When is Borrowing from Your 401k a Good Idea?

While many financial experts claim you should avoid borrowing from your 401k as much as possible, it may be your only financial life line in certain situations.  Because so many people often don’t have enough or anything at all saved toward retirement, financial experts claim you could be setting yourself up for financial disaster when you are ready to retire.  On the other hand, depending on your situation, it may make sense to borrow.

If you have considered other financial options such as borrowing from friends, family or home equity line of credit, a loan against your 401k may be your last option.  An emergency that may be okay to borrow includes the need of living essentials such as food, grocery items and keeping utilities from being disconnected.  If you have other obligations or are being harassed by debt collectors for items such as medical bills or credit card bills, negotiate a payment plan that will give you time to make payments before considering using 401k funds to pay them off.

It you have a secure job it may be safe to borrow because it helps in repaying the loan amount.  You may have to consider payment amounts that would be applied to what you borrowed if they are automatically deducted from your paycheck.  Also keep in mind; you may be required to pay it back during a set time period. If you leave your job before the loan is repaid, you’ll have 60 days to pay what is due.  At this point, the money taken out may be subject to a 10 percent tax penalty.

You plan to use what you borrow for a smart investment.  This includes using the money to purchase a home, start a business or further your education.  For homebuyers, the repayment period is extended.  Make sure business decisions are thoroughly researched and educational credentials will have additional value for the workplace.

If you are unable to obtain a loan at an affordable rate, borrowing from your 401k may be a low-cost loan option.  People who have filed bankruptcy in the past, for example, may not qualify for a loan at a lower rate. Remember, you may still have to pay penalties for touching your 401k before your retirement age.  You may save interest in choosing to borrow against your 401k but it may not make up for taking the funds out in the beginning.

Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to tax reduction.

Be Ready For Retirement & Plan Your Pension Now

In your early twenties it is hard to imagine that day when you can stop working for good. However, pensions have been big news recently and regardless of your age you should think about what kind of financial situation you want to be in come retirement.

How to go about setting up a pension

Setting up a pension will require some research as there are many different types of pension options. You should look at whether your company has a pension and also investigate pension schemes offered by outside agencies. In addition, don’t be afraid to go to a financial advisor for advice on which pension options would best suit you. Finally, think about investments if you are young. Buying property to let can be just as effective over a long period as paying additional pension contributions.

Why is it important?

As you grow older, you will inevitably reach an age where your health will prevent you from working. When you are no longer able to work you will need an income and this is where pensions come into play. They can provide you with income security during retirement and allow you to continue living a comfortable life. Having an adequate pension pot will be essential. Pensions also benefit the economy in that they allow people to continue contributing by purchasing products.

Workplace pensions

Many employers now offer a workplace pension that is open to all employees (sometimes after a specific period of working there). There are a number of different types of pension that they might offer, so you might want to research which one will provide you with the best deal. Possible pension schemes include: defined benefit schemes which can be calculated on your final salary or an average of what you have earned over your entire career. Alternatively, they could offer defined contribution schemes, such as money purchase schemes, group personal pension plans and group stakeholder pension schemes.

Private pensions

There is also the option of private pensions which can be purchased from insurance companies, investment organisations and banks. Policy holders contribute money, it is invested by these companies and a fund is built up. When you reach an agreed age, you are able withdraw a certain percentage of the fund and invest the rest. The outcome of these pensions schemes depend on the amount invested, how well investments perform etc.

How much you should be saving

You should start thinking about how much money you are going to need (remember you may have paid off borrowings by this time). There are a number of questions you will need to ask yourself in order to give yourself a rough idea of how much money will need to save. For example, when are you hoping to retire? How much have you already saved? How much do you want to have during retirement? What benefits are you going to receive through social security? There are some useful pension calculators available on the internet which can help you calculate this. When you have decided on plan you will need to stick to it!

Rising retirement ages

Retirement ages obviously depend on where you live, but it is true that in most countries the retirement ages are going up, up, up! Due to the fact that most people will be working way past previous retirement ages, it is important that you have your pension plans in place.

What you could face if you don’t have a pension

Facing old age without any savings is a grim prospect. The likelihood is that you will have to work longer, or if ill health prevents it, have to endure a worse quality of life. Without a pension you could face poverty in old age, so having a plan is vital.

Hannah Wilkie has experience in the field of retirement planning and likes to get her clients to start saving early. If putting money into a pension plan is too inflexible at this point in time then she recommends you search around for the best ISA rates so you get the best returns on your money but you are also less tempted to spend it than if it was in a regular savings account.

IRS Adjusts Rules on Innocent Spouse Requests

Innocent Spouse Relief has always been available as a way for taxpayers who file joint tax returns and who were not aware, nor had any kind of reason to be aware, that her or his spouse had underpaid or understated their liability for income taxes. It was designed to offer the innocent taxpayer some protection from the faults of their partners and spouses and details of how it works were to be found in Publication 971 which was entitled Innocent Spouse Relief.

The regulations detailed in Publication 971 state that innocent spouse requests that are seeking relief from liability need to be filed within 2 years from the time that the IRS begins action for collection against the spouse. The point of this time limit was always that it was established to encourage early and swift resolution while there was still evidence remaining. However it has been announced that the IRS now intends to issue new regulations stating that they will be removing this two year time limit. In doing so they have stated that the reason for its removal is that they wish to extend the period in order to assist more innocent spouses in their relief requests.

From now on the IRS will not be applying that 2 year limit to any equitable relief cases and any taxpayers who have previously been denied relief requests purely on the basis of the two year limit are now eligible to reapply if they wish to. To do so they need to fill out IRS form 8857. In addition, those taxpayers who have ongoing cases currently held in suspension are now going to be afforded the benefits of the new rules and need not restart their application. Similarly they will not be applying the two year restriction to any cases that are pending litigation that involve equitable relief and if litigation has become final, they will suspend collection under many circumstances.

All changes are effective immediately and can be found in Notice 2011-70.

Alex is a freelance journalist and financial blogger. He loves to write about football and jazz but spends most of his days writing about mortgages, credit cards and tax reduction.

4 Scenarios Where You May Want Assistance with Your Taxes

Let’s face it: taxation laws can be complicated. The average person has limited knowledge of things like mergers & acquisition, San Diego tax laws, management consulting, San Diego business formations and much, much more. Even if you have filed your own taxes before and have never sought assistance, there are some scenarios in life where you may want to find a consultant to help you transition and prepare your taxes accurately.

1) You’ve started your own business.

If you have recently started your own business, congratulations! This is a huge accomplishment that can reap big rewards. However, there are a lot of ins and outs to owning your own company, especially in terms of finances and taxation. In regards to advisory management, San Diego financial and legal firms are ready to assist you in creating a workable business budget, managing your financial assets and finding write-offs for expenditures that you are making for the company. America’s tax codes were originally written in support of small businesses, so a skilled tax and accounting specialist can help you learn how to use laws to your advantage as a new business owner.

2) You’re pressed for time.

Maybe you work for someone else, and your taxes aren’t very complicated. However, you simply don’t have the time to file your own forms and figure everything out. With the go, go, go rush of Southern California and/or the business world, accountants can come in handy. Find a certified accountant with a track record of success (check on the Better Business Bureau website) and a tax preparer identification number to get you started. With your W-2s, records of expenditures and any receipts you may be able to write off, an experienced professional can take much of the tax-filing burden off your back.

3) Frankly, you’re bad at math.

If formulas and equations get your head in a spin, there’s no shame in hiring an accountant. When it comes to the IRS and taxes, it’s better to be safe than sorry—hire someone who can help you understand your return or who can just do it accurately for you the first time.

4) Your finances have significantly changed in the past year.

If you own a company that bought out another in a merger/acquisition, this can change your tax responsibility. Or, if you have purchased new real estate or sold previously owned property, your tax codes may be different than last year. Even in the case of a new addition to the family, or the death of a loved one, you may be surprised to see that your tax liability could have changed significantly from the previous year. If you suspect that a major life change will affect your finances, call a taxation/finance specialist.

Jessica writes about a wide variety of topics.  She especially enjoys writing about taxes. You can learn more about mergers & acquisition san diego at http://www.allenbarron.com/