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Borrowing from Your 401(k)
With the current economy, people are borrowing from their 401(k) plans at record levels.
When times are tough that pool of money begins to look attractive, but deciding to access
that pool might not be as easy or straight-forward as you think.

While every 401(k) plan is different, most will let you borrow as much as 50% of your
vested balance up to $50,000. The loan is paid back through your paycheck, with
interest. Most plans have competitive interest rates and the loans can be carried for up to
5 years. If you use the proceeds of the loan to purchase a primary residence, that pay-off
term may be extended.

When you are making payments back into the loan, you are paying yourself interest on
the money you borrowed. This is where it gets a bit foggy. First, when you draw your
paycheck, you pay taxes on the earnings. Then you pay the interest on the loan out of
what remains. At a later date, say retirement, you begin drawing from the plan. Those
distributions are taxable income, therefore taxed again. You are paying income taxes
twice on the funds you use to pay interest on the loans. (Special tax rules apply to Roth
401(k) contributions).

There is an opportunity cost with taking a loan from your 401(k) as well. If those funds
are not invested, they are not continuing to grow tax deferred. So, what is the
opportunity cost? Well, you need to compare the interest you are paying yourself and the
future tax implications previously discussed with the lost opportunities of tax deferred
investment returns.

There are other considerations as well. For instance, if there is a separation from
employment, the plan may require that the loan be immediately repaid. If you don’t have
the funds to repay the loan, it is treated as a taxable distribution. If you are not age 59 ½
or more, a 10% early withdrawal penalty may also apply to the taxable balance.

Whether or not you can afford to pay back the loan and still make contributions to the
plan should be carefully considered. Would the circumstances that have lead you to look
at borrowing the funds as an option impair your ability to repay the loan? If so, this
might not be considered a viable option.

The interest you pay on alternative financing options may be tax deductible. For
example, the interest on a home mortgage often qualifies for a tax deduction. However,
the interest on a plan loan repayment often is not. Be sure to weigh the comparisons of
tax deductibility for both alternatives before making a decision.

                              Every plan is different and will have various restrictions.
                  Consult with your plan administrator before deciding to borrow from your 401(k).
                                                     Tax and Legal

2010 Tax-Planning Tips

Every year the government rolls out new tax breaks, but too many taxpayers fail to take
advantage of them. As a result many Americans pay higher taxes than they should. Tax
rules also change, and missing out on these amendments could cost taxpayers dearly.
This is why it’s important to do your tax planning way ahead of time instead of waiting
for the last possible moment.

Here are some of the tax tips for 2010 that you should consider:

          $16,500 tax-free 401(k) maximum contribution limits. The IRS is holding the
           maximum amount an employee can contribute to a 401(k) in 2010 at $16,500.
           Catch-up contribution will remain unchanged from 2009 at $5,500 for individuals
           over the age of 50. The contribution limits are set annually based on the inflation
           rate in the third quarter vs. the previous year’s quarter. This is good news since
           many were expecting the IRS to reduce the limit.

          The return of the RMD. The required minimum distribution (RMD) was
           eliminated last year for taxpayers who are at least 70½ years of age. In 2010
           RMDs are back. If you fail to withdraw an RMD, fail to withdraw the full amount
           of the RMD or fail to withdraw the RMD by the applicable deadline, you will
           have to pay a 50 percent tax on the amount not withdrawn.

          Income limits for Roth IRA conversions eliminated. Starting this year the adjusted
           gross income limit of $100,000 and the filing status requirement have both been
           abolished. Anyone is now eligible to convert a traditional IRA or any other
           retirement plans from a previous employer to a Roth IRA. When you make a
           conversion, the conversion amount counts as ordinary income. For this year,
           however, you have the option to recognize 50 percent of the conversion amount as
           ordinary income in 2011 and the other half in 2012.

If you want additional information on the topics discussed in this newsletter please call
Great Lakes Investment Advisors at (989)835-7203 and Jason or Carl will be happy to
help you.
Best Wishes,
Carl                                                   Jason
Carl Cryderman                                                Jason F. Cryderman
Investment Advisor                                     Investment Advisor

The legal and tax information contained in these articles is merely a summary of our understanding and interpretation of some
current provisions of tax law and is not exhaustive. Consult your legal or tax advisor for advice concerning your particular
 Great Lakes Investment Advisors, Inc.
 314 Eastman Ave
 Midland, MI 48640

                                                                          Fun and Conversation

                                             While entertaining friends and family, you might find that the
                                             conversation turns to the topics of investments and retirement.
                                             In fact, over the course of a year, most people know at least two
                                             friends, neighbors, work colleagues, or family members who are
                                             thinking about retiring.

                                             At social gatherings, it’s common for people to bring up this
                                             subject with questions or comments like:

                                             ~Do you know what’s happening in the stock market???
                                             ~We’re thinking about retiring…
                                             ~We’d like to move our 401(k) but aren’t sure where to move it…
     PLEASE JOIN US                          ~Do you know a good investment advisor???
                                             When you hear questions and comments like these, please feel free
                                             to give out our name and number. We’d be happy to answer any
Great Lakes Investment Advisors, Inc         questions your friends, neighbors, work colleagues, or family
                                             members may have about their investment and/or retirement

  “Financial Freedom is the ability to live comfortably without the fear of losing the lifestyle that you worked so hard to achieve!”

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