Market Beat: Retirement plan distributions |

Market Beat: Retirement plan distributions

Everyone should have some sort of retirement plan. There are several different types available.

Individuals can establish IRAs, which can be either traditional or Roth. If you’re self-employed, there are many options to choose from. You can establish IRA based plans, like SEPs, SIMPLEs and SARSEPs or you can use 401k plans. Self-employed people with no employees can opt for an owner only 401k.

If you have a retirement plan at work, you can still set up an IRA, but whether the contributions will be tax deductible will depend on your income level. Many people end up with several different plans because they may change jobs or inherit retirement accounts.

In general distributions for retirement plans can start without penalty at age 59½. There are some exceptions to the 59½ rule. One thing that can be done with an IRA account is to annuitize it and spread the distributions out evenly over your life expectancy. You can always take funds from an IRA account earlier and pay the income tax plus the 10 percent penalty if you need access to your money.

Some qualified employer sponsored retirement plans allow for loans. Whether or not your plan allows loans depends on the plan document, some of them don’t. If your plan does have a loan provision you may borrow up to 50 percent of the account balance with a $50,000 limit. The loan must be re-paid within five years and you will be re-paying yourself without an interest charge, although there may be some fees.

A retirement plan may also allow for hardship distributions, but like loans they are also not required to. If your plan does allow for hardship distributions, the plan will specify the circumstances that funds may be withdrawn for. Typically, funds may be withdrawn for medical and funeral expenses but not for things like a first-time home purchase. That depends on the plan document. The IRS does have rules regarding hardship definition that say that the financial need must be immediate and heavy.

The government rules allow hardship distributions for things like purchase of a principal residence, tuition and educational fees, preventing foreclosure, burial expenses and repairs for damage to your principal residence. Hardship distributions will be included in your gross income unless they are from a Roth account. Information will need to be provided to your employer to prove that you are experiencing a hardship.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.

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