and I seperate my paycheck as soon as I receive it. Anything that's left is mine to spend however I want or put towards my savings goals.
Thu, August, 30, 2007 at 04:48 PM Okay, now that I have your attention, let's talk. While this is possible, it's quite risky and you may end up with very little. However, here's a one way to make you a millionaire by the time you retire. Best of all it doesn't even take all that much work.
All you have to do is save $4,000 in a Roth IRA for the rest of your life until retirement. With luck (smart management, smart asset allocation, controlled risk, and a hope the market doesn't spiral down) you'll be a millionaire at retirement. As some people like to call this strategy GET RICH SLOWLY or GET RICH EVENTUALLY.
----+---+------------+---+----------+-------------
Year|Age|Contribution|APY| Growth | Balance
----+---+------------+---+----------+-------------
2007| 23| $ 4,000.00 | 0%|$---------|$ 4,000.00
2008| 24| $ 4,000.00 |12%|$ 480.00|$ 8,480.00
2009| 25| $ 4,000.00 |12%|$ 1,017.60|$ 13,497.60
2010| 26| $ 4,000.00 |12%|$ 1,619.71|$ 19,117.31
2011| 27| $ 4,000.00 | 8%|$ 1,529.38|$ 24,646.70
2012| 28| $ 4,000.00 | 8%|$ 1,971.74|$ 30,618.43
2013| 29| $ 4,000.00 |10%|$ 3,061.84|$ 37,680.28
----+---+------------+---+----------+-------------
2014| 30| $ 4,000.00 |12%|$ 4,521.63|$ 46,201.91
2015| 31| $ 4,000.00 |12%|$ 5,544.23|$ 55,746.14
2016| 32| $ 4,000.00 |12%|$ 6,689.54|$ 66,435.67
2017| 33| $ 4,000.00 | 8%|$ 5,314.85|$ 75,750.53
2018| 34| $ 4,000.00 | 8%|$ 6,060.04|$ 85,810.57
2019| 35| $ 4,000.00 |10%|$ 8,581.06|$ 98,391.63
2020| 36| $ 4,000.00 |12%|$11,807.00|$ 114,198.62
2021| 37| $ 4,000.00 |12%|$13,703.83|$ 131,902.46
2022| 38| $ 4,000.00 |12%|$15,828.30|$ 151,730.75
2023| 39| $ 4,000.00 | 8%|$12,138.46|$ 167,869.21
----+---+------------+---+----------+-------------
2024| 40| $ 4,000.00 | 8%|$13,429.54|$ 185,298.75
2025| 41| $ 4,000.00 |10%|$18,529.88|$ 207,828.63
2026| 42| $ 4,000.00 |10%|$20,782.86|$ 232,611.49
2027| 43| $ 4,000.00 |10%|$23,261.15|$ 259,872.64
2028| 44| $ 4,000.00 | 7%|$18,191.08|$ 282,063.72
2029| 45| $ 4,000.00 | 8%|$22,565.10|$ 308,628.82
2030| 46| $ 4,000.00 |10%|$30,862.88|$ 343,491.70
2031| 47| $ 4,000.00 |10%|$34,349.17|$ 381,840.87
2032| 48| $ 4,000.00 | 6%|$22,910.45|$ 408,751.32
2033| 49| $ 4,000.00 | 7%|$28,612.59|$ 441,363.92
----+---+------------+---+----------+-------------
2034| 50| $ 4,000.00 |10%|$44,136.39|$ 489,500.31
2035| 51| $ 4,000.00 | 8%|$39,160.02|$ 532,660.33
2036| 52| $ 4,000.00 | 9%|$47,939.43|$ 584,599.76
2037| 53| $ 4,000.00 | 7%|$40,921.98|$ 629,521.75
2038| 54| $ 4,000.00 | 6%|$37,771.30|$ 671,293.05
2039| 55| $ 4,000.00 | 6%|$40,277.58|$ 715,570.63
2040| 56| $ 4,000.00 | 7%|$50,089.94|$ 769,660.58
2041| 57| $ 4,000.00 | 6%|$46,179.63|$ 819,840.21
2042| 58| $ 4,000.00 | 5%|$40,992.01|$ 864,832.22
2043| 59| $ 4,000.00 | 6%|$51,889.93|$ 920,722.16
----+---+------------+---+----------+-------------
2044| 60| $ 4,000.00 | 4%|$36,828.89|$ 961,551.04
2045| 61| $ 4,000.00 | 5%|$48,077.55|$1,013,628.60
2046| 62| $ 4,000.00 | 6%|$60,817.72|$1,078,446.31
----+---+------------+---+----------+-------------
You can see in this spreadsheet that I took into account variances in the market and also a more conservative spread as you get older. You can see the $4000 contributed anually and you can see the result of your balance: as promised one million dollars at retirement.
You know what's even better? IT'S IN A FREAKING ROTH IRA WHICH MEANS AT AGE 65 AND A HALF... you can take out almost every penny* six months after your 65th birthday... AND NOT OWE A SINGLE PENNY IN TAXES ON THAT MONEY!!! Aren't Roth IRAs great?
Of course you wouldn't want to ACTUALLY do this, but it's great to know you can. What you would want to do is take out what you need to live and allow the money in your account to keep growing and growing. Do you notice that "growth" column? That's the money you make on interest and capital gains every year BY DOING NOTHING! That's why the saying "it takes money to make money" is so true.
Now, you're a millionaire and you owe no taxes on that million dollars you have. And you're probably MORE than a millionaire because (hopefully) by this time you have at least one house paid off. You also probably contributed to a 401(k) which should have your employer's free matching money giving you probably more than a million dollars in that account (you'll have to pay taxes on it when you take it out, however). So when you add all these things up... I bet you ARE a millionaire by 40.
*You have to keep your money in a Roth IRA for at least 5 years before withdrawing it to avoid penalties. So really at age 65 and a half you could take out all but $20,000 penalty free - which, by the way, is still over a million dollars.
401(k), Retirement, Roth IRA, Savings, Subscriber Questions, Taxes Wed, August, 29, 2007 at 03:09 PM Many finance options are limited to certain groups of students: athletic scholarships, academic scholarships, financial need grants, etc. However, there every college student has a few smart moves that they can take advantage of to help them once they make it beyond the gates of academia. Heck, some of these options even help WHILE your still in college.
TROLL FOR TEXTBOOKS. My personal favorite way to save is to minimize the textbook hurt. Sometimes literally. Depending on your field of study, a majority of textbooks are huge hard cover behemoths that will place the hurt on your back as well as your wallet. Check out aggregators like www.campusbooks.com to find competitive prices for your books. They will nearly ALWAYS be cheaper than buying at your campus store. For example Biology 7th Edition by Neil A. Campbell et al retails MSRP for $158.67. Half.com by EBay offers used versions for $23.65 after shipping. New text books can be had from Biblio.com for $59.10 after shipping.
INTERNATIONAL TEXT BOOKS. International text books sell for much less than the United States. The Supreme Court has ruled that the reimportation of these books does NOT violate copyright law (New York Times article “Students Find $100 Textbooks Cost $50, Purchased Overseas” by Tamar Lewin dtd 21 OCT 2003). The same text book above retails new at Amazon.com for $124.34 but Amazon.co.uk sells the International Edition for £44.99 (90.78 USD at 1 GBP=2.01739 USD).
Places that specialize in the importation and sale of International edition sell for considerably less. TextbooksRUs.com sells the International edition for $70.53. TextbooksRUs.com guarantees the book has the same pagination as the United States version or your money back. Furthermore if you can read another language (especially one with compacted print like Chinese or Korean) you can find books in that language for even cheaper. The pagination probably won’t match, however.
SHARE THOSE BOOKS. Statistics show one in five students are not buying all the required text books. I am guilty of this myself actually. Sometimes you don’t need the book at all, and most of the time, you can get buy sharing books with your friends!
MINIMIZE THOSE FEES. A whole new campus also probably means a new set of convenient banks. Those convenient banks, however, are only worth your time if you can get access to your money without fees and minimum balances. (You should not be paying these to begin with!) If you cannot find a bank like this in your area check out online only banks like ING Direct (www.ingdirect.com) which has no fees or balance requirements and offers free withdrawals at more than 30,000 ATMs.
PICK PLASTIC IN ADVANCE. If you’ve been on a college campus lately, you know that the only thing you see more of than iPods is credit card applications. Students get bombarded with offer after offer for this and that credit card and it’s easy to leave college with not only a degree, but 15 credit cards and $20,000 in credit card debt! Picking your plastic in advance will help you in so many ways!
First, apply for a credit card under your own name and not your parents. It used to be that you could start building your credit as an authorized user of someone else’s card. NO LONGER! You need your own card under your own name to build your credit score.
Second, shop around for cards that give you things. As a student you can probably only get cards with $500 or $1000 credit limits, but you can get these cards with other goodies. Check out Citi’s mtvU credit card (www.citi.com) which rewards timely payments (up to 25 points month) and good grades (up to 2000 points per semester). You get five points for every dollar charged at fast food, restaurants, bookstores, music stores, video stores, and movies and one point for every dollar spent elsewhere. These points can be redeemed at the ThankYou Network (www.thankyounetwork.com) for gift cards to 50+ popular stores, cash, student loan rebates, statement credit, travel, etc. You can also get more points by shopping through the ThankYou Network at places like Target, The Gap or 1-800-Flowers. You can also get 25 more points a month by having a Checking, Savings and debit card (that you don’t even have to use by the way) with Citi Bank. Note: Gift Cards and Student Loan Rebates give you the most back ($1 for every 100 points).
Third, remember how I said your credit limit is low? What happens if you need to spend more than that in a month? This is when you take advantage of your parent’s credit and carry an authorized user card on their account. This way you can purchase that airfare home to visit and best of all hopefully do it such that you and your parents get benefits and/or free cash (parents consider getting a mileage card from Citi or Capital One to take advantage of your child’s – and your own – travel expenses.).
GET SOME SORT OF JOB. I know that there are many things you would rather be doing than working, but getting a job will give you a HUGE head start. I recommend a 10 to 20 hour job as a student assistant on campus as an easy way to do this. First, not much is usually expected of you. Sure it might be boring, but on the other hand you might have someone PAYING you to study when there’s not much to do.
Second, you have additional income to spend and save. Try striking a deal with your parents to help you save some money. For example, for every dollar you put into an IRA, they’ll put in a dollar or fifty cents or whatever. Not only are you getting free money with this deal, you’re planning for your future which could (and probably will) take YEARS off your working life and allow you to RETIRE YOUNG! The dollar you put into your ROTH IRA in college will probably turn into $15.34 by the time you retire and maybe even more*
Third, when you go into the job force a requirement job requirement might say Bachelor’s plus two years job experience. Guess what? YOU HAVE FOUR! Sure it was at a nothing job. Sure, you had very little responsibility. But it’s still experience, and that counts. Four years of job experience might also be the difference between starting at $35,000 a year and $40,000 a year. That itself means you can contribute to your IRA with money you essentially would not have had.
READ MY BLOG. I’m only halfway kidding here. In all seriousness every college student should read websites or magazines that can tell you tons of ways to save money. Just be sure to use your head to find out whether or not the technique or offer is illicit or not.
*Assumes you are 19 and put $2000 into a Roth IRA for four years while in college and then put in $4000 a year until you retire at age 62. You will have put in $168,000. Assuming 10% annual percent yield on your money your account balance at age 62 will be $2.5 million.
Thu, July, 12, 2007 at 03:37 PM Jonathan Clements of the Wall Street Journal writes a good article that everyone should take a look at and thing about how it applies specifically to their own lives. His advice has solid grounding, but the execution of the advice could be a potential pitfall for some people.
http://biz.yahoo.com/wallstreet/070701/sb118323893642354294_id.html?.v=1&.pf=banking-budgeting
You are reading part 1: Amass cash
As Mr. Clements notes, “some financial experts, your top financial priority should be amassing an emergency reserve equal to six months of living expenses, with this cash tucked away in conservative investments like money-market funds and certificates of deposit.”
I fully agree with the paths and ideas Mr. Clements takes and find this section of the article to be rock solid. There are circumstances, however, where following Mr. Clements advice can be extremely dangerous.
Let’s say you’re great about your spending habits and regularly sock away 10% of your income for a liquid savings account for your emergency funds. Let’s also say your living expenses are roughly $25,000 a year. You would need to save $12,500 to make up your 6 month reserve. If you’re making $50,000 that would take a little more than two years, and if you’re making $30,000 it will take nearly four years.
Why do the numbers seem larger than they really are? I didn’t just do simple division, but took into account savings growth compounding of four percent, a three percent annual raise in income, but also TAXES. Therein lies the key word why you shouldn’t focus on an emergency stash. Taxes.
Chances are if you focus solely on building your emergency stash you’re not contributing anything to a 401(k) nor an IRA of any sort, and that is the key mistake Mr. Clements focuses on. By doing this you are giving up too much of your hard earned money to taxes and potentially losing out on some FREE money.
By contributing to your 401(k) you get the free money your employer gives you as a match. You also lower your taxable income for the year by the amount that you contribute. A Traditional IRA will lower your taxable income as well, but the advantages of a Roth IRA clearly win in the end. You do pay the taxes on the money you put in, but when you take the money out during retirement (this is called a distribution) you pay no taxes on the distribution. That means that any gains and growth the account accumulated gets paid to you tax free! You potentially have hundreds of thousands of dollars in tax free money here.
There are plenty of reasons that can cause a loss of income and this is the key area to analyze before figuring out how much of your potential retirement money you should sacrifice for the relatively low yield, non-tax advantageous liquid emergency stash.
Can you move in with your parents? If your answer to this is yes, then you have a huge advantage in not needing to save as much for emergencies. Moving back home will provide you a huge sum of money for savings. Notice the key word is CAN. The question is not is it EASY to move back in with your parents. It, likely, will not be easy. You may even have to throw all your stuff in storage and move back to your home state, but it’s something that can save you boatloads of money.
Are you a contract worker or otherwise unstably employed?. An emergency stash is insurance. It’s there should you ever need it, but you may never need it! If you’ve got a pretty stable job (no one can predict layoffs or a sour economy) you probably don’t have to save so much for emergencies. If you know you’ll be without income soon or know that your income isn’t always guaranteed (commission, sales, etc) then you’re going to need a bigger stash.
Do you have other sources of emergency stash? Perhaps your parents gave you a life insurance policy you can borrow against? Maybe you finally lost your source of income a little later in life and your wise decisions allowed you some equity in your home you can borrow against? Even as a last resort you could borrow against your 401(k) after all. Your stash may already be pretty large without it being so obviously cash.
Do you have the urge to spend cash? Be honest with yourself here. If you see cash and spend it, then an emergency stash is a poor choice for you. The point of it being liquid is so you can get access of it quickly and easily. However, if you spend it, you’ve wasted your tax advantage and your stash as well. The other problem is that the cash you sock away is likely to touch your hands first before it gets put away. 401(k)s are taken directly from your paycheck and you never have the temptation to touch the money.
Swallow your pride Sometimes to make a living you have to do something beneath you or a job you don’t really like. If you’re fed up with your job, that’s fine! Find another one, but don’t quit your previous job until you have to. Put up with it just a little longer and it might save you from needing a stash or taking out loans. Also, full time grocery store workers get health benefits (pretty good ones I hear) which may just carry you through.
Change your lifestyle! It’s really amazing how much crap and junk we amass as consumers. Sell off the stuff you don’t need to raise some income and change your spending habits to match your new lower income.
Take advantage of government programs. Make the effort to qualify for as many programs as you can. It may be degrading, but it’s money available to you. Technically it’s YOUR money that you’ve been paying in taxes. That means take advantage of unemployment, disability, Medicaid, food stamps ,COBRA, whatever.
Again, the usual holds true: no advice is one-size-fits-all. Everyone is different and needs to take their own circumstances into consideration before deciding what’s best for them. This includes risk tolerance. If you can stand the risk, by all means live on the dangerous side, but understand your situation and make plans just in case. It’s one thing to live dangerously, it’s a whole other thing to live stupidly. If not having that cash there will cause you insecurity and lost sleep, then by all means make yourself happy.
Your money works for you so you can live life the way you want. You do not work for money. If you ever find yourself working for money, think about what you’re doing. Chances are there is a flaw in your plan somewhere.
401(k), Investments, Mutual Funds, Retirement, Roth IRA, Savings, Stocks, Taxes, Traditional IRA Thu, July, 12, 2007 at 03:32 PM Can you contribute to a Roth IRA from April to December or is it April to April? (i.e., is it tax year or calendar year?)
You can contribute to the current year starting January 1. However, up until tax time (April 15) you can elect to contribute to the past year.
April 16, 2007 to December 31, 2007: you can contribute to 2007 tax year only
January 1, 2008 to April 15, 2008: you can contribute to 2008 tax year (current year contribution) or the 2007 tax year (past tax year contribution)
April 16, 2008 to December 21, 2008: you can contribute to 2008 tax year only
Etc.
Retirement, Roth IRA, Savings, Taxes, Traditional IRA Mon, June, 11, 2007 at 11:27 AM I've been reading MSN money and I noticed something in the investing section. It's called investing basics. I went to that section and this link particularly caught my interest.Start Investing with just $100
http://articles.moneycentral.msn.com/Investing/Start Investing/StartInvestingWi thJust100.aspxIs this a good tip for beginning investors?Thanks!
Pros:
Tue, April, 24, 2007 at 04:01 PM Below are most of the differences between a regular 401(k), Traditional IRA and Roth IRA. I haven’t yet had time to research the impact of the different accounts on estate planning (what happens when the account owner passes). Or how probate, having a Living Will or having a Living Trust will affect each. These are good questions to ask a professional.
IRS Publication 590 will give you the most information when it comes to comparing the rules and restrictions of the Traditional and Roth IRA. See www.irs.gov and look at publications and forms.
INCOME LIMITS
401(k) Generally none, but it could be complicated due to highly compensated employees rules.
Traditional IRA Based on your MAGI. You cam make a full contribution to a Traditional IRA if your income is less than $52k for Single, Head of Household (HoH), orMarried Filing Single (MFS) or $62k for Married Filing Jointly (MFJ) orQualifying Widdow (QW). You can make a partial contribution (see IRS publication for percentage breakdown) if your income is below $83k for S, HoH, MFS or $103k for MFJ or QW. You cannot contribute more than you made in the year.
Roth IRA Same rules as Traditional IRA except income limits are higher. Full contributions up to $99k for S, HoH, or MFS or $156k for MFJ or QW. You can make partial contributions up to $114k for S, HoH or MFS or $166k for MFJ or QW.
TAX IMPLICATIONS
401(k) Money is deposited as “tax deferred” which lowers your taxes now and any distributions are taxed in the year and tax rate the distribution takes place.
Traditional IRA You put in after tax money, but the money you put in is tax deductible reducing your taxable income for the year. Essentially the same end result as tax deferred above. Distributions are taxed in the year and tax rate the distribution takes place.
Roth IRA You put in after tax money so your taxable income is not lowered. When you take a distribution you do not owe any taxes. You do not even pay taxes on any of the earnings and gains you made. This is tax free growth and the key to why the Roth IRA is such a powerful tool.
CONTRIBUTION LIMITS
401(k) Up to $15.5k for under 50 and $20.5k for 50 and over in 2007. Combined employer/employee contributions must be the lesser of 100% of the employee’s salary or $45k
Traditional IRA Based on your MAGI. $4k for under 50 and $5k for 50 and over in 2007. Limits are for Traditional IRA and Roth IRA contributions combined.
Roth IRA Same as Traditional IRA.
QUALIFIED DISTRIBUTIONS
401(k) Distributions can be gin at age 59 ½ or if owner becomes disabled.
Traditional IRA Same as 401(k).
Roth IRA Same as 401(k) except the contributions must have been in the account for 5 years.
FORCED DISTRIBUTIONS
401(k) Owner must start withdrawing minimum funds at age 70 ½ unless still employed. Penalty is 50% of minimum distribution
Traditional IRA Same as 401(k).
Roth IRA No forced distribution.
CONTRIBUTION WITHDRAWALS
401(k) No. Loans may be available depending on the employer.
Traditional IRA No.
Roth IRA Yes. The owner can withdraw up to the total contributions at any time without penalty. Earnings cannot be withdrawn without penalty.
EARLY WITHDRAWLS
401(k) 10% penalty plus taxes including withdrawals for hardships
Traditional IRA 10$ penalty plus taxes but there are exceptions
Roth IRA Withdrawals of contributions carry no taxes or penalties. Withdrawals of earnings are subject to normal income taxes plus 10% penalty.
HOME DOWN PAYMENT
401(k) 10% penalty for purchase of primary residence or avoidance of foreclosure or eviction from primary residence
Traditional IRA Can withdraw up to $10k for a first time home purchase down payment (with stipulations)
Roth IRA Can withdraw up to $10k for a primary home down payment on a house owned by the IRA owner or direct linear ancestors or descendents. Must not have owned a home in the previous 24 months.
EDUCATION EXPENSES
401(k) 10% penalty on payment of secondary education expenses in the last 12 months for the employee, spouse, or dependents.
Traditional IRA Can withdraw for qualified education expenses of owner, children, and grandchildren.
Roth IRA Same as Traditional IRA
MEDICAL EXPENSES
401(k) 10% penalty on payment medical expenses not covered by insurance for employee, spouse or dependents.
Traditional IRA Can withdraw for qualified un-reimbursed medical expenses that are more than 7.5% of AGI or for medical insurance during a period of unemployment or when on disability.
Roth IRA Same as Traditional IRA
