401 Loan For Business

10 Costs That Can Ruin Your Retirement Savings

It's said that what you don't know can't hurt you. No so. What you don't know can cost you, and sometimes cost dearly. Case in point: Advisers and others say there's a host of unknown costs and fees lurking inside your 401(k) plans, IRAs and other such retirement accounts. And often, those fees can make a world of difference in your overall investment returns.

Now truth be told, many an expert and firm the most famous of all being Vanguard are beating the drum about how 401(k) fee can be a drag on performance.

Many Americans are simply unaware of the fees they pay to their plan providers. More than seven in 10 (71%) 401(k) plan participants incorrectly reported that they did not pay any fees and 6% said that they did not know whether or not they pay fees, according to a recent AARP study.

Of note, AARP launched a 401(k) fee calculator on its web site that aims to help investors better understand 401(k) fees and their potential impact. You have to register to use the calculator, but it's easy. See the AARP 401(k) fee calculator here.

And come Jan. 1, 2012, plan sponsors will have to disclose the fees participants pay for their 401(k) plans.

But there are other lesser-known fees to consider. Case in point: An adviser with whom I am acquainted recently switched brokerage firms. And as is the custom in that world, he began asking his clients to move their accounts from the old brokerage firm to the new one. Well, as it turns out, those clients who moved their IRA accounts were whacked with two unexpected fees one was the so-called account transfer fee and another was the annual maintenance fee.

"Brokerage firms do not like having assets transferred out, so they like to create fees and charges to discourage asset transfers," said Michael J. Sommers, CPA/PFS, of Advanced Tax Strategies, PC

Advisers say the account termination and annual maintenance fees are perhaps the most common of the lesser-known fees and other examples of these costs abound. Jason Branning, a certified financial planner with Branning Wealth Management, LLC, moved his client accounts from one large custodian (firms that hold the assets that advisers manage for clients) to another some seven years ago and faced the very same fees.

Another variation on the account termination fee comes with retirement accounts that use managed-money programs, such as mutual fund wrap accounts. Often, these accounts have termination fees that must be paid prior to money being moved from the current manager to a new money manager, according to Timothy P. Bogert, CLU, ChFC, LIC, AIF.

How To Use Your 401k To Buy a Business | FiGuide | Strange News

You can take money out of your 401k with no penalty at any age to buy a business. This is done by first becoming a business owner, then opening a new 401k with a Custodian who will allow this. (Very few do). Then you roll your IRA to your new 401k. Next the 401k purchases shares of stock in the business that you are trying to buy. You do not get to actually handle the cash from your 401k, instead the Custodian transfers cash from your 401k to the seller of the business.

There is a big potential problem: the tax code does not allow retirement accounts to lend money to the account owner (except for a 60 day IRA temporary withdrawal or a 401k maximum loan of $50,000). So in theory the newly acquired business could not loan it money to the 401k owner not could the 401k owner loan funds from his taxable account to the business. This could create catastrophic cash flow crisis because it may be hard for a small business to qualify for a bank loan and if the business needed cash and the owner was not allowed to loan cash to his own company then the business could fail resulting in a ruined 401k.

So I can?t recommend buying a business with a 401k (that is held inside of a 401k), unless you are simply getting a $50,000 loan from your 401k. If you get a 401k loan be sure the payments, amortized over five years, are affordable.

A similar idea is to buy rental real estate with an IRA. This bad because if the property needed extra cash for improvements or operating expenses, etc. then the owner can?t loan money to the IRA and it may not be possible for an IRA to qualify for a bank loan. Further, both IRA?s and 401k?s are not supposed to borrow money and if they do that triggers unrelated business taxable income (UBTI).

If you decide to pursue this type of investing then it would be important to have a huge surplus of cash left over in the 401k or IRA to pay for emergencies.

Also if you buy a business or rental real estate inside of an IRA or 401k it is urgent to get tax advice from a very experienced CPA or tax attorney. Avoid getting advice from someone who is promoting these things and instead find a tax expert who is somewhat neutral and skeptical about this matter so that he can be objective.

There are serious IRS penalties for making improper investments inside of a tax-deferred or tax-free retirement account. By ?improper?

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