Can you use 401K assets as part of investable assets prior to retirement?

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andytrader

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If you are given a scenario where client needs to live off portfolio and is not yet retired, are we only to use taxable portfolio and exclude 401K since withdrawals would incur an additional tax liability if used prior to retirement?
 
Keep tax free assets ( munis ) in taxable portfolio, shelter taxable assets in the 401K .
Location, location, location
 
yes but can you use the 401k assets as part of the return requirement if someone not yet retired and needs portfolio return to fund expenses?
 
I think it would depend on what the return is for.
If he needs, $3mm for retirement in 15 years, and you’re calculating the return requirement to get there, then yes. If he needs $1m for like, some sweet car in 5 years, then no. Some context would likely help. Generally though, I count ALL things investable (except houses), unless the question asks us to ignore it.
 
wait, i just reread your question….
If he’s receiving a penalty to withdraw, then I don’t think I count it. But I would not anticipate that question being asked. If they do, I would disclaim the hell out of it either way.
 
generally we look for the next year’s needs to get the return requirement. if the individual is not retired then it probably doesn’t make sense to look at the 401k as a source of funds to generate return since you will probably have to pay a hefty penalty.
if the individual is retired and is getting 401k payments then you can use those as inflows when setting your return objective - think about a db plan.
 
Guys, a 401(k) plan is a US concept and premature distribution penalties are not something that (I recall) the curriculum addressing.
Unless this is new for 2013, the exam will focus on the more generic deferred tax or tax free type of plans.
 
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