|
|
 |
| |
 |
|
Avoid Losing Your Home to a Bank Foreclosure
Are you facing the prospect of losing your home in a
bank foreclosure? Many who are experiencing a temporary
financial squeeze will withdraw cash out of their IRA in
order to save their home. Getting a loan from your
retirement account may be a smarter way to go than
taking an IRA distribution.
As with most people your home and retirement savings
probably represent the bulk of your available assets.
However, withdrawing money from your retirement
accounts, even if its to protect against a
foreclosure, will cause you to lose a big part of your
retirement money to taxes. A better strategy is to take
money out of your retirement funds by way of a 401k
loan. A loan from a 401(k) doesnt trigger any
distribution taxes and avoids the 10 percent early
withdrawal penalty, as long as you repay the loan.
When you have a job you generally can get a loan from
your employers 401k plan. But once you leave or lose
your job, as a rule, you can no longer keep your 401k
loan or borrow from the plan.
You may, however, be able to start your own individual
401k plan, called a Solo 401k or Self-employed 401k
under new tax laws that became effective in 2002. The
paperwork to set up a Self-Employed 401k is easy. You
can also transfer any of your IRAs, 401k, SEP plan or
other qualified retirement funds to your Self-Employed
401k plan. Most Self-Employed 401k plans allow you to
borrow up to 50 percent of your account balance all the
way up to $50,000. The 401k loan is tax-free and penalty
free.
With a lingering recession, anemic job market, and
rising property taxes and fuel bills, experts predict
that many more people will default on their mortgage
payments and face bank foreclosure action. Small
business owners and contract freelancers are especially
vulnerable to the economic slump.
The Self-Employed 401k is a qualified retirement plan
that can be set up by anyone who has a part-time or
full-time business. This retirement plan is similar to
401k plans of large companies. The difference is that
the Self-Employed 401k is designed for an individual and
as such is less complicated and less costly to maintain.
Any person with a business with no employees can set up
a Self-Employed 401k plan.
The cost and features of Self-Employed 401k plans will
vary depending on the plan vendor. A typical plan will
cost less than $200 a year to maintain and allow loans
with terms of 5 years or more at an interest rate close
to prime rate. The good part is that all of your loan
payments including the interest go back to your 401k
account. Take caution, however, because not paying your
401k loan on time will trigger IRS tax consequences as
if your loan was a taxable distribution.
|
|
|
 |
|
|
|
Avoid Losing Your Home to a Bank Foreclosure
For more information or to obtain a
Self-Employed 401k visit InvestSafe.com.
Daniel Lamaute is a retirement plans expert. Through
www.investsafe.com his firm Lamaute Capital provides
retirement tax saving tips to individuals and
organizations.
|
|
|
|
|
|
|
