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August 23, 2013

SMART MONEY: Wife's 401(k) leaves work with her

DEAR BRUCE: My wife participated in a 401(k) plan at her former job. I understood that she would forfeit any employer contributions since she was not vested, but I was under the impression that her personal contributions would remain. Her employer went ahead and closed the account.

Shouldn't the administrator have checked with her before cutting her a check? She is now facing early withdrawal penalties and losses incurred during the recent fall of the market. — Reader, via email

DEAR READER: I am not at all certain that the company could not do exactly what it did. If the plan called for closing the account when you leave, that's the end of the story. You should request the paperwork that supports that position. I suspect the company has those documents and that it was acting properly, even though it wasn't to your benefit.

DEAR BRUCE: I would like to know what a limited liability corporation (LLC) is. What are the advantages and disadvantages of it with respect to taxes and liability? Who do I talk to — a lawyer, an accountant or both? — Bob, via email

DEAR BOB: You have essentially three choices. One, you can operate unincorporated. Second, you can incorporate as a Subchapter S corporation, or third, as a limited liability company. On balance, the advantages of an LLC for the single proprietor are reasonably attractive in terms of taxes and liability limitations. You should talk to a lawyer as to the distinction between the LLC and the S corporation.

Generally speaking, a single-proprietor company, in my opinion, would be better served to operate as an LLC. The least-attractive choice is to operate as an individual.

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