Think twice before taking an early withdrawal from a retirement plan

If you’re in need of cash, early retirement plan withdrawals generally should be a last resort. With a few exceptions, distributions before age 59½ are subject to a 10% penalty on top of any income tax that ordinarily would be due on a withdrawal. Additionally, you’ll lose the potential tax-deferred future growth on the withdrawn amount.

If you have a Roth account, you can withdraw up to your contribution amount free of tax and penalty. But you’ll lose out on potential tax-free growth.

Alternatively, if your employer-sponsored plan, such as a 401(k), allows it, you can take a plan loan. You’ll have to pay it back with interest and make regular principal payments, but you won’t be subject to current taxes or penalties.

Please contact us if you have questions about potential taxes and penalties on early retirement plan withdrawals. We also can help you determine if there are better options available for meeting your cash needs.

Employers given another year to get into compliance with the health care act’s “play or pay” provision

The Patient Protection and Affordable Care Act of 2010’s shared responsibility provision, commonly referred to as “play or pay,” was scheduled to take effect Jan. 1, 2014. But on July 2, the U.S. Treasury announced that the effective date would be delayed one year, to Jan. 1, 2015. IRS guidance will be issued providing more details and perhaps additional changes.
The original provision:

• In some cases imposes nondeductible penalties (generally $2,000 per full-time employee) on “large employers” that don’t offer coverage or that provide coverage that is “unaffordable” or that doesn’t provide “minimum value,” and
• Defines a “large employer” as one with at least 50 full-time employees, or a combination of full-time and part-time employees that’s “equivalent” to at least 50 full-time employees.

The rules are complex, and the new IRS guidance is expected to clarify — and perhaps simplify — them. Please contact us for the latest information and to determine how your company may be affected.