Your 401(k)

Your 401(k)

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On November 10, 2008, 6 News and WATE.com held a live online discussion to answer questions about 401(k) investments. The following is a transcription of that discussion.


Focus on the Economy: Fighting Back (11/10/2008) Powered by:CoveritLive
5:01
WATE: Welcome to our live online discussion! We're here to answer your questions about 401(k) investments.
5:03
WATE: With us today is Ellen Coppinger, who is a Certified Financial Planner at First Tennessee Bank. She will be happy to answer your questions.
5:07
[J Byrd] I do not have a 401K but rather an IRA which is out of state. I am over 60 and now able to tap into it with major penalties. However, I am not sure how to go about this and I am always on the telephone on hold forever when I try to call them. The company is Principal Financial. Thank you for your help.
5:09
Ellen Coppinger: What product is your IRA invested?
5:10
[J Byrd] I am not sure
5:12
[J Byrd] The IRA is a substantial amount and I plan to turn over most of it into an IRA located here in Tennessee, and still do not know how to do that either!
5:13
Ellen Coppinger: Penalties applied to early withdrawals are pre-59.5- however, other penalties may be product specific. I will invite you to set an appointment to look at your current IRA and what your goals may be. The appointment is complementary to you - please call me at 865 977 5188.
5:14
[J Byrd] I would be most happy to do that, as First Tennessee used to be my bank before moving to Kingston. I thank you very, very much!
5:15
Ellen Coppinger: At the appointment, if need be we will call your current IRA custodian and ask details on transferring the funds. The transfer can be accomplished with bank to bank paperwork.
5:15
[KAREN] I have about 14000.00 in a 401(k) from a previous job and am in the process of building a new home...Can any of this be put toward the loan at the completion of the build?
5:17
Ellen Coppinger: Why would you want to do this - depending on age , tax bracket, and penalties you may have better options to finance the home.
5:18
[J Byrd] Thank You Ms Coppinger, and I will bring all the paperwork I can! You people are great!
5:19
[Denise] Can I take a loan out on my 401k; if so will I be penalized.
5:21
WATE: While Ellen is working on her reply, let me throw in a comment...
5:22
WATE: We're here all this week from 5:00 to 6:30 to answer your questions.
5:23
WATE: Tomorrow night we will answer questions about the job market.
5:24
WATE: Wednesday, the subject is your healthcare costs.
5:24
Ellen Coppinger: Some retirement plans to allow you to borrow under certain conditions. However to payback the loan you have to earn income pay taxes on that income and at withdrawal you will pay taxes again as all withdrawals for 401K are considered taxable income.
5:25
[KAREN] My husband and myself are both in our mid 40's, together our income is around 70,000 per year, and we have a good rate on our construction loan...we both have other retirement plans and are wanting to pay the initial amount that we will be financing down as much as possible so we can pay the house off within the next 5 years...
5:28
WATE: KAREN: Ellen will have an answer for you in just a moment, but I thought you'd also be interested in knowing that on Thursday the subject of our Focus on the Economy discussion will be the home market.
5:29
Ellen Coppinger: KarenConsider the tax implication and opportunity loss on the 401K money. It is good to pay off the mortgage as soon as possible, however, the home will stand for the debt. You can borrow money to purchase a home, but you usually can't finance retirement. I would like to meet with you and look at your retirement plans and look at some retirment income planning. Please call to schedule a complementary appointment at 865 977 5188.
5:30
[Jake Snake] Anybody can withdraw money from their accounts, but you'll be taxed and might have to pay a 10% penalty. Loans are often allowed from 401(k)s but arent typically advised.
5:31
Ellen Coppinger: Jake401k loans are not advised, but a loan will avoid the 10% penalty and taxes if paid back through payroll deduction.
5:32
[Connie] I am 58 years old. Should I stop having money withdrawn from my check for my 401K until the market settles down and invest in CDs instead?
5:33
[Guest] Thank you for you help with this...
5:33
WATE: You're welcome, Guest!
5:33
Ellen Coppinger: ConnieI would not advise you to stop distibutions to your 401k, The market is in a buy low scenario. I will advise however, to check your risk tolerance against your current investment choices.
5:33
[Don] There is a local company which helps "manage" 401Ks but I dont recall the name. Do you know of them? recommend their svcs? other's (Nationally) you might recommend more?
5:36
Ellen Coppinger: DonThere are several company's out there to help with the management of your 401K, I recommend if you currently work with a broker with other investments ask him or her for advise on your 401K before paying a fee to someone who is not famaliar with your risk tolerance and investment strategies.
5:38
WATE: If you're just joining us, we are here to answer questions about your 401(k).
5:38
WATE: With us today is Ellen Coppinger, who is a Certified Financial Planner at First Tennessee Bank. She will be happy to answer your questions.
5:38
[Diane] I have borrowed off my 401k, why do I have to pay it back when its my money and also IRS have taken my income tax check for the pass 3 years, is this because I didn't pay back.
5:42
Ellen Coppinger: DianeIf you borrow from your 401k you are agreeing to pay back the loan according to the terms set out. If you chose not to pay back the loan it is counted as taxable income in the year in which you borrowed. Also if you are younger than 59.5 the IRS imposes a 10% penaty. If you owe taxes the IRS will keep the tax refund until taxes owed in previous years are paid.
5:42
[Becky] Is it best to put all your money in bonds instead of stocks? I have lost money with them in stocks so I changed all mine to bonds but 15 percent should I leave it like that for now or change all to bonds atleast I won't loose anymore
5:45
Ellen Coppinger: BeckyAn investment strategy should be determined. What is risk tolerance and time horizon of need. A well diversified portfolio will spread your risk over the asset classes.
5:49
Ellen Coppinger: BeckyAre you invested in a stock Mutual fund or individual stocks. Talk with your broker to help you determine where is the best place for you to be invested. For a better answer call tomorrow 865 977 5188 - I will need more information
5:49
[Guest] A few weeks ago, my husband went to work @ his job of 12 yrs only to find that they were closing the doors that day! He has found temporay employment without 401K. Can we draw out the money to help us in these hard times? His salary has been cut in half! Thank you...Tammie
5:52
Ellen Coppinger: GuestHow old is your husband? If applicable a 72t could be established - there are several rules in establishing a 72t - please call you advisor or me at 865 977 5188 (tomorrow)
5:53
[Bill] I have maxed out on my 401K. Are there other retirement savings plans I can us while the market is this low? Can I get in on some of these deals?
5:55
Ellen Coppinger: BillDepending on adjusted gross income you may qualify to contribute to a Roth or traditional IRA.
5:56
[Diane] would I have to talk with someone from IRS to know how long they will keep taking my taxes.
5:56
[Diane] was it fair that IRS took my simulate check because of my 401
5:58
Ellen Coppinger: Diane Please talk to your accountant, for help, or yes you can contant the IRS - and yes the IRS will withhold any payments until the debt is satisfied.
6:02
WATE: Thank you, Ellen.
6:03
WATE: We're now joined for the remainder of our time by Jennifer Davie, who is also a Certified Financial Planner with First Tennessee Bank.
6:03
WATE: Jennifer, here's a question sent to us via email by Vickie:I am almost 60 years old. My smith barney 401K was loosing money terribly, so I rolled it over to my Regions bank into a CD paying 4.5% for 16 months. At least it is not loosing anymore. But.....I have no idea what to do with it at the end of that 16 months, and maybe is just safer there. Anysuggestions? Thank you
6:04
Jennifer Davie: It is always important to determine the time horizon for your investments so that you can accurately assess risk. Perhaps about 12 months into the CD, you should sit down with a financial advisor to review your options and determine if you will need to take any distributions over the next few years.
6:07
WATE: This question was submitted earlier by Heidi: My husband has just been offered 401K. We have never had it and do not know if this is the right time, considering the economy, to sign up for it. I am retired, so he is the only one bringing in the money. We do have a savings account and own our home out right. Would it be better to wait?
6:09
Jennifer Davie: If your husband would receive a match on his contributions, I would highly recommend that he contribute at least to receive the match. If your cash flow allows and you have an adequate cash reserve, I would recommend that you consider signing up.
6:09
WATE: This question comes from Lesa:will contributions to 401k funds continue to be exempt from income taxes?
6:11
Jennifer Davie: For the dollars that you contribuate this year, that is a deduction from your taxable income. When you take distributions from a retirement plan (401k, IRA, etc.), it is taxed as ordinary income.
6:11
[rob] what do you think about adam bolds smart 401k. is it worth the money
6:12
Jennifer Davie: I am not familiar with that - is it a book or an investment strategy?
6:13
[rob] he owns the mutuelfund store
6:14
[rob] its a web site
6:14
Jennifer Davie: Anytime when starting down an investment path, it is important to do your research. I would ask what performance has been over the last three, five and ten years, as well as make sure I understood all the fees and expenses associated with it.
6:15
[Chris] Can I cash out my 401K and start over? If so, how much money will I loose?
6:17
Jennifer Davie: Once you leave service from an employer, you can distribute or rollover your 401(k) into an IRA. If you are under 59 1/2 and take a distribution from your retirement account, you have to pay ordinary income taxes on it and a 10% penalty.
6:17
[rob] i moved my 401 to cash .when should i start puting it back into the market
6:18
Jennifer Davie: That's a tough question to answer without understanding your larger financial picture. If you are about to retire, then your investment strategy would likely be more conservative, where as if you are in your 20's you likely would want to be invested in equity mutual funds within your 401(k).
6:19
[rob] age 50
6:20
Jennifer Davie: Then that would lead to additional questions - how far away is retirement, how much income do you need in retirement, what is your asset base to generate that income, etc. All good questions to sit down and talk with a financial advisor about. In general, if you have a 10 year window to retirement, moving back into a diversified investment strategy would likely make sense.
6:22
[Chris] If I do cash out my 401K, how long would it take to get the money?
6:23
Jennifer Davie: Assuming you mean request a check from your 401(k) provider, that would vary, but my though is between 10 and 15 business day.
6:23
[Clemm] I have a school loan do you think it would be a good idea to use my 401 to pay off my loan
6:24
Jennifer Davie: Because you have to pay ordinary income taxes on distributions and a 10% penalty on any distributions before 59 1/2, I think it would be unlikely that it makes sense to pay off your student loans with a distribution.
6:24
WATE: Jennifer, here's another question coming to us via email: I was teminated from my job of 13 years this past April. My question is what am I suppose to do @ my 401k plan? Mer/Lynch has contacted me but I have not returned their call yet. Thank You Linda...
6:25
[Clemm] Thank you
6:25
Jennifer Davie: You have options. Many folks roll their 401(k) into an IRA with another financial institution. If you are considering rolling over your old 401(k), I would recommend interviewing financial advisors to see who would be a good fit for you to work with.
6:26
[Missy] I currently have a 401K account from my employer which has already lost a significant amount of money. I have it spread accross stocks and very little in the safe guarantee. I am 55 years old. Should I move more money into the low guarantee fund?
6:28
Jennifer Davie: While that might make you feel more comfortable, I would recommend that you consider keeping some in stocks to be able to take advantage of the recovery, even if it is a slow one, since you likely have a 5 to 10 year time horizon to retirement.
6:29
[Chris] What is the best way to go about requesting a check from my 401K?
6:29
Jennifer Davie: If your 401(k) can be viewed online, you likely can request it online. You also can call the number on your statement and they likely will be able to help you, or at least point you in the right direction.
6:30
WATE: We're almost out of time for tonight. We have two questions waiting, so we'll take those and that's all.
6:30
[Missy] Thank you. Another question - can a person have both a 401K and an IRA and is that recommended?
6:30
[Chris] Thank-you very much, this has helped me a lot!
6:31
Jennifer Davie: Yes, you can. However, if you have a 401(k) available through your employer, you cannot take a deduction for contributions to an IRA.
6:31
[Joe Klein] I retired when I was 55. I had a 401k was advised to roll he majarity of into an IRA, which I did and was told to leave a sum in the 401k in case I needed some cash and was able to withdraw without penalty from the 401k. I just turned 58, so i still have a year and a half before withdrawing off theIRA without penalty. I just looked at my 401k and have lost about 14k form what i left in there. Should I just take the remaining 22K and close out the 401k.
6:33
Jennifer Davie: If you don't need the cash today, I would recommend that you consider leaving it in place, or rolling it into an IRA rather than taking the cash now. If you do need the cash now, you might consider taking some in 2008 and some in 2009 from the 401(k) to spread the tax liability over two tax years.
6:33
WATE: Thank you for joining us tonight. That's all the time we have for questions tonight. We'll be back tomorrow from 5:00 to 6:30 when the subject of our discussion will be the job market.
6:34
WATE: We wish to say a special thanks to Ellen Coppinger and Jennifer Davie of First Tennessee Bank for their time and expertise.
6:34
WATE: Good night from WATE.com!
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