Friday, March 4, 2016

401(k) and 403(b) Explained

A 401(k) and 403(b) are retirement plans offered by employers. Most people are familiar with the 401(k) which is usually associated with businesses. A 403(b) is associated with nonprofit corporations.

These plans allow employees to defer their wages (prior to being taxed) into the program. All funds in the program are tax free until a withdrawal occurs. In many instances, the employer even matches the funds or makes a contribution even if not at the full 100%.

What happens next is the money in your account is invested. You may be allowed to pick the type of investment strategy to be applied with your funds. You will typically see options for an investment strategy that is more conservative or more aggressive. When entering into a bull market, aggressive maneuvering may be the way to go. However, I suggest to always take the conservative route with any investment option you come across. You can get even more specific and select your financial instrument, be it a high yielding bond or a preferred stock.

Similar to an IRA, you will have to begin withdrawing your funds at age 70½.  There is no fixed withdrawal rate that applies to everyone. The program calculates the amount you must withdraw at a minimum each year.

As far as probate is concern, once an individual passes away, their beneficiary receives all the funds in the account. Is probate required if you want your spouse to receive the funds? No. Married individuals have their spouse as the beneficiary automatically. The only way to avoid having your spouse as the beneficiary is if the spouse waives their right to the funds upon the decedent’s death.

Federal law dictates the option to roll over the funds in the deceased persons retirement program to the beneficiaries IRA. What accounts can have the funds rolled over? SEP-IRA, IRA, 401(k), and 403(b).To truly get an idea of what benefits you  may receive when rolling over the money in the decedents retirement program, contact a NYC Estate Planning Lawyer. Kamilla Mishiyeva, Esq., can discuss with you as to what income tax savings you may be able to take advantage of when rolling over the newly available funds instead of accepting a large lump sum.

Should you have any questions on the advantages and disadvantages of different retirement programs, contact Kamilla Mishiyeva, Esq. She specializes in estate planning, probate administration, and probate litigation. With offices in Brooklyn and Manhattan, she is available to handle clients through various neighborhoods including Park Slope, Financial District, Tribeca, and Soho.

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