We've had a lot of questions on recent articles regarding 401k and 403b withdrawals.  Many people didn't realize that paperwork may be required on their plans.  These forms are sent or faxed to you and require your signature.  You'll have to return those forms and that can be time consuming.  

Every plan has different rules.  If you're close to retirement or age 59 1/2... call your custodian and ask about your withdrawal options.  

When you withdraw or rollover funds from your 401k plan or 403b, your plan custodian will often send a check right to your record address.   If you have requested a distribution or MRD, the check is made payable to you.  That distribution is a taxable event and you'll receive a 1099-R in January.

If you are requesting a rollover, you're check will generally come to you however it's made payable to your custodian.  Make sure and talk with your advisor and find out exactly out the check is made payable.  Make sure and write your account number on this check and send it right to your IRA or advisor.

When you transfer funds from an IRA to another IRA your advisor can generally do a direct transfers. They make it easy; the check does not come to you.  Most 401k plans or 403b"s will generate a check rather than a direct transfer.

If you have been reading our recent tips on withdrawals from your employer 401k or 403 plan you've probably noticed the 20% rule.  Each time you do a distribution from your plan you'll give 20% to Uncle Sam.  It's a prepayment of taxes and you may get money back on April 15th.  After exemptions and deductions, your tax bracket may be lower than 20%.  Make sure and consult with your CPA or tax advisor.  If you are in a lower bracket you may get a portion of that 20% back.

 Here's a rollover strategy that may make sense:

If you are above age 59 !/s and your plan allows an "age 59 1/ 2 in service withdrawal,"  some plans allow you to move funds to your own IRA.  You'll continue to add money to your plan and your new rollover IRA will allow you to withdraw money at any time.  This  can be a big advantage if you need money or even need to do regular withdrawals.  Your IRA is more flexible:  You don't have to do a 20% witholding.  Your CPA will probably tell you to withold at a lower tax bracket..10, 15 or even 0 if you are retired .

Not all employer plans offer this age 59 1/2 rule.  Make a phone calll to your plan an ask if this is available .  This can make sense if you are an active employee in your plan and need to withdraw money.

We've been discussing 401k withdrawals in our last several articles.  If you work for a school, university or hospital (any non-profit) your plan will probably be a 403b plan.  They work the same while you're still working and once you retire or change employment they can be a little more restrictive if you decide to withdraw or initiate a rollover to your IRA or employer plan.  They generally will require paperwork. 

Your plan custodian will send forms out for your signature.  The forms may require your spouse to sign and often need to be notarized.  Definitely a little more work!  Years ago most 403b plans paid income annuities.  The plans now offer the ability to rollover that lump sum to your IRA...your spouse is waiving the right to that annuity and allowing funds to move to your IRA or retirement plan.

You'll be signing forms and sending to your employer or plan custodian.  If you are doing withdrawals on regular basis ..ask your plan about setting up a systematic withdrawal plan (SWP) or rolling your 403b plan to your IRA to make life simpler.

When you start to do withdrawals from your employer sponsored retirement plan (401k or 403b plan) the IRS requires a 20% withholding on the distribution.   That 20% is applied to your taxes and if you are in a lower bracket on April 15th you'll likely get money back.   That 20% rule is mandatory and some states will also have a withholding.  Many retirees are surprised at the tax bill as they start to take money from their plans.

If you are retired or going through a job change it might make sense to roll funds from the employer plan into your own IRA, especially if you need income or anticipate withdrawals.  The rollover is not a taxable event and distributions from the IRA will still be taxable but the 20% rule doesn't apply.  You can elect any percentage 10%, 15% etc or elect not to have any taxes withheld.

If you decide to keep money in the employer plan, your MRD at 70 !/2 is not subject to the 20% rule.  The distribution is taxable but you're not required to do the withholding.

Here's a common retiree question...Does my 401k or 403b employer plan offer an income annuity when i retire?  

Most plans do not offer any type of income annuity.   Some plans will allow you to set up a systematic withdrawal plan (SWP) to provide regular monthly income.  A surprising number of plans however are "full payout" plans,  they simply don't allow partial or sytematic withdrawals at retirement.   

You'll want to consider an IRA rollover  if you're plan is restrictive...Most IRA accounts are very flexible and will allow partial, systematic and even allow you to put a portion in an annuity. 

If you are close to retirement..call your employer plan's toll free number and inquire about the withdrawal options.

Colonel Sanders would be so proud: Kentucky is the country's cheapest state to live in. Harland Sanders introduced what became his famous chicken recipe, with a secret blend of 11 herbs and spices, while running a service station in Corbin,Kentucky, in the '30s. 

The US stock index, which is made up of some of the biggest global firms, rose 92 points to finish at 17,068.

The Wall Street Journal provides some tips:

For retirees, not all savings are created equal. When retirees get ready to draw down their nest eggs, few realize that the order in which they tap their accounts influences how much they keep and how much they pay in taxes.

Underlying the tax questions is a fact that many retirees either forget, or don't realize, until it's too late: They pay income tax on money pulled from traditional IRAs and 401(k)s. As a result, for retirees in their 60s, the first stop for withdrawals usually should be taxable accounts, experts say. The thinking: Cash withdrawn from these—despite the name—isn't subject to income tax.

Roth IRAs, which are funded by after-tax contributions, should generally be last in line for withdrawals. Because withdrawals from Roths are made free of both income and capital-gains taxes, it makes sense to allow money to grow as long as possible in those accounts.

So look at your taxable account first, then your IRA or 401k employer plan and finally your Roth IRA.

If you are self-employed you have several options:  Contribute to your existing Rollover IRA or Traditional IRA to make it simple.  If you want to go beyond the $5,500 limit on the IRA, establish the SEP-IRA and if you or your spouse have a business look at a Solo 401k.

An SEP (Simplified Employee Pension) IRA is a type of traditional IRA any small business owner with one or more employees, or anyone with freelance income, can open. A Self-Employed 401(k), often referred to as a “Solo 401(k)”, can receive the same tax benefits as a general 401(k) plan, but without the employer being subject to the complexities of ERISA (Employee Retirement Income Security Act of 1974).

The first difference to be noted between the two is that the 401(k) allows you to contribute an additional $17,500 above the SEP-IRA. They both top out at 25 percent (20 percent for sole proprietors). This may well be all the difference you need depending on your salary due to the fact you can save more by utilizing the 401(k).

SEP-IRAs are lower maintenance. They are extremely easy to open and can be done so online in just a few minutes. There is also much less paperwork involved with SEP-IRAs.

Courtesy of financialbuzz.com

Working Americans expect to retire at age 66, up from 63 in 2002, according to a recent Gallup poll. But most retirees don't stay on the job nearly that long.

The average retirement age among retirees is 62, Gallup found. And even retirement at age 62 is a recent development. The average retirement age has hovered around 60 for most of the past decade.

1. Where are we in the market cycle?

Suppose you retired in October 2007 with a $500,000 nest egg. Those savings were split 60% in the S&P 500 stock index and 40% in the Barclays U.S. Aggregate Bond Index. You used a conservative 4% withdrawal rate, which gave you some $20,000 in portfolio income during your first year of retirement.

Result? By the end of February 2009, your nest egg would have shrunk to less than $320,000.

What you're seeing here is the impact of the 2007-09 bear market—and a classic example of sequence-of-return risk.

Read the other retirement questions.  Thank you Jonathan Clements of the WSJ.