I was reading 7 Steps to Get Your Finances Back on Track from the April 1st CNN Money. Digging the article I was just about to Tweet it when I ran across this statement:
Tap the power of a Roth.
What if you’re hard-pressed to come up with the extra cash? Redirect a portion of the money you’re saving for retirement. Put only enough in your 401(k) to get the full company match; put the rest into a short-term bond fund in a Roth IRA. Unlike a 401(k), contributions to a Roth can be tapped without penalty in an emergency because you’ve already paid taxes on that money. But earnings withdrawn from a Roth before age 59½ will typically be taxed and hit with a 10% penalty.
I added the emphasis. I thought the law was that the account seasoned at least 5 years or age 59 1/2 and earnings could be withdrawn without penalty. I was wrong, but being wrong got me thinking. What can we do to make sure the financial information we get is correct? One of the things that I did was go to the IRS website and find the IRA publication number 590. It has a great flow diagram that I am including here about qualified distributions from a Roth IRA. Qualified distributions are the distributions that qualify to be withdrawn tax and penalty free.
As I have written in other posts, I am very concerned that the 401K may not be appropriate for all individuals depending on their financial resources and that under certain circumstances it is preferable to maintain present-day liquidity.
Financial writers and bloggers alike are human. We make mistakes but when I am unsure, I go to the source. Qualified savings plans were created by the US Government, the IRS site has free, easy-to-understand publications devoted to those savings plans. The US Treasury has an easy-to-navigate site that explains its bond programs and how to buy them. Fannie Mae produced a several hundred dollar, several hundred page tome on mortgage backed securities. I could not understand them so I never invested in them. The Fannie Mae site, however, emphasized the possibility of investment loss when purchasing mortgage-backed securities. I thought that was a clue. For real estate investments I consult real estate investors, not retail agents.
It is always important to have a network of unimpeachable sources that you can go to for reliable financial information.
What sources do you use? Please comment.
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Very important info here Ouida. Honestly I am not familiar with the Roth but reading this and doing quickie wiki search, scroll to advantages and the first sentence says–
Direct contributions to a Roth IRA may be withdrawn tax free at any time– Now if I had money invested in a roth and wanted to withdraw and seen that sentence, prior to reading this article, I would def. think I could withdraw anytime w/o a penalty. I probably wouldn’t even read the second sentence or any thereafter I would just go to the quickest withdraw rt. and get me some mo money. Bam #fail penalized and wouldn’t even know it. Just a scenario I know but clearly I would be confused if I didn’t do my research and have sources…. huh?
Now for 401 k I don’t even like them at all. I’ve used them and whatnot but I don’t know I didn’t really care to let my money make others rich. What do you do? I thought all companies regardless had the same rules with 401k but they don’t do they? Anyhooo I’ll go to bed now and count sheep instead of $,$,$,$, signs.
lees shizzle´s last blog ..Thanks Bamboo Forest of Pun Intended for not letting my tea burn
That’s the problem. There are contributions that can be withdrawn at any time and there are earnings that cannot be. But UR right you’d read the first sentence and start withdrawing when you need to….free money, mo money then uh-oh come April 15th. Rules for 401K are the same no matter which company offers it. Companies don’t always match employee contributions or suspend the match during tough economic times as roughly 200 major companies did during this recession. 60% of those companies have said they will re-institute their match….sometime. Don’t much care for the 401K either. A big black hole.