In a direct transfer, account holders who want to move money work through their new provider rather than the old one. When setting up their new account, they have the new custodian initiate a transfer request, which moves the account directly from the old custodian. Using a direct transfer, the old custodian doesn’t always even have to sell all the investments within an account — they can sometimes transfer the account with the current portfolio intact.
These loans have been described[by whom?] as tax-disadvantaged, on the theory that the 401(k) contains before-tax dollars, but the loan is repaid with after-tax dollars. While this is precisely correct, the analysis is fundamentally flawed with regard to the loan principal amounts. From your perspective as the borrower, this is identical to a standard loan where you are not taxed when you get the loan, but you have to pay it back with taxed dollars. However, the interest portion of the loan repayments, which are essentially additional contributions to the 401(k), are made with after-tax funds but they do not increase the after-tax basis in the 401(k). Therefore, upon distribution/conversion of those funds the owner will have to pay taxes on those funds a second time.
Generally, a 401k participant may begin to withdraw money from his or her plan after reaching the age of 59 without penalty. The Internal Revenue Code imposes severe restrictions on withdrawals of tax-deferred or Roth contributions while a person remains in service with the company and is under the age of 59. Any withdrawal that is permitted before the age of 59 is subject to an excise tax equal to ten percent of the amount distributed (on top of the ordinary income tax that has to be paid), including withdrawals to pay expenses due to a hardship, except to the extent the distribution does not exceed the amount allowable as a deduction under Internal Revenue Code section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year). Amounts withdrawn are subject to ordinary income taxes to the participant.
After you receive the funds from your IRA, you also have a strict 60 days (and not two months) to complete the rollover to another IRA. If you do not complete the rollover within the time allowed—or do not receive a waiver or extension of the 60-day period from the Internal Revenue Service (IRS)—the amount will be treated as ordinary income by the IRS. That means you must include the amount as income on your tax return, and any taxable amounts will be taxed at your current, ordinary income tax rate. Plus, if you were not 59.5 years old when the distribution occurred, you'll face a 10% penalty on the withdrawal. (For more, see: Exceptions to the 60-Day Retirement Account Rollover Rule.)
The yearly figure needed for retirement comes from the Bureau of Labor Statistics 2018 Consumer Expenditure Survey. The expenditures considered were those of the age group "65 years or more," since this is the usual age range for retirement. To account for a comfortable retirement, we added an extra 20% on those expenses, and then adjusted by each state’s cost of living index as published by the MERIC. To obtain the total amount required for a comfortable retirement, we used IHME-based life expectancy figures published by National Geographic. Then, by subtracting the average retirement year published on MoneyTalks to the previous figure and multiplying it by the state-adjusted yearly expenditures, we obtained the total amount required for a comfortable retirement.
Having enough savings to afford a comfortable retirement has been an issue for a long time now. In fact, some economists have recently estimated that millennials will face even a harder challenge and should save almost half of their income if they wish to retire at 65. However, the good news is that some parts of the country are friendlier on the wallet than others when it comes to retirement. Our newest visualization shows the average amount that a person will need to retire comfortably in each state, as well as the average retirement age by state.