Some early 401(k) withdrawals are penalty-free

To encourage workers to set aside money for retirement, Congress modified the tax law in the late 1970s. The new provisions offered certain tax advantages to companies that established "defined contribution" plans. Unlike traditional pensions, such plans do not provide for specific pension payouts during retirement. Instead, they establish how much an employee can contribute. The most common of these plans, as defined by its subsection in the Internal Revenue Code, is the 401(k).
In an effort to keep employees from raiding their retirement accounts too soon, the tax code also assesses stiff penalties for early withdrawals. In general, if you're still working and pull money out of your employer-sponsored 401(k) account before age 59½, you'll be socked with a 10% penalty on the withdrawal, in addition to regular income taxes.
Nevertheless, some provisions of the tax code allow for penalty-free withdrawals from a 401(k) account before age 59½.
Think long and hard, however, before taking an early withdrawal. Presumably, the longer you contribute to a 401(k) account, the more savings will be available to meet your retirement needs. Considering the meager retirement savings of many Americans — one recent study found that the median retirement savings of households nearing retirement is $12,000 — the decision to make an early withdrawal should not be taken lightly.
Following are two ways your traditional 401(k) account can be tapped without incurring the 10% penalty. Note that different rules apply to distributions from Individual Retirement Accounts (IRAs) and Roth 401(k) plans.

• Age 50 withdrawals for public safety employees and reservists. If you're a police officer, firefighter, or medic working for a state or city government, you won't be subject to the 10% penalty on early withdrawals if you leave your job in or after the year you turn 50. This provision also applies to certain active-duty reservists.

• Age 55 withdrawals after separation from service. If you leave your employer in or after the year you reach age 55, you can take penalty-free distributions from your company's qualified 401(k) plan. Note, however, if you retire before that year and wait until you're 55 to take the distribution, you'll be subject to the 10% penalty.

In addition to these two provisions, the tax code provides additional limited exceptions to the 10% penalty rule. If you're considering an early withdrawal from your retirement accounts, give us a call.
© MC 2013

contact: aconner@atconnercpa.com

Are zero-interest credit cards a good deal?

It sounds like a great deal. Pay no interest on balances transferred from other credit cards, and make interest-free purchases throughout the promotional period. Why wouldn't you take advantage of such an offer?
Although a 0% credit card may be a wise choice for some people, the devil is in the details — and in your individual propensities as a consumer. Consider the following questions:

• Is the balance transfer really free? Yes, you may not be required to pay interest on a balance moved from one credit card account to another. But your new account may charge a fee for making the transfer. Such fees typically run from 3% to 5%. If your balance, for example, is $3,000 and you pay a transfer fee of 3%, you'll be charged $90 just to make the switch. And in some cases, the lender doesn't set a cap on this fee; it's a flat percentage. So the higher the balance that's transferred, the higher the transfer fee.

• What happens after the promotional period? You may be offered a 0% credit card now, but the offer may expire in six months. After that, the rate will likely adjust upward, sometimes substantially. So if you can't pay off the balance before the promotional period ends, you may want to deposit the offer in the nearest trash can.

• What happens if you're late on a payment? Some companies have strict terms on new credit cards that mandate substantial penalties if even one scheduled payment doesn't arrive on time. The card may be cancelled; the full balance may be immediately due; the 0% rate may vanish like the morning fog. So reading the details of the credit card agreement before you make the switch may save headaches and dollars later on.

• Are there minimum use requirements? To keep the promotional rate, you may be required to use the card at least once a month. If you don't, look out. The rate may jump or penalties may be assessed. Again, reading the fine print is crucial to making a prudent decision.

• Will you pay off the balance — really? Know your propensities. If it's likely that six months from now the balance on your new credit card will remain unpaid, perhaps it's time to redouble your efforts and concentrate on your existing account.

aconner@atconnercpa.com

Saving the Dream”, A Serious Discussion About the Challenges to Preserving Affordable Housing.

t’s not too late to register for the Philadelphia Council for Community Advancement’s 2013 Report  to the Community on Wednesday, November 13, 2013 at 8:00 AM at The Union League of Philadelphia, 180 S. Broad St in Center City.

The topic for the morning is “Saving the Dream”, a serious discussion about the challenges to preserving affordable housing.  The recession, slow economic recovery and a widening economic gap have turned the dream of homeownership into a nightmare for many households in the Greater Philadelphia area.  These factors have also placed the American Dream of beyond the reach of others.  Equal housing opportunity for a growing segment of the area’s population is being threatened by the depressed economic climate, stagnant unemployment, increasing household operating expenses, and changes in credit and lending policies.

PCCA hopes to lead the conversation about solutions to these problems.  During the event, PCCA will use its experience, along with other professionals from the field, to have a dialog that will examine critical issues facing homeowners who are trying to save their homes and first-time homebuyers, who are seeking to capture dream.

Individual tickets for the breakfast forum can also be purchased for $25.00. or to become a sponsor go to www.pccassavingthedream.eventbrite.org  and reserve your seats.  For more information contact Pierrette Pearson at 215-567-7803 Ext. 2133 or pierrette@philapcca.org.