If you need money and have been saving for retirement with a 401k plan, you may turn to that plan. You may want to use the money to weather your current financial storm. If you are relatively unfamiliar with the ins and outs of 401k plans, you may be confused. Many individuals know they are saving for retirement and that is it. Do you have to repay the money you take out? Are you charged fees? It all depends because you have a couple options.

So, what are your options to access the money in your 401k account? Your options include cashing out your 401k and taking a loan from it. What is your best option?

When cashing out your 401k, you don’t take a percentage of it. You take it all. This may seem like a good option if you want to buy a new car and pay for it in full. With that said, you are charged penalties. This penalty is 10%. You are not charged this fee when accessing your retirement at the age of 60. Moreover, 401k contributions are tax sheltered at first. You are taxed when you access the money, such as with an early withdrawal.

Having your retirement savings in your hand to use at your disposal may seem like a good idea. Yes, it will at the time. It is important to think long-term. Say, you have $20,000 in retirement savings. After the 10% fee, federal and state taxes, you are left with an average total of $16,000. For starters, you lose money. Next, you no longer have that money for retirement. How do you intend to survive financially without it? You better have a backup plan in place. If not, you could be homeless or working until you are 70 to make ends meet.

Not all employers have the option of early cash outs. Most advise against it. One of the few cases in which an employer will opt for an early cash out is with extreme financial distress or terminal medical conditions. The other case is with a job switch. If switching jobs, you can leave your 401k as is and pay management fees or you can rollover to an IRA or your new company’s 401k plan. There is, however, the option to cash out early. If you are in your early 20s and do not have a lot of money invested, you don’t have much to lose.

As shown, cashing out your 401k early has many downsides. It is risky and you lose money for retirement. If you need cash and you need it now, apply for a 401k loan. Most employers allow them. These are loans, so they must be repaid. Although 401k loans are optional, most employers will give them if you show need. Fill out a loan application and speak to someone in your company’s financial department.

The only significant downside to borrowing from your 401k is double taxation. As with cash outs, you are taxed when you get the money. Next, you repay that loan. When repaying, you are taxed. This money is not legally considered a 401k contribution, but a loan payback. So, you are double taxed. Still, it is usually less than the fee charged with a 401k early cash out. There may also be a handling fee, usually around $75 or less.

The only dangers of a 401k loan come from changing jobs and not making repayment. If you do not repay your loan, your account may go to collections. If you change jobs, your employer may shorten the term of your loan and request payment within 90 days. If you anticipate switching jobs soon, hold off on a loan or consider waiting to make the switch.

As you can see, both 401k loans and early cash outs have their pros and cons. If you are in financial distress, take a minute to think about the situation. Have you considered the alternatives, such as getting a bank loan, borrowing money from family, reducing expenses, or getting a second job? Dipping into your 401k account, even as a loan, should only be used as a last resort.

“Retirement Planning For Dummies” Series.

Credit clean up can be a difficult thing to do, but if you take the right steps toward cleaning up your credit you can be on your way to a brighter, more secure financial future. One of the best ways to work on building a strong financial future during your credit clean up process is to add or refine the starter or good accounts you currently have. Starter accounts are those smaller credit or loan accounts that people with no credit are usually able to get in order to start building credit. These are often in the form of jewelry, store accounts and tool accounts. They are smaller in limit and do not require the high level of credit that other loans, like credit cards and home loans, do. These are good accounts not only for those just starting out in their credit journey, for also for those recovering from bankruptcy and other financial setbacks.

If you already have some of these accounts, you need to take a hard look at them and make sure they are not in trouble. If they are, you need to do what it takes to get them current and the balance paid. While, some accounts on your credit report you will want to close as you pay them off, like high interest rate credit cards, starter accounts you should leave open. The open, active account with a current paid balance will reflect positively on your credit report and through your credit score. You do want to use them occasionally to keep them active and in good standing, but do not go crazy or charge more than you can pay off in a month or two. These accounts generally have lower interest and small monthly payments, but do not let the small payments entice you into getting in over your head. If it is a jewelry account, buy your loved one some $100 earrings for a gift and pay it off within the next thirty days. This will show you can use the account responsibly and show future lenders you can handle a loan and the responsibility that goes with it.

If you have no starter accounts, then take the time to look for one that will fit well with your current credit situation and your spending habits. If you love tools, then a Sears card should NOT be your first choice because of the temptation to max the card out and get into trouble. Instead, go for something you are only likely to use occasionally and work within the same guidelines as mentioned above when using the account. Some of the store cards have gotten more stringent in their guidelines and you may meet some resistance when looking for one. Try not to go to every store there is and apply for a card because the more times your credit is checked in a short period of time the worse it looks on your credit report and could cause the reporting agencies to think there is some form of identity theft going on.

Starter accounts are a great way to build your credit and help it recover from hard times. Take the time to research the types of starter accounts available and open only one or two and stick within the parameters listed for the best results. Changing your spending habits can be hard, but the benefits for the future are many.

written by REI Circle (www.reicircle.com)

Do not mix banking with proprietary trading - this seems to be the message Obama administration wants to convey to big banks engaged in proprietary trading, i.e., collecting deposits from customers and conduct trading on bank’s name.

The new rules proposed by the administration are aimed at restricting their activities and thereby, their growth and size. This proposal is part of a series of well-calculated moves to rein in Wall Street. Under this, commercial banks are excluded from having any dealings with hedge funds and private-equity firms. This includes not only owning or investing in them, but also getting involved in advisory capacity.

Banks barred from customer-unrelated trading activities are the ones that are eligible for bailout packages in the form of low-interest loans from Federal Reserve Board during financial crises. This is also applicable to banks that enjoy risk protection through federal-deposit insurance. The big shots in this field are Goldman Sachs, J P Morgan Chase, Deutsche Bank, Merrill Lynch, Citibank and Bank of America.

This landmark decision is bound to shake the foundations of investment banking. The forced choice between banking and proprietary trading is expected to produce a major impact on the direction and volume of growth of such banks. Obama administration appears resolute on severing the unholy alliance between the two.

Let us analyze the reason for their affinity. Investment banks are firms that help other companies raise funds in the capital market with stocks and bonds. As they are required to create a market for these stocks and bonds to make the issue a success, the banks buy them to boost their liquidity. This practice is called proprietary trading.

Over time, this activity evolved. Now, the investment banks indulge in proprietary trading not only to provide liquidity to the stocks and bonds they promote, but also to rake in huge profits. The traders entrusted with trading activities on behalf of banks developed this art to levels unthought-of. This prompted the banks to utilize multiple trader desks to deal only in proprietary trading, making it a large-scale profit-making venture for banks. The profit generated is over and above that earned from its originally intended purpose of liquidity creation.

Proprietary trading is not without risks. Nevertheless, banks engage in this due to the enormous profits generated. Many big names in the investment-banking scene earn a considerable portion of their profit through proprietary trading. Herein lies the trouble.

Another proposal to restrict banks’ growth is to put a cap on their market share. As of now, banks have a ceiling of 10% of insured deposits in the country. The new proposal is to include non-insured deposits and assets in this limitation. The definition of assets is not yet known. This step is aimed at preventing concentration of financial industry markets within the grip of a handful of industry heavyweights.

All these proposals were prompted by the industry goings-on during the just receding economic slowdown, which left the US in shambles, to say the least. What irked the government is the fact that these large banks, which were on the verge of collapse due to the recessive effects and had to be bailed out with financial aids, turned in considerable profit with proprietary trading .

The Obama administration has already made its dissatisfaction known when it proposed a new fee on mammoth banks to recover the money it was forced to dole out to rescue them from crumbling.

Obama’s comment sums up the sentiment - “Never again will the American taxpayer be held hostage by a bank that is too big to fail.”

written by REI Circle (www.reicircle.com)