Frequent Retirement Questions


 How do you avoid penalties on distributions from IRA accounts prior to 59 1/2?

  • First Time Home Purchase, Buy or build a first-time principal residence for the IRA owner or a qualified family member (owner, spouse, child, grandchild, or other qualified family member),
  • Qualified Higher-Education Expenses. Applies to IRA owner, spouse, children or grandchildren.
  • Medical expenses that exceed 7.5% of the owners adjusted gross income.
  • Pay health insurance premiums after being unemployed for more than 12 months.

Can I take a loan from my IRA?

Loans are not permitted from an IRA under any circumstances. However be aware of the " 60 day rule". You're allowed to take money out of an IRA and replace those monies (or a portion) within 60 days without penalty. This is allowed once per year from a financial institution. You can take withdrawals from IRA accounts at any time but may incur taxes and penalties,

If I contribute to my 401k or 403b plan, can I make contributions to a IRA?

Absolutely. It may not be tax deductible and be aware the Roth IRA has income limits.

What is a Spousal IRA?

The Spousal IRA is designed for couples that have a spouse who is not employed and does not have access to a qualified retirement plan. The working spouse must have enough earned income to fund the the IRA. Spouses can choose either a Traditional IRA or the Roth IRA. The Spousal IRA will be subject to normal contribution and income limits.

Can I roll proceeds from a 401k plan directly into a Roth IRA?

Yes.  This rule recently changed.  You are permitted to rollover from an "eligible retirement plan" directly to a Roth IRA.  However many financial planners still suggest rolling to a Traditional IRA or Rollover IRA and then converting to a Roth IRA later.  A direct rollover to a Roth IRA or conversion to the Roth is a taxable event without any income limitations.

Can I roll company stock into a IRA?

If you have company stock in your 401k plan you can generally roll these shares into the IRA account. If you company stock that has a low cost basis and you've held these shares a long time, be aware of a special tax break termed "net unrealized appreciation" (NUA). NUA allows you to take stock out of the 401k plan at the time of rollover and pay taxes on the basis of this stock. This stock goes into a taxable account and can be sold later at long term capital gains rate. NUA is complicated-make sure and consult your financial planner or accountant.

Can I convert my Traditional IRA to a Roth IRA?

Yes.  Before 2010 you could not make a conversion if your modified adjusted gross income was more than $100,000.  Now, anyone can convert a portion or all of their Traditional IRA or Rollover IRA into a Roth.

What is a "Self-Directed" IRA?

Generally IRA accounts run by banks and financial -services firms are limited to traditional stocks, bonds and mutual funds. Some institutions will provide a "Self-Directed" IRA which allows investors to use real estate and business loans inside their IRA. Investors who want to use these investments will have to contact an IRA administrator to handle these type of transactions.

What type of investments can I use inside of my IRA?

If you deal with a brokerage or mutual fund family, you'll have a broad spectrum including funds, stocks, CD's and bonds. A 401k will generally provide a menu of mutual funds.


Why participate in a 401k?

There are considerable advantages:

  1. Contributions are made with pre-tax dollars, which will reduce your current tax bill.
  2. Investment savings are also tax deferred.
  3. Savings is "enforced".
  4. Possible employer matching.

What is a company match?

Some companies will contribute a certain amount to your account for every dollar you contribute, up to a certain limit. The match formula will vary at each company. In order to receive the matching contribution, the plan may require that you work a specified number of hours per year. Take advantage of any company match and contribute enough to receive the entire match.

What's the difference between a the 401k plan and a profit sharing plan?

A profit sharing plan is a type of employer sponsored qualified defined contribution retirement plan. It allows an employer to share profits of the company with employees by contributing some of the company's annual profits to the plan. The amount of the contribution can change each year, or may not be made at all, subject to the plan sponsors discretion.

The 401k component is a feature of a profit sharing plan. Employees can contribute a percentage of their salary to the plan and employers are allowed to contribute in the form of a company match. Current income taxes are deferred on both employer and employee contributions and investment earnings, until the money is withdrawn from the plan.

If an employee is 59 1/2 or older, are they allowed to take money out of their active 401k account?

Distribution rules are governed by a plan document. Each retirement plan will have a Summary Plan Description which explains the plan in detail. A plan may choose to allow employees who are at least 59 1/2 and still working to take withdrawals, but some plans do not. This is called an "in-service" withdrawal.  Some plans allow "in-service withdrawals" for employees who have worked for the company over 5 years.

If your plan does permit in-service distributions to those over 59 1/2, the employer will withhold 20 percent for taxes if it is not rolled over directly to an IRA or other employer-sponsored plan.

Can I borrow against my 401k?

Many companies with 401k or profit sharing plans offer a loan option. IRS rules allow plan participants to borrow up to half the value of their 401k plans or $50,000 , whichever is smaller. You have the option of repaying the money over a period of 5 years, with the payments made through payroll deductions. There are no penalties or taxes so long as you pay back the loan. You'll need to be an active participant in the plan to take advantage of loans.

My plan offers a "self directed brokerage account" option. What does this feature add?

Many large 401k plans allow employees the ability to invest money in individual stocks, bonds and mutual funds. They work like typical brokerage accounts except that employees can fund the accounts only by transferring money from their 401k plans. These accounts give participants access to investments outside their employers core lineup of funds. This "brokerage window" arrangement may have additional fees and is not available in every plan. Contact your plan administrator for more information.

403b Plans

What is a TSA? (Tax Sheltered Annuity)


Tax-sheltered annuities are are annuity contracts purchased from an insurance company, They are generally offered to hospital, school and non-profit employees who participate in 403b plans. These are typically fixed or variable annuities funded by an employees payroll deductions.


Are TSA's different from annuities?


No. The TSA is a type of annuity that is offered as a retirement plan. These are funded with pre-tax dollars.