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Savings

Savings

When you are trying to save money there are a number of options that you will have in attempting to build your wealth for future investing.   Saving money may seem like an easy task but it requires, budgeting, discipline and the elimination of unnecessary expenses that eat away from your savings.  There are many options when saving money.  This includes CDs, bonds, savings accounts, college savings accounts and many others.
Savings Accounts
The simplest way to save money,  if you don’t have one already, is to open a savings account. A savings account in a banking institution is a stable way to save your money. The upside to a savings account is that the funds are easily accessible by going to your banking institution and making a withdrawal. The downsides are that you can easily access your savings account and make withdrawals. When you are in need of money it is easy to fore go your savings plan for immediate gratification. Another downside is that savings accounts usually have very low interest rates, usually around 2%. Considering the rate of inflation a savings account will not help you gain savings and should only be used for short term saving while you look for, and save, for more lucrative saving opportunities.  The low interest rates associated with basic savings accounts is partially due to the ability of the savings account holder to withdraw the funds at any time.  In this way, they are different from Certificates of Deposit.
Certificates of Deposit
A certificate of deposit is a better way of accumulating savings than a traditional savings account.  A certificate of deposit acts much like a savings account but with one important difference; the certificate of deposit is a savings investment in which the depositor agrees to keep the money in the account for an extended period of time.  
Certificates of Deposit are can be purchased in different incremental periods.  Usually the time that you must invest your money in are allocated in 3 months, 6 months, 1 year up to 5 years.  The amount of interest that you will receive from your savings in a certificate of deposit will depend  on a number of factors.  The greater the principal invested the greater the interest rate you will receive.  In addition, the longer the term, or the smaller the banking institution the higher the interest rate you will receive.  
Savings Bonds
Savings bonds are yet another way for you to save money.  Savings bonds are a most stable form of bond.  You can get savings bonds through private institutions or through the United States government.   A United States Savings Bond is almost guaranteed and they come in many different forms. The two most prevalent are the EE savings bond and the I savings bond.
The EE savings bond is characterized by a stable, long term investment. WIth EE savings bond the federal government will require a long term investment of 20 years in order for the bond to reach its maturity level. There are two types of EE savings bonds: paper EE savings bonds and electronic EE savings bonds. The most important distinction between the two is their return on investment. With a paper EE savings bond the investor will get a yield on return of the value he invested upon the maturity of the bond. This means that if you invested $5,000 then in 20 years you will receive a payment of $5,000 plus the interest accumulated over that period of time. In contrast, an electronic EE savings bond will require you to pay half of the value of the savings bond and upon its maturity you will receive the face value; essentially allowing you to double your investment. You are not required to keep your investment for the 20 year period in either form of EE savings bonds but their is a penalty for early withdrawal. The disadvantages to EE savings bonds are the long maturity length, and the fact that an individual is allowed a maximum of $25,000 of investment per year. EE savings bonds are exempt from state and local taxes but they will be used to calculate federal tax income. In addition, EE savings bonds do not adjust for inflation.
The other type of United States Savings Bond that is very prevalent is the I bond. An I bond is a U.S. savings bond where the yield on maturity is calculated as the fixed rate of return plus inflation. The I bond is periodically adjusted to factor in for inflation and the yield at the end of the maturity will be in a way that you will not lose money based on the inflation rate. One of the disadvantages of an I bond is that it is considered a zero coupon bond. The interest that accumulates over the lifetime of the bond is automatically re-invested into the I bond.
U.S. savings bonds should be used for long term savings and once you purchase a bond it should be forgotten. When looking at the maturity date of bonds you should look at when you may need the money back and how much money you have invested. If the purpose of the savings bond is to accumulate savings for retirement or long into the future then you may want a 20 year bond. If you are looking to save for vacations, future home purchase or a future long term investment like real estate, then a shorter term bond may be more beneficial.
Corporate savings bonds act in the same way as United States Savings bonds but they do not guarantee the same type of guarantee as a U.S. savings bond.  Corporate savings bonds are issued by corporations and other business entities when they need to gain capital for their business operations.  Just as in U.S. Savings bonds, a corporate savings bond will consist of coupons that will be given to the creditor of the bond.  Every 6 months the creditor will receive a coupon that consists of the amount of money that is owed to the creditor plus the amount of interest that was agreed to when the bond was issued.  The interest rates associated with corporate bonds will often be higher than U.S. savings bonds and the riskier the venture the more interest that the issuer will be required to offer in order to get investments.  
401k
The most promising way to build savings  is to invest in your companies 401k. A 401k is a savings plan that you set up with your employer to save for retirement. The retirement savings account has two obvious benefits. The first benefit is that you will be able to save your money in a savings plan through a consistent allocation from your paycheck into your 401k. In this way you don’t even know how much your saving. The amount will be automatically taken from your paycheck and, in addition, your employer will contribute an equal amount to your 401k. So if you contribute $100 a month you will actually be putting $200 a month into your 401k. Another advantage is the time value of money. Your investment in a 401k savings account will allow you to avoid current taxes and put your money to work for you instead of being lost to the government. On the same note, by investing in your 401k you may actually be lowering your tax liability. If you are in the 28% tax bracket and you decide to invest $1000 that $1000 a month will not be included in your taxable income and you may move down to the 20% tax bracket.
529 College Savings Plan
A 529 College Savings Plan is a savings plan that allows parents to save for their children’s college tuition.  529 College Savings Plans and other Qualified Tuition Investment plans are tax deductible and will not be used in compiling the parents gross income for tax purposes. 
There are two types of 529 College Savings Plans: prepaid and savings. Prepaid 529 College Savings Plans allow parents to purchase tuition credits at present day rates. This essentially means that a parent who will have a child in college in 20 years may place money in a Prepaid 529 College Savings Plan, at the current rate of tuition, to be used 20 years from that date, even if tuition is higher in the future. For example, if the current per credit tuition is $2,000 and the parent purchases 5 credits through the Prepaid 529 College Savings Plan then it will guarantee those 5 credits even if the per credit tuition rate is $4,000 by the time the child goes to college.
The other type of 529 College Savings Plan is different in that the growth of the Savings 529 College Savings Plan is based on market performance of the investment form, which is usually in the form of mutual funds. In this way you may benefit greatly over a Preferred 529 College Savings Plan in that the market could outperform the rate of tuition increase. However, in the alternative, the Savings 529 College Savings Plan may have stagnant, or negative growth, over time that would not equal or exceed the Prepaid 529 College Savings Plan.
A 529 College Savings Plan may be used for tuition, books, fees, equipment and supplies for any accredited college or university, public or private, in the United States as well as vocational schools and some universities from outside the United States. 529 College Savings Plans may also be used for room and board. 
One of the savings  advantages of a 529 College Savings Plan is that it affords tax exemption from state taxes. This means that all the money that is contributed into the 529 College Savings Plan will be treated as if the money was never considered part of your income. For example, if your income for the year is $100,000 and you contribute $10,000 to your 529 College Savings Plan in that year then, for tax purposes, you will be treated as if your income for the year was $90,000.   529 College Savings Plans are not irrevocable and the person who invests in the money may withdraw at any time but will incur penalties for early withdrawal. Even though it is perfectly legal to do this the parent will be required to pay income tax on the benefit incurred as well as a 10% early withdrawal penalty.
The exception to the early withdrawal penalties are: the designated beneficiary dies; the designated beneficiary becomes disabled; or the designated beneficiary receives a scholarship, veterans assistance, or employer provided education assistance. If one of these things occurs then the penalties will not apply. Even if none of these exceptions apply no penalty will be incurred by the 529 College Savings Plan holder if, for some reason, the entire allotment of savings is not used on the named beneficiary and the amount remaining is rolled over to another beneficiary. If the leftover amount of the 529 College Savings Plan is rolled over to another qualified recipient within 60 days then the there will be no penalty associated with early withdrawal.
Staying Focused
An important aspect in building your savings is to maintain discipline and set a goal for yourself. Money is just a figure and doesn’t really correlate with incentive to save. For this reason you should set a reward for yourself. For example, if you are able to save $10,000 by the end of the year you should reward yourself with a $2,500 vacation. You should set this goal at the beginning of your savings plan and, unlike having your goal just to save money, it will inspire you and give you motivation. It is also better in that you will see a light at the end of the tunnel instead of a constant, repetitiveness. Your savings goals should be realistic. Do not expect that you will be able to save $10,000 if in order to do that you will have to eliminate all pleasures from your life, live off of bologna sandwiches, and use one ply toilet paper. Live within your means but allow for some leeway so that saving is not a chore. The best way to destroy your savings plan is to set your goals too high and lose interest at the first sign of adversity.
You must stay focused on the future. You will not realize gains from savings immediately and you may not even have any real gain after a year or two but it will happen if you budget accordingly.

Online Forex Trading

Online Forex Trading

What is online Forex trading?
One of the appeals of Forex trading is that it can be done online, sometimes with the assistance of programs that track and make automatic transactions, based on use preferences and defined programming.  The use of the internet is an invaluable tool for potential Forex traders as this lowers the bar to entry and presents those that engage in online Forex trading with the latest, up-to-date information and analysis on currency trends.
How do I engage in online Forex trading?
You must be able to read Forex quotes.  These are in pairs as with every online Forex trading transaction, you are simultaneously buying and selling two currencies.  For instance, the US/Euro Forex quote may read like this:
EUR/USD = .7504
The first currency (EUR) represents the base currency that the quote is based on and the second represents the quote currency (USD).  With this, you can determine that approximately .75 US cents can buy 1 Euro.  
With this in mind, you will buy any number of Euros and wait for the exchange rate to increase.  At that point, you will sell your Euros for USD, thus making a profit through online Forex trading.  Under the higher exchange rate, it will take more US dollars to buy Euros and that difference represents your profit, as the demand for Euros is higher now when you have sold it.

Currency Trading

Currency Trading

What is currency trading?
Although the only time some individual will buy a foreign currency is when travelling abroad, some investors will engage in currency trading.  Currency trading on the Foreign Exchange Market is a risky investment as although the assets are liquid, the rates can be somewhat unstable and subject to market forces that are difficult to understand.  Currency trading determines the exchange rate for non-pegged currencies around the world and reflects the supply of the currency against the present demand for that currency.  “Safe haven” currencies generally perform better in currency trading during times of hardship, generally as Forex investors will feel that the safe haven currency will rise or at least not fluctuate significantly.  Non-safe haven currencies, generally from developing countries, will diminish in economic hardship as currency trading tends to avoid speculation during these periods.
Currency trading is usually subject to conventional wisdom as well as studies in the patterns of how currencies perform in relation to the economic and political outlook of the country.  As such, central banks may influence currency trading by cutting or raising interest rates to either slow or expedite the flow of currency.  Long term trends also affect currency trading, including trade deficits and gross domestic product growth.  
Some Forex programs exist to help investors with currency trading.  These automatic Forex programs will use programed and user-defined thresholds to determine the profit-loss risk of investments and buy or sell assets accordingly.  The best of these currency trading programs will be updated with news on financial outlooks and trends so as to make the best transactions for the individual Forex investor.

Budget Planner

Budget Planner

A budget planner is a tool, usually in the form of computer software that permits an individual, family, or business to see what their expenses are, plan for the future and retirement, and manage their budget to reduce unnecessary costs.
Most people have a basic grasp of what their spending habits are but at the end of the month they often wonder where certain money has gone to.  Where most people take into account large expenses like rent, utilities, car payments, and alike they often neglect to include minor daily expenses that add up over time.  They will neglect to include the daily $2 cup of coffee on the way to work and then wonder where the $60 went at the end of the month.
A budget planner will help an individual maintain all their expenses, including minor ones that get lost in the shuffle.  Many good budget planning tools divide budgets into weekly, monthly, and yearly expenses.
When using a budget planning tool the first step is usually to input data from your daily expenses over a period of time.  This will give the budget planner the opportunity to compile information on your basic spending habits.  Over time the budget planner will have a collection of your regular expenses, regular income, cash assets and even your savings goals.
Your budget planner should start with your stable data.  This includes all stable income from your salary and other stable interest bearing assets such as bonds, income from rental property, and other cash inflow that is consistent over the month.  You should then have all data relating to expenses that are stable.  This includes rent, car payments, insurance, phone bill, cable bill and any others that will stay the same over a period of time.  
Once all this information is gathered you will know how much money you should have left over at the end of the month to spend and save on variable expenses.  It is then that you will divide what is left of your monthly income into budgeting sections.  This will include a utilities budget, entertainment budget, food budget, etc.  A good budget planner will also set aside a category for unexpected expenses such as car repairs.
When you are first using your budget planner it is important to include all your expenses on a daily basis.  Although a certain expense may seem trivial, or random, to you; by compiling the data on a daily basis over the course of a couple of months you will be able to find what expenses are trivial and which add up over time.  Before you use your budget planner you may not realize what you’re spending or what you’re spending it on.  A budget planner is a great tool for saving money and can help you eliminate unnecessary expenses that you didn’t even know you had.

Budget Worksheet

Budget Worksheet

A budget worksheet is a tool that is the basic building block of any type of budget planning.  Whether you are an individual, family, or business you will need to budget your money so that you can see where your expenses are going.  The purpose of budgeting is to find out what money your are spending on a daily, weekly, monthly, and yearly basis and eliminate, or reduce, unnecessary expenditures so that you may save for the future.
Where this may all seem like a lot of data and overwhelming to you it can be accomplished by using a budget worksheet.  A budget worksheet will categorize your income, fixed expenses and variable expenses in a way that is easier to manage and find out where exactly your money is going to.
There are many resources for software that will provide you with a budget worksheet.  There are numerous free online budget worksheet resources that you can find on the internet including Quicken Online, Mvelopes, and Yodlee money center.  These resources will allow you to manually input data relating to your income and expenses to help you devise a plan for the future relating to your finances.  
Your budget worksheet should start with your income. This includes all stable income from your salary and other stable interest bearing assets such as bonds, income from rental property, and other cash inflow that is consistent over the month.  When compiling this data in your budget worksheet you should prepare in advance and have all documentation, including tax returns, to help you identify all the money that you have coming in.  If you have income that is dispersed on a yearly basis then you have two options.  You can either divide that number by 12 or use that number in your income calculation or you can remove the income amount from that item completely.  
Once that is done you should start compiling your monthly fixed expenses.  This includes rent, mortgage, car payments, insurance, phone bills, emergency funds, vacation funds, etc.  By subtracting your fixed expenses from your fixed income you will have a number left over that will account for the money you have left at the end of the month for variable expenses and savings.
It is now time to input your variable expenses into the budget worksheet. These can include minor luxuries, like coffee, or necessities such as groceries or gasoline.  The idea behind variable expenses is not to prioritize items but to gather information about expenses that may change from month to month.  Your variable expenses include clothing, entertainment, bills such as utilities and credit card bills that may change from month to month, food, and all incidentals, no matter how minor.
Once you have compiled the list of income, fixed expenses and variable expenses you can begin to realize how much money you are spending on a monthly basis and the impact that removing one of those items will have on your spending.  For example, you may not realize that your cigarette habit is costing you $100 a month until you compile your budget worksheet.  This will give you a good look at what this unnecessary expense is costing you over the span of time and may also give you motivation to quit.
It’s easy to find free budget worksheets but, like with anything, you get what you pay for.  There are many products out on the market that offer advanced budget worksheets and often take data directly from your bank accounts, lending institutions, and other accounts where you may have income generated or expenses building, and input that data directly into the budget worksheet.

Investment Services

Investment Services

Investment services comprises of many different types of financial help provided to all sorts of clients, including individuals, corporations, small businesses, or even government entities.  The main task of investment services is money management.  Investment services organizations include retail banks, investment banks, financial advisors and planners, or any other group of professionals that work with client’s money.  
Most investment services are provided through a banking institution or financial firm.  The following are some investment services provided by banks:
1. Keeping client’s money and valuables safe and secure from physical dangers.
2. Issuing checking or debit accounts to provide access to money secured at the banks location.
3. Providing personal or business loans, usually with the goal of profiting off on interest.
4. Issuing credit, debit, or other forms of personal lending to private customers.
5. Provide investing funds, sources of capital, or markets for businesses both small and large.
6. Investment advice and services for the creation and trading of financial securities and derivatives.  
Banking and investment services can be sought by all different types of clients, however it is important that you select the investment service provider that best fits your needs and budget.
1. You can search for financial services by checking with local bank branches or looking up institutions in bank listings.  
2. Select a bank that serves other clients in similar standing as you or your company.  Many investment services specialize in helping small net worth clients, high net worth clients, or corporate clients.  
3.  Check with others who have used the investment services of a particular bank or professional.  Use their recommendations when seeking investment services, as they can often help you determine if the banking institution will fit your needs.  
Besides standard banking and financial services, investment services can also encompass other areas of business and monetary exchanges.  Some of the following are examples of other investment services that can be sought:
1. Intermediate or advisory services, which act to provide brokerage services for those who seek to purchase or sell publicly traded securities.
2. Private equity firms, which act as the purchasers of majority stakes in private corporations, making the company into a private entity.
3.  Venture capitalist, which provide private equity for individuals or corporations looking to create or expand business, often with a very high level of return if the investment is successful.  Venture capitalist act as a speculative investing group, who invest in high risk assets with the hopes of receiving high rewards.  
4. Angel investors, who provide investment services in the form of equity, similar to venture capitalist, but are very high net worth individuals who can take on extremely high levels of risk with the potential for very high financial rewards.
5. Debt resolution investment services provide clients with large amounts of debt to create a financial situation that spreads out payments over time or restructures debt while avoiding bankruptcy.  

401k Hardship Withdrawal

401k Hardship Withdrawal

What is a 401(K) Hardship Withdrawal?


A 401(K) hardship withdrawal is a form of loan permitted by the Internal Revenue Service, which enables a contributor to withdraw funds from their retirement plan to satisfy an immediate financial need. The Internal Revenue Service will permit a 401(K) hardship withdrawal if the following criteria are met:
• The 401(k) hardship withdrawal is needed to fulfill an immediate and important financial need
• The 401(k) hardship withdrawal is necessary to satisfy the particular need
• The contributor has no other means to fulfill the need—the individual cannot utilize any other source of funds 
• The 401(k) hardship withdrawal should not exceed the total amount needed by the individual
• The individual cannot contribute to their 401k plan for up to 6 months after the withdrawal date
• The individual must have first received all non-taxable distributions or loans available under their 401k plan
A 401(k) hardship withdrawal is typically permitted by larger companies; however, due to the high costs associated with administration, the maneuver may not be readily available with smaller companies. 
 
Acceptable Reasons for a Hardship Withdrawal:
The following reasons are typically deemed acceptable by the Internal Revenue Service to engage in a 401(K) hardship withdrawal:
• Repairs of the contributor’s primary residence
• Funeral expenses
• Payments associated with home foreclosures
• Payments required to prevent the contributor from being forced out of their residence
• Payments needed for college tuition and other educational costs such as transportation, food, room & board etc.
 
• Purchase of a principal residence 
• Unexpected medical expenses 
All 401K hardship withdrawals are subject to 10% early withdrawal fees. Moreover, the funds secured from a 401k hardship withdrawal are also subject to income taxation. For instance, if an employee withdraws $10,000 as a hardship withdrawal, the individual will owe $1,000 in fees and will be taxed on the remaining $9,000. That being said, the following 401(K) hardship withdrawals will not be subject to the 10% penalty:
• The individual stops working, quits, retires or gets laid off at or after the age of 55
• The individual sustains unexpected medical debts that exceed 7.5% of their Adjusted Gross Income
• A court orders the individual to give funds to a divorced spouse or dependent 
• The individual sustains a permanent disability
• The individual stops working and begins taking regular payments based on a fixed schedule that will provide equal payments for the rest of their expected life; this provision must last 5 years or until the individual turns 59.5 years of age.
Frequently Asked Questions Pertaining to 401(k) Hardship Withdrawals:
How Does the IRS Define a “Hardship” for a 401(k) Plan?
For a distribution from a 401(k) to be permitted on account of hardship, it must be used to satisfy an immediate and heavy financial reason. Moreover, the amount must be necessary to satisfy the particular financial need. The need of the employee will also include the need of the employee’s dependent or spouse. Whether the need is heavy and immediate will depend on the facts and circumstances; the above listed reasons are deemed acceptable by the Internal Revenue Service.
What is the Maximum Amount of Contributions that can be distributed as a Hardship?
The amount of contributions available for a 401(K) hardship cannot be more than the amount of the individual’s total elective contributions (Roth contributions are also included) as of the date of distribution reduced by the amount of previous distributions. 
Is a Hardship Distribution Allowed from an IRA?
There is typically no limit on when an IRA holder may take a distribution from his or her IRA, however, the individual may be subject to unfavorable tax consequences. 
Certain distributions from an IRA account that are used for expenses similar to those that may be deemed eligible for hardship distributions from a retirement plan will be ruled exempt from the additional taxation on early distributions. 

401k Retirement Law

401k Retirement Law

What is 401K Retirement Law?
A 401(K) retirement plan is a qualified profit-sharing account that allows an employee to contribute a portion of their wages to individual accounts. The basic rules of a 401K retirement law are as follows:
• An employer can contribute to employee accounts
• Elective salary deferrals are excluded from the employee’s taxable income (this does not hold true for designated Roth deferrals).
• Distributions—including all earnings—are includible in taxable income at retirement (this does not hold true for qualified distributions of designated Roth Accounts).
Within a 401(k) plan, an employee can choose to defer some of their salary; instead of receiving the deferred amount in their paycheck, the employee will delay or defer the funds. In this case, their differed funds are placed into the 401(k) plan. These deferred funds do not get taxed by the federal government or by the majority of state governments until it is withdrawn or distributed. 
The contribution limits, as stipulated by 401k retirement law, are as follows:
The employee cannot contribute more than $16,500 to his or her retirement plan for the 2011 taxable year. If the employee is at or over the age of 5, an additional “catch-up” contribution is permitted. The additional contribution amount for 2011 is $5,500. The individual employee may withdraw funds from his or her plan; however, 401k retirement law states that such a maneuver is subject to a 10% taxation if the individual is under the age of 59 ½. 
When an employee establishes the plan, according to 401K retirement law, they are required or permitted to the following:
• The 401 (k) holder can utilize other retirement plans
• The 401 (k) can be held by a business of any size
• The 401 (k) holder is required to annually file a Form 5500
Pros and Cons of a 401(K)
Because of 401 (K) retirement law, the plan has a number of benefits and drawbacks. The following list will provide the pros and cons of the retirement plan as regulated by 401k retirement law:
• A 401k retirement plan allows for greater flexibility in contributions.
• 401k retirement law enables an employee to contribute more to the plan than an IRA would allow
• A 401k is a good plan if cash flow is an issue for the employee
• 401k retirement law allows for optional participant loans and hardship withdrawals—these maneuvers offer added flexibility for employees
• 401k retirement law calls for a number administrative costs; these costs are typically higher than more basic arrangements. Moreover, the additional loan and withdrawal flexibility will add administrative burdens for the employer.
 

401k Rollover

401k Rollover

What is a 401k Rollover?
A 401k rollover occurs when a holder of a 401k transfers or rolls their account over into a new IRA (Individual Retirement Account). This process will typically occur when the holder changes employers or retires and wishes to seize better control over how their retirement funds are invested. 
If you leave your job—for any reason—and have a 401k account, you can decide between taking a lump sum (subject to taxation), which will keep the funds with your old employer (if permitted by the company), or have your 401k plan rolled over into a new IRA. 
Why Would I Participate in a 401K Rollover?
The easiest way to avoid federal withholding taxes and all applicable mandatory state taxations is to directly rollover your 401k into an Individual Retirement Account. The IRA is a tax-deferred account that may be used to receive benefits distributed from an employer-qualified account. Because all earnings will accumulate on a tax-deferred basis your funds will accumulate more rapidly when compared to the percentage return in an otherwise identical taxable account.  
The IRA is not an investment in itself, but simply an account that holds future investments (stocks, annuities, bonds, mutual funds and market funds) on your behalf. The most basic reason for opening participating in a 401k rollover is to avoid the taxation associated with “cashing-out” your 401k. 
Cashing out your 401(k) is a bad idea; when you cash out your 401(k) you will be taxed on the withdrawal. The combination of federal and state taxes is significant due to the higher marginal tax rate associated with the withdrawal. Furthermore, you may be subjected to an additional 10% early withdrawal penalty if you have not reached the age of 59 ½. Using a combined federal and state tax rate of 35%, a $200,000 cashed-out 401(K) will cost you $70,000 in taxes. 
A 401k rollover into a traditional IRA will not impact your taxable income, because the traditional IRA is a pre-tax account. However, a 401(k) rollover into a Roth IRA will increase your taxable income and bump up your tax marginal rate into the subsequent tax bracket. 
How Do I Participate in a 401(K) Rollover?
To efficiently engage in a 401k rollover, follow these basic steps:
1. Open an Individual Retirement Account with any bank or financial institution that offers an Individual Retirement Account. Typically, you will be required to go through a discount broker; when choosing the institution, be sure to pick the company that offers the best types of investments at the lowest fees and commissions. 
2. You must notify your employer that you wish to participate in a 401(k) rollover. After notification, you must make sure your employer makes the check payable to the investment institution that you choose. 
3. Once the transfer is finalized, your money will be sitting in a new interest bearing investment such as a money market account. Invest your money according to an asset allocation plan; the precise investment options will depend on your particular investment company. In general, you will want to invest in a well-diversified portfolio of low cost and passively managed ETFs or mutual funds. 

401k rules

401k rules

401(K) Qualification Rules:
For an employee to qualify for the tax benefits available, a plan must contain language that meets the IRS’s requirements and operate in accordance with the plan’s particular provisions. The following is an overview of qualification rules; it is not intended to be an all-inclusive list of regulations. For a complete list of plan qualification rules, observe Publication 560 of the Internal Revenue Service found at www.irs.gov.
Plan Assets Must Not Be Diverted: The 401(K) must make it impossible for the underlying assets to be used for or diverted to any purpose other than the benefit of the holder (the employee) and their direct beneficiaries. 401(k) rules—in the most general sense—state that the underlying assets cannot be diverted to the employer. 
Benefits and Contributions must not Discriminate: Under the 401(k) plan, the contributions or benefits may not discriminate in favor of highly compensated workers. In most instances, an employee who makes over $110,000 per year or more are deemed as “highly compensated” employees for 2011 (this figure will increase to $115,000 in 2012). In order to meet this requirement—with regard to deferrals and employee matching contributions—a 401(k) plan may provide minimum employer contributions or meet the Actual Contribution Percentage or Actual Deferral Percentage tests. 
Allocations and Contributions are Limited: A contribution to 401(k) plans are not allowed to exceed certain limits described in tax code. The limits are attached to employer contributions and the amount of employee elective deferrals. 
Elective Deferrals are Limited: 401(k) rules state that employee elective deferrals are capped to the amount in effect under section 402(g) under the IRC for that particular year. The elective deferral limit for 2011 is $16,500; this figure will increase to $17,000 in 2012. These caps are subject to cost-of-living adjustments; however, 401(k) plans may allow participants over or at the age of 50 to provide catch-up contributions of $5,000 in addition to these amounts. 
Minimum Vesting Standards Must be Met: 401(k) plans must satisfy requirements concerning when benefits vest. To “vest” simply means to acquire ownership. Therefore, the vested percentage refers to the holder’s percentage of ownership in his or her 401(k) account. A participant must be 100% vested in their 401(k) elective deferrals. Moreover, a traditional plan may require the holder to complete a number of years of vested interest in matching or employer discretionary contributions. 
401K Rules Regarding Participation: An employee, in general, is permitted to participate in a qualified retirement plan if the individual adheres to both of the following 401(k) rules:
• The individual must be at least 21 years of age
• The individual has at least 1 year of service; however, a traditional 401(k) plan may require 2 years of service for eligibility to obtain employer contributions if the plan provides that after no more than 2 years of service the participant is 100% vested in the account. 
401(k) plans may not exclude an employee because the individual has reached a specified age. 
Restrictions Associated with 401(k) Distributions: A distribution cannot be made until a “distributable event” occurs. “Distributable events” refer to instances that allow a transfer of funds from the employee’s plan and will include the following situations:
• The plan ends and not defined contribution plans are established or continued
• The employee becomes disables or passes away
• The employee reaches the age of 59 ½ years of age or suffers a financial hardship
Unless the participant wishes otherwise, the delivery of payment to the holder must begin with 60 days after the close of the following periods:


• The plan year in which the holder reaches the earlier age of 65 or the retirement age as specified in the plan.
• The year in which the participant destroys service with the employer.
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