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New Job? Four Choices for Your Existing 401(k)

Changing jobs and companies can be an exciting opportunity, but you have a choice to make. What will you do with the retirement savings you have built in your 401(k)? Consider these four options:

  1. Withdraw the money and don’t reinvest it. This is usually the worst choice you can make. Generally, you’ll owe taxes on the distribution at ordinary income rates. (Special rules may apply if you own company stock in the plan.) Unless you’re over age 59½, you’ll pay a 10 percent penalty tax, too. More importantly, you’ll lose the opportunity for future tax-deferred growth of your retirement savings. And once you have the funds readily available, it’s all too easy to spend the money instead of saving for your retirement.
  2. Roll the money into an IRA. You can avoid immediate taxes and preserve the tax-favored status of your savings by rolling the money into an IRA. This option also gives you full control over how you invest the balances in the future. You have a 60-day window to complete the rollover from the time you close out your 401(k). However, you should always ask for a “trustee-to-trustee” rollover to avoid potential problems.
  3. Roll the balance into your new employer’s plan. If your new employer allows it, you can roll the balance into your new plan and invest it according to your new investment choices. However, there may be a waiting period before you can join your new plan.
  4. Leave the money in your old employer’s plan. You may be able to leave the balance in your old plan, at least temporarily. Then you can do a rollover to an IRA or a new plan later. Check with your employer to see if this is an option.

Call if you need help making the right choice for your particular circumstances.

Work-Related Education Costs May Be Deductible

Are you going to school this fall to earn an advanced degree or to brush up on your work skills? If so, you might be able to deduct what you pay for tuition, books, and other supplies.

If you’re self-employed or working for someone else, you may be able to claim a deduction for out-of-pocket educational costs if the training is necessary to maintain your skills or is required by your employer.

Just remember that even when the education meets those two tests, if you’re qualified to work in a new trade or business when you’ve completed the course, your expenses are personal and nondeductible. That’s true even if you do not get a job in the new trade or business.

Work-related education expenses are an itemized deduction when you’re an employee and a business expense when you’re self-employed. You may also be eligible for other tax benefits, such as the lifetime learning credit.

For more information, please contact our office.

Don’t Be Forced Out of a 401(k) From Your Former Job

When you change jobs and abandon vested amounts in your 401(k), your former employer has to follow IRS rules and plan provisions for dealing with your account balance. Pursuant to these guidelines, the 401(k) plan may have a “force-out” provision. That means when your vested balance is less than $5,000, you can be forced to take your money out of the plan.

Your former employer is required to give you advance notice of this rule so you can decide what to do with the money. Your choices are to cash out your account and receive a check, or roll your account balance into an IRA or your new employer’s plan.

What happens if you fail to respond to the notice? If your vested balance is more than $1,000, your former employer must transfer the money to an IRA. For balances under $1,000, you will either get a check or your former employer will open an IRA on your behalf.

Neither outcome is optimal, according to a report by the U.S. Government Accountability Office. If you receive the money, you’ll owe federal income tax. When the balance is transferred to an IRA, account fees may outpace investment returns and your balance will be eroded over time.

Protecting assets you worked for and earned is always a smart move. Call us for assistance.

Improve Productivity With Happy Employees

Happy employees can have a positive impact on your operations, customer support, and profit level. Here are suggestions for keeping your workforce upbeat.

Lead by example. Demonstrate the personal discipline and commitment you hope to instill in your workers by showing up every day with a positive attitude.

Emphasize the link between attendance and productivity. Absenteeism is a symptom of unhappy employees. Help your employees understand the importance of the role they play in the success of the business.

Learn what motivates your employees. Conduct an online survey to learn if money, recognition, promotion, or time off drives your employees.

Enrich skill sets. Cross-training and job rotation can improve appreciation for overall business operations and mitigate boredom and dissatisfaction.

Create a time-off bank. Modify the traditional offering of vacation, personal, and sick days. Give your employees the responsibility and ability to balance work and home obligations by empowering them to manage total available paid time off.

Other suggestions for a healthy working environment and happy employees include celebrations and team building. While these “soft” methods may seem a distraction from everyday business, your employees will appreciate the effort and your business will profit from the resulting improvements in performance.

Summer Day Care Expenses Can Add Up to a Tax Credit

Did you know that you can claim a federal income tax credit when you pay someone to care for your kids while you’re at work or school? The Child and Dependent Care Credit is valuable because it reduces the amount of tax you owe dollar-for-dollar. Here’s an overview of the rules.

  • Child care expenses must be work-related. This requirement means you have to pay for child care so you can work or actively look for work. If you’re married, you and your spouse must both work. Exceptions to this “earned income” rule include spouses who are full-time students or who are not able to care for themselves due to mental or physical limitations.
  • Expenses generally must be paid for care of your under-age-13 child. However, expenses you pay to care for a physically or mentally disabled spouse or adult dependent may also count.
  • Expenses must be paid to someone who is not your dependent. Amounts you pay your spouse, your child’s parent (such as an ex-spouse), anyone claimed as a dependent on your tax return, or your own child age 18 or younger do not qualify for the credit. For example, if you pay your 17-year-old dependent child to watch a younger sibling, that expense doesn’t count for purposes of claiming the credit.
  • The care provider has to be identified on your tax return. You’ll typically need to show the name, address, and taxpayer identification number. You can request this information by asking your provider to complete Form W-10, Dependent Care Provider’s Identification and Certification.
  • The amount you can claim depends on how much you spend for the care up to a dollar limit of $3,000 of expenses for one dependent and $6,000 for two or more dependents.

Contact us for more information.

Job Search Expenses May be Deductible

WASHINGTON – IRS Summertime Tax Tip 2015-24:  People often change their job in the summer. If you look for a job in the same line of work, you may be able to deduct some of your job search costs. Read more

Tax Tips for Students with Summer Jobs

WASHINGTON – IRS Special Edition Tax Tip 2015-13 – Students often get a job in the summer. If it’s your first job it gives you a chance to learn about work and paying tax. The tax you pay supports your home town, your state and our nation. Here are some tips students should know about summer jobs and taxes: Read more

Beautician

Self-employeds get tax breaks

When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of attractive tax breaks. Read more

Beautician

A Job Change Can Change Your Taxes

Planning to change employers this year? As you look forward to starting your new job, you’re probably not thinking about taxes. But actions you take now can have an impact next April – and beyond. Read more

Summer Job Tax Information for Students

WASHINGTON – IRS SPECIAL EDITION TAX TIP 2013-10 – When summer vacation begins, classroom learning ends for most students. Even so, summer doesn’t have to mean a complete break from learning. Read more