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When is it Ok to Take Money Out of My 401K

A traditional 401K is a special type of investment account that is specifically intended for retirement savings. Employees can opt to participate in their company’s program and a certain amount will be deducted from each paycheck to be deposited in their own retirement account.

The money is not taxed along with the rest of their income, but receives a special tax-exempt status for being put into this savings account. Employers may choose to match the contributions of their employees up to a certain amount, allowing employees to double the amount of their savings.

While this is a great program for saving money for retirement, individuals who are facing a financial hardship in the more immediate future may want to take the money out sooner. This can become tricky because although the money is technically yours, the tax-exempt status and employer-matching add different restrictions to your access. So, when can you take money out of your 401(k)?

There are four means of getting to your money:

  1. Major financial hardship. If you are facing foreclosure or you have medical bills that amount to more than 7.5% of your gross income, you can be granted a hardship exception which will allow you to withdraw some of the funds in your 401(k). However, the amount you can access and the penalties assessed depend on your employer’s restrictions.
  2. Leave your job for another one. When you leave a job where you had a 401(k), you can cash out that account. However, you will be required to pay taxes on the amount that was previously untaxed and additional penalties.
  3. Quit your job, get fired, or become disabled. If you are over 59.5 years old and quit or are fired, you can access your 401(k) without penalties. If you become permanently disabled, you also can access it.
  4. Take out a loan using your account as collateral. If none of the previous three situations apply to you, you may be able to take out a loan from a financial institution using the value of your account as collateral. Generally this will be only for a small amount of the total value of the account and you will be charged interest as on a normal loan.

Otherwise, you can start taking money out of your account the year that you turn 59 years old, and you are required to start taking money out by the time you turn 70. There may be additional options available to you depending on your specific circumstances and the rules of your employer’s account. Only a financial professional will be able to offer you advice on your specific situation.

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03. Mar, 2011
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Stock vs Forex Market

Stock market

Investing in Stocks has been around us for hundred of years so it’s nothing new about them. Companies issue stocks to raise capital for new projects and expansion. Each share of the stock represents a partial ownership in the company. So in other words you become a co owner of the company and therefore invest in the market the company is working in.

When the company does well and makes profit, it’s value rises and therefore the value of stocks rises as they are a representation of companies value and ownership. When this happens you can either sell these stocks for a higher value or wait for even more profits if you belive that the value of the company will rise even more. Somethimes when the company is doing well and it has good profit the company will issue dividends. Dividends are in some way a payout to the stockholders from the profit that the company has made in the recent years. These is also an interesting and profitable way to make maney in stocks. Dividends can be issued once a year, twice a year or even quarterly.

Stocks are traded on Stock exchange markets. Most stocks are bought and sold through brokers (agents) who charge a commission or a fee for there services.

Forex market

Forex (FOReign EXchange market) is an inter-bank market that took shape in 1971 when global trade shifted from fixed exchange rates to floating ones. This is a set of transactions among forex market agents involving exchange of specified sums of money in a currency unit of any given nation for currency of another nation at an agreed rate as of any specified date. During exchange, the exchange rate of one currency to another currency is determined simply: by supply and demand – exchange to which both parties agree.

The scope of transactions in the global currency market is constantly growing, which is due to development of international trade and abolition of currency restrictions in many nations. Global daily conversion transactions came to $1,982 billion in mid-1998 (the London market accounted for some 32% of daily turnover; the New York market exchanged approx. 18%, and the German market, 10%). Not only the scope of transactions but also the rates that mark the market development are impressive: in 1977, the daily turnover stood at five billion U.S. dollars; it grew to 600 billion U.S. dollars over ten years – to one trillion in 1992. Speculative transactions intended to derive profit from jobbing on the exchange rate differences make up nearly 80% of total transactions. Jobbing attracts numerous participants – both financial institutions and individual investors.

Comparison

While both the forex and the stock markets deal with money, the biggest difference between the two is the sheer volume of money transacted on a daily basis as well the span of operations. The forex market deals with nearly 2 trillions of dollars which in comparison to any stock market is much larger. The players in the forex market are also different, where the money transactions are done between governments, international banks and financial institutions of different countries.

The amount of money which is bought, sold or traded in a forex market can quickly be turned into liquid cash, or better still, it is actually made into hard cash. The speed with which such transactions take place in a forex market can be really fast for any investor, irrespective of the country of his origin.

The other difference between a stock and a forex market is that stock markets operate in shares and businesses which belong to a specific country; forex markets on the other hand operate globally and can include any and every country of the world. Its span of operations is far wider. The market encompasses nearly every country of the world and deal with trading their individual currencies which has nothing to do with any specific business or corporation.

While stock markets operate only on business working days and may remain closed on bank holidays and weekends, the forex market has to consider the several time zones across which it operates. Hence the forex market is open 24 hours 7 days a week to accommodate all the countries. While one market opens another closes. Because of the difference in time zones, one country may close its market but another in another part of the world has opened its own. Thus the trading in a forex market happens on a non-stop basis.

The stock market of any country operates with the prevailing currency of that country. For instance, Japan will work with the yen and the US stock market will work with dollars, Indian stock market with Indian Rupees, etc. The forex market, on the other hand, works with many countries and trades in many currencies. These are the major differences between the stock and the forex markets.

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20. Dec, 2010