401k Investment Guide

Can you withdraw from a 401k to pay for college?

Question: Can I withdraw from my 401k to help pay for my college tuition without having to pay the early withdrawal penalty?

I have been working for a few years before going going back to school to pursue my MBA. I am thinking of withdrawing funds from my 401k in order to help me pay for my education expenses. However, I’m worried that I may have to pay the penalty in addition to taxes. If I withdraw from my 401k to pay for my education, will I be hit with a penalty?


If you leave your current job before pursuing your degree, you have the ability to rollover your 401k into an IRA. Once the funds are in an IRA, you can use the proceeds for “qualified higher education expenses.” Of course your will have to pay regular income tax, but you will not be hit with the early withdrawal penalty.… Read More »

Can you rollover a 401k to an IRA without leaving your job?

Question: Can you rollover a 401k to an IRA without leaving your job?

I was wondering if it’s possible to rollover a 401k with your employer into an Individual IRA. I am thinking of rolling over my 401k into an IRA so I can have better investment options than what my 401k offers, but I would like to maximize the employer match. I feel that it’s bad IRA policy to say that’s prohibited this since it discourages being allocate funds the way you want to.


The short and simple answer is no, you cannot convert a 401k to an IRA unless you are separated from your employer or over the age of 59 1/2.

Know better? Leave your own answer in the comments!Read More »

2013 IRA Contribution Limit Announced

In 2013, the IRA contribution limit increased from $5,000 to $5,500. This is the first contribution limit increase since 2008. For the years 2008 through 2012, IRA contributions were capped at $5,000.

IRA contribution limits increase in increments of $500 and reviewed on an annual basis. The new $5,500 contribution limited applies to both Traditional IRAs and Roth IRAs. An individuals contributions to both types of IRAs cannot contribute the $5,500 sum however.  For example, if $3,000 is contributed to a Roth IRA, an individual’s contribution to a Traditional IRA would be capped at $5,500.

It’s still unknown what the 2014 contribution limit will be. Contribution limits tend to increase approximately every four years, so we may not see the IRA contribution limit increase to $6,000 until 2016. Only time will tell.

To read more about the IRA contribution limit announcement and other provision such as the limit for 401(k), please see IR-2012-77.… Read More »

Can I make 401k contributions to a 401k managed by a former employer?

Question: Can I make contributions to a 401k that’s managed by a former employer?

I want to keep investing in my Fidelity 401k. However, I’m changing employers and my new employer does not offer a 401k. Can I contribute to my old Fidelity 401k out of my own pocket?


Most companies will not allow you to do this. What you should do is rollover your 401k into an IRA so you can manage the money that’s invested and continue making contributions. The standard IRA contribution limits would apply though rather than the 401k contribution limits. Therefore, you would only be able to contribute up to $5,000 in the year 2012, unless you are at least 50-years-old in which case you would be able to contribute a maximum of $6,000. A 401k has the advantage of allowing you to contribute up to $17,000, so it’s unfortunate that your new employer does not offer a 401k.… Read More »

How much is your 401k taxed when you liquidate it?

Question: How much is your 401k taxed when you liquidate it?

I am leaving a company and I have $5,000 in my 401(k). I would simply like to cash it out. What kind of taxes will I have to pay?


The 401k withdrawal would be taxed at your ordinary income rate, which will vary depending on your income, plus there’s an additional 10% penalty. Assuming you are 25% tax bracket, you’ll receive a net of $3,250. 20% is required to be withheld by the broker, which amounts to $1,000, a $500 penalty would be imposed, and an additional $250 in taxes would be owed.

You can avoid taxes and penalties by rolling your 401k into an IRA. Wells Fargo offers a 401k Early Withdrawal Calculator. What I like about this calculator is that it helps you learn the impact of cashing out your 401k early. Let’s assume that you are 30-years-old and you plan to retire at 65-year-old.… Read More »