• 401(k) / 403(b) / 457(b) / TSP: $16,500 (plus $5,500 catch-up for those 50+)
• SIMPLE Plans: $11,500 (plus $2,500 catch-up for those 50+)

The definition of highly compensated and key employees, maximum compensation for purposes of a qualified plan, and most other limits also did not change.

Most are familiar with the magic ages of 59 ½ when you can start withdrawing from retirement savings without paying the 10% IRS penalty and 62 when you can start taking social security.  But sometimes retirement comes before these ages either voluntarily or involuntarily, and you may need income.  In those situations, many are not aware that you still have options to tap your retirement savings without penalties.  

 

The first option is available if you are at least age 55 and you stop working for your employer.  If your employment terminates during or after the year you turn 55, you are eligible to start drawing funds from that employer's 401(k) without penalty.  If you have multiple retirement accounts, this exception doesn't apply to all of them.  It only applies to those employer retirement accounts where you "separate from service" after turning 55.  If you roll the employer plan funds into an IRA, the exception also no longer applies.  For qualified public safety employees who take a distribution from a government defined benefit plan, this exception kicks in at age 50.

 

 Another option is called "substantially equal period payments" or 72(t) distributions.  You can start taking funds from your retirement accounts (401(k), IRA, 403(b), etc.) at any age with this option, although it doesn't apply to any employer retirement plans when you're still working for that employer.  To use this option, you are required to begin taking a "substantially equal" amount each year and continue without variation for at least 5 years or until you reach age 59 ½ (whichever comes later).  You have a choice of 3 different calculation methods of your payment.  Once you start, you are committed to using the same method for the duration of the payments, with the exception of one adjustment allowed from two of the methods to the third one. 

 The IRS is quite picky about the precise calculations of 72(t) distributions and imposes steep penalties for any mistakes.  An error in one year can cause back-penalties on all previous distributions taken.  So you really need to consult a professional to have your distributions calculated.  And once you start, you absolutely have to stick with the program.

With either of these options, it's important to look at the big picture of your overall retirement funding.  Starting to withdraw from your savings too early can result in a significantly reduced standard of living later on, or it may be just fine in your situation.
Of course, you will still owe taxes on any distributions taken from tax-deferred accounts, and it's a good idea to plan for those taxes when considering these strategies.

For participants in the Texas Guaranteed Tuition Plan (also known as the Texas Tomorrow Fund) an important refund deadline is approaching.  Any refund requests received before November 30 will be processed according to the current rules.  The current rules allow for a refund of the original contribution plus earnings based on the rate of tuition inflation for a child who is age 18 or older.  For those under 18, an actuarial value is calculated based on the date you bought the contract, the number of years until your child graduates from high school or turns age 18, and the number of payments made compared to the total number of payments required.   After November 30, the new rules allow for only a return of the contributions, less expenses.  Big Difference!  

 

If you bought into the Texas Tomorrow Fund and your child plans to attend an accredited school in Texas, this change likely doesn't affect you.  You still have their tuition costs locked in and you have a terrific guarantee that no matter how high tuition goes, the plan credits you purchased will cover the costs.  So you really wouldn't want a refund.

 

However, if your child plans to attend school out of state or not attend college at all, you may wish to consider taking action now.  In this case, you have several options. If this is your situation, visit KeenerFinancial.com for information on this important decision.

I was interviewed by Personal Finance Columnist Pamela Yip with The Dallas Morning News on 2010 Roth IRA conversions last month.  Her article provides a good overview of the opportunity and is worth reading.  Click here to read it.

 As we approach the holidays, there may be someone in your life whom you'd like to provide the gift of financial planning.  Gift certificates are available for as little as single hour of financial planning, or I can work with you to customize an engagement for your loved one.  Contact me to discuss this directly, or click on this link to purchase a gift certificate online.  After purchasing online, your gift certificate will be mailed to you in plenty of time for the holidays.