Encumbered funds are monies that are intentionally set aside to pay for future obligated or planned expenses, according to the Business Dictionary. Although encumbered funds are not released until the payment for the future expenses is due, the funds cannot be used for anything other than their specified purposes, according to the State of New York's Office of the State Comptroller.Know More
The State of New York's Office of the State Comptroller lists monthly lease agreements, monthly maintenance agreements and capital construction costs as common types of encumbered funds.
The purpose of encumbered funds is to predict cash outflow and avoid organizational overspending, according to the University of California, Riverside. Encumbered funds are written in accounting ledger books but are not included in actual funds balances because the payments have not yet been physically transferred. Once the encumbered funds are paid to a business, entity or organization, the encumbrance is reversed, and the funds are deducted from the organization's actual fund balance.
UC Riverside states that the formula for determining organizational cash outflow entails subtracting the actual funds and encumbered funds from the organization's budget. Sometimes, encumbered funds are put into a separate trust fund account that is set up specifically to hold the funds until their release date, according to Cornell University Law School.Learn more about Financial Planning
Distributions from 401(k) plans are bound by rules regulating the ages at which plan holders may or must take funds. For example, payments must start no later than April 1 of the year after the plan holder reaches age 70 1/2, whether or not he has retired, states the IRS.Full Answer >
401(k) account holders can minimize withdrawal taxes by withdrawing funds after they are 59 1/2 years old or 55 years old if retiring early and by qualifying for penalty exceptions when taking early distributions, reports the IRS. Account holders withdrawing funds after 70 1/2 should receive annual required minimum distributions.Full Answer >
Retired IRA owners can withdraw funds from their traditional IRAs without penalty when they reach the age of 59 1/2, reports the Internal Revenue Service. When account holders reach 70 1/2, they must initiate required minimum distributions from their IRA to avoid penalties.Full Answer >
Although details of 529 plans vary from state to state, basic rules are that each plan has a single custodian and beneficiary, the funds in the plan are administered by the custodian until they are disbursed, the funds can be used only for education-related expenses and total contributions cannot be greater than qualified educational expenses. These expenses include tuition, room and board, books, fees, supplies, and computer software and hardware.Full Answer >