What is a 401k?

A 401k is a long-term plan for saving towards retirement. It actually is named after the section of the IRS laws that allow financial planning. Usually, 401k plans are only available through an employer where money is taken out of pay and invested into money market funds, growth funds or other types of retirement savings accounts that accumulate over time. Many times the confusion from one plan to another for investing the 401k can bring many questions. Ask an Expert any of your 401k questions for quick and affordable answers.

Can someone roll his or her 401K into an IRA while collecting unemployment in Colorado? They are not withdrawing any money as cash.

Under Sections 8-73-110 (3) (A) & (C) of the state of Colorado Employment Security Act, since if you do not reinvest every penny of the 401(K) in an IRA or Keogh plan, the entire amount 401(K) was being treated as a lump-sum retirement payment. If you roll the whole 401(K) over, then it is not calculated against you for unemployment .

Can someone’s former employer withhold a party’s vested 401k funds for eight to nine months before releasing it to the party?

If the individual is vested, it must be paid on demand. There is no basis for the delay. Unless it can point to a specific clause in the investment that requires funds to remain closed for a certain period affecting you, it cannot do so, and you may pursue a complaint with the labor board.

Is a 401k distribution, considered income when reporting to California EDD?

Yes. The individual should register it as income during the week that the individual got the distribution. It’s not earned income, therefore it would only effect that week of benefits.

Is it legal to use your 401k to buy a franchise without penalty? Some say yes some say no. the party has not spoken to a lawyer though. Does the IRS frown upon them?

It is legal to use the 401K finances to purchase a franchise, but if the individual were under 59 1/2 they would be given hit with penalties for early withdrawal, and distribution. Seeing as the individual is using the finances in a way that is not authorized under the individual’s 401K account, named on the individual and for an outside asset. Removing funds for an investment is not one of the permitted withdrawals that are penalty free. Therefore, while it is officially legal to use the funds for a purchase, it is extremely costly due to the additional tax penalties.

If someone is enrolled in a company’s 401K program, and they was contributing until July, when for some reason (they are saying systems glitch) the party was dropped for it, so nothing was taken out and no match was given. No they are saying, sorry, the company can add the party back in again, but cannot do anything about the past 6 months. Does someone have any recourse?

In most cases, the federal tax law deems when deposits to 401k’s can be made and if the company made an error inadvertently stopping the contributions coming out of our check and therefore stops making them into the 401k fund, the laws will not allow them to go back in and fix it after the fact (it is to prevent people from adding to their 401k’s at the end of the year to avoid taxes). So, as long as they didn’t take it out of your check to begin with all you can do is monitor your payroll stubs in the future and be sure they are deducting it each pay period.

401K is a very diverse topic. It can span one question after another. There are additional questions that could come up. Such as: 401k contribution limits, 401K hardship withdrawal, and 401K problems. Experts can help by answering any questions that you may have.

Published on: July 30, 2013