When you retire how does the 401k work

Compare your k to an IRA. Can an IRA offer lower costs? Assess income strategies. Every month you delay, your benefit rises. On a similar note Dive even deeper in Investing. Explore Investing. Get more smart money moves — straight to your inbox.

Sign up. NerdWallet rating NerdWallet's ratings are determined by our editorial team. The scoring formula for online brokers and robo-advisors takes into account over 15 factors, including account fees and minimums, investment choices, customer support and mobile app capabilities.

The amount of your RMDs is based on your age and the balance in your account. As the name suggests, an RMD is a minimum—you can withdraw as much as you wish from the account each year, either in one lump sum or in a series of staggered withdrawals. Some of these include:. In the case of a distribution paid to an ex-spouse under a QDRO , the k owner owes no income tax and the recipient can defer taxes by rolling the distribution into an IRA.

Some k plans let you borrow against your savings, via a so-called k loan. If you fail to pay back the loan after five years, the IRS considers it a distribution, subject to taxes and that 10 percent tax penalty. However, you have until October of the next year —the due date of your tax return with extensions—to deposit the loan balance in an IRA and avoid owing any immediate tax or penalty.

You have several options for your k balance when you change jobs. Some k plans let you leave your money right where it is after you leave the company. However, as you move through your career, this means you will need to keep track of multiple k accounts. Find out from your new employer whether they accept a trustee-to-trustee transfer of funds and how to handle the move. Make sure you understand the tax treatment of your k balances. Make sure that traditional k funds are rolled into a traditional k and Roth funds end up in a Roth account.

Another possibility is for you to roll the balance over into an IRA. When moving the money, make sure you initiate a trustee-to-trustee transfer rather than withdrawing the funds and then depositing them into a new IRA. Miranda Marquit has been covering personal finance, investing and business topics for almost 15 years.

Miranda is completing her MBA and lives in Idaho, where she enjoys spending time with her son playing board games, travel and the outdoors. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.

Select Region. United States. United Kingdom. Miranda Marquit, Benjamin Curry. The only way to do this is to educate yourself. Go to all educational opportunities that your employer offers. Read all the material your employer provides on the plan. Surf the web and find a couple of good sites on k plans like khelpcenter.

Understand your investment options. Ask questions. What Is a k plan? If an adviser is a certified financial planner C. Other titles and acronyms may mean much less.

Then set up an initial meeting with a few advisers. Ask each if he or she pledges to act in your best interest, always. Here are 21 questions to get you started. Finally, compare your notes about each adviser you spoke to. So much of these money conversations are about feelings: our fears, our goals and our strongest values expressed through our spending, saving and giving.

Does this person care about your feelings? If not, keep looking. Twitter: ronlieber. Start Early The best day to start saving is today, even if you can save only a little bit. The most important advice about saving for retirement is this: Start now. Two reasons: 1. How Much Should You Save? Answers to Questions About b Plans. Talk to a Teacher.

What to Know About I. What to Know About Roth I. What Are S. AND S. Creating Your Own Version of a k.

Summer Job? Time to Start a Roth I. How to Give an I. Don't Get Fancy Dozens of books exist on the right way to invest. Think humble, boring, simple and cheap. The Boring Glory of Index Funds Your best bet is to buy something called an index fund and keep it forever. How to Choose Index Funds How much of each kind of index fund should you have?

Zen and the Art of k Maintenance. Fees Nothing in life is free, even when it comes to saving for retirement. The Downside of Retirement Accounts Retirement accounts are not free, and the fees you pay eat into your returns, which can cost you plenty come retirement. Fees Too High? On the Hunt For a Better k Plan. Revealing Hidden Costs of Your k. Revealing Excessive k Fees. Routine Financial Tuneups Once you set them up, it only takes a few minutes a year to keep tabs on your retirement accounts.

To Do 1. Save 1 Percentage Point More from Your Paycheck Time required: 5 minutes If you followed our earlier advice, you set it up so you have money automatically taken out of each paycheck for your retirement account.

Get the Your Money Newsletter Every week, get tips on retirement, paying for college, credit cards and the right way to invest. Your email address Sign Up Now. The good news: If you receive a loan from a k plan, you pay interest to yourself. Consider: What do you value most in life?