[ad_1]
Nearly one in four Americans has no emergency savings, according to a report from consumer financial services website Bankrate.com
Getty Images / iStockphoto [19659003] 401 (k) s are great for saving for retirement. But they are weird. Even the most seasoned savers have questions. Here are seven that the 401 (k) division of my company regularly receives and answers
When can I register?
It depends on your employer. Some allow immediate registration. Others require a period of waiting. The key is to sign up as soon as possible to make your money work. And if your employer does not offer a 401 (k), see my April 8 column on how to change that.
How often can I adjust my savings rate?
In a 401 (k), your employer puts a certain percentage of your income in your account each pay period. Legally, you can adjust this percentage at any time. As your career progresses and you get increases, it is wise to increase your savings rate. Maybe start at 5 percent early in your career, increase to 10 percent when you are established, and 15 percent in the approach of retirement.
The contributions are "tax-deferred". What does it mean?
You will not skate beyond the IRS, but the 401 (k) benefits from tax benefits. In most 401 (k), you contribute before taxes go out. This reduces the taxes you pay, so $ 100 saved reduces your net pay by less than $ 100. You do not pay taxes on capital gains, interest or dividends. Instead, the IRS takes a slice later when you retire.
More money: Comcast is suffering from video breakdown, broadband services across the United States
More money: Citi to repay 335 million $ to credit card customers over APR rate violations, CFPB says
More money: The new 797 horsepower Redcat Hellcat from Dodge can swallow a tank of essence in 11 minutes
When can I withdraw funds?
Tax 401 (k) carry forward has attached conditions. After 59 and a half years, you can withdraw money and pay ordinary income taxes. But if you are younger, you will pay taxes plus an early withdrawal penalty of 10%. Expensive! Never withdraw funds early. Some younger people opt for 401 (k) loans, which allows you to take $ 50,000 or 50 percent of total savings – the lesser of the two. The loan is free of tax as long as you repay yourself, with interest.
How much can I save?
It depends on your age. For 2018, if you are under 50, your contribution limit is $ 18,500 per year. People over 50 receive special contributions of $ 6,000 per year, bringing their total limit to $ 24,500.
What if I want to save more?
Depending on your income level, you may also be able to save in an individual or traditional Roth retirement account (IRA). Traditional IRAs are often tax-deferred, as are most 401 (k) s. Roth IRAs are funded with after-tax income. Like traditional IRAs, they grow tax-free. But unlike these, Roth IRA withdrawals are also free of tax. (Roth 401 (k) also exist, though they are newer and relatively rare.)
For 2018, the contribution limits for a traditional IRA are $ 5,500 for people under age 50 and $ 6,500 for those 50 and over. people will not generally be eligible for tax deferral – consult your tax advisor for more details. Roth IRA contribution limits are the same, but here too, high salaries are not eligible. This year, eligibility starts to rise to $ 120,000 for singles and $ 189,000 for married spouses.
To save even more, you can still put additional savings into a taxable brokerage account. But there are no tax benefits to doing this, the biggest advantage of a 401 (k). Still, savings are always good. And taxable savings is excellent if you have to spend your savings before the age of 59, avoiding the early withdrawal penalties of 401 (k).
What happens if I leave my current job?
If your account has more than $ 5,000, you can keep the money in your current employer's plan when you leave. If less than $ 5,000, your employer can force you. If so, they would send a notice asking you to "transfer" the money into a different retirement account. If you do not comply, you will likely receive a check for your balance, less taxes and early withdrawal penalties. Do not let this happen.
Individuals with larger account balances may also opt for a rollover, either on their new employer's 401 (k) plan or an IRA. It's convenient not to "orphan" your savings, a problem covered in my February 25 column.
Ken Fisher is the founder and executive chairman of Fisher Investments, author of 11 books, four of which were New York Times bestsellers, and number 200 on the Forbes 400 list of the richest Americans . Follow him on Twitter @KennethLFisher
The opinions expressed in this column are those of the author and do not necessarily reflect those of USA TODAY
Copyright 2017 USATODAY.com
[ad_2]
Source link
