401(k) http://www.wisebread.com/taxonomy/term/3831/all en-US 6 Questions All Rookie Investors Should Ask http://www.wisebread.com/6-questions-all-rookie-investors-should-ask <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-questions-all-rookie-investors-should-ask" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/young_boy_examines_money_falling_from_sky.jpg" alt="Young Boy Examines Money Falling from Sky" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The first time you got behind the wheel of a car, you were probably a little intimidated. The same can be true if you're just getting started with investing. Here are some questions that may be on your mind, along with answers designed to help you begin your investing journey with the knowledge you need to succeed.</p> <h2>1. Why should I invest?</h2> <p>Especially if you're young, investing might not seem very urgent. Investment goals, such as retirement, may seem distant and vague.</p> <p>The financial services industry has tried everything to get people to recognize the importance of investing for retirement, even using photo-enhancing software to show young people what they may look like when they're 65 or 70. A 2012 Merrill Edge study actually found the tactic somewhat effective in motivating people to save more for their later years.</p> <p>Assuming you don't have access to such technology, maybe the best way to find the motivation to invest is to consider the cost of waiting. Crunching the numbers just may be the wake-up call you need.</p> <h2>2. What's the harm in holding off a little while?</h2> <p>The sooner you start investing, the less you'll have to invest each month in order to meet your goals.</p> <p>Let's say you're 25 years old, plan to retire at age 70, and want to accumulate $1 million by then. Assuming a 7 percent average annual return, you would need to invest about $275 per month. Even waiting just five years will significantly increase that amount. Starting at age 30, you would need to invest about $361 per month in order to accumulate $1 million by age 70.</p> <p>Here's another way to think about it. If you invested $200 per month from age 25 until age 70 and generated an average annual return of 7 percent, you'd end up with about $733,804. Wait until age 30 to start investing $200 per month, and you'll end up with $512,663.</p> <p>That's amazing, isn't it? By investing for just five fewer years, you will invest just $12,000 less than if you had started at age 25. And yet, because of the power of compounding &mdash; more accurately, because of missing out on five years' worth of the power of compounding &mdash; you'll end up with about $221,000 less. That's a huge penalty for waiting. (See also: <a href="http://www.wisebread.com/11-investing-tips-you-wish-you-could-tell-your-younger-self?ref=seealso" target="_blank">11 Investing Tips You Wish You Could Tell Your Younger Self</a>)</p> <h2>3. How much should I invest?</h2> <p>To get a general sense about how much to invest each month, use the <a href="https://www.fidelity.com/calculators-tools/fidelity-retirement-score-tool" target="_blank">Fidelity Retirement Score</a> calculator. Once you run some initial numbers, you'll be able to see how changing some of your variables, such as how much to invest and when to retire, will impact your how much money you end up with.</p> <h2>4. Should I use my company's 401(k) plan or an IRA?</h2> <p>The key to answering this question is whether your employer offers a match on some of the money you would contribute to its 401(k) plan. If so, start there.</p> <p>In a typical arrangement, an employer will match your contributions up to 6 percent of your salary. If yours will contribute a dollar for every dollar you put in, that's a guaranteed 100 percent return on your money. If it will match 50 cents for every dollar you contribute, that's a guaranteed 50 percent return on your money. Don't miss out.</p> <p>If your employer doesn't offer a match, the decision depends on the investment options it offers. There are still some employers whose plans contain a strange mix of mutual funds with high fees (you should not be limited to funds with &quot;expense ratios&quot; higher than 1 percent). If that's the case with your employer's plan, you may be better off using an IRA. However, even with a solid 401(k) plan at your disposal, don't think an IRA isn't for you. Contributing to both plans can give you a further leg up in your retirement savings strategy. (See also: <a href="http://www.wisebread.com/401k-or-ira-you-need-both?ref=seealso" target="_blank">401(k) or IRA? You Need Both</a>)</p> <h2>5. What should I invest in?</h2> <p>It used to be a lot more complicated and intimidating to figure out what investments to make. Today, target-date funds have simplified the process. By choosing a single mutual fund that has the year of your intended retirement date as part of its name, such as the Fidelity Freedom 2040 Fund, you'll gain a portfolio that's diversified across stocks, bonds, and other asset classes in a way that's appropriate for someone your age. As you get older, the fund will automatically adjust its investment mix, becoming more conservative as you near your target retirement date. (See also: <a href="http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement?ref=seealso" target="_blank">What You Need to Know About the Easiest Way to Save for Retirement</a>)</p> <h2>6. What can I expect from my investments?</h2> <p>In short, you can expect that the ride will not always be smooth. Last year, the S&amp;P 500 generated a nearly 22 percent return, but in 2008 it <em>fell </em>37 percent.</p> <p>Investing always comes with risk, and there's no way to predict how each year will turn out. A solid approach is to build a diversified portfolio, perhaps through a target-date fund, and commit to staying with it in good years and bad.</p> <p>The longer you stay invested, the better your odds of success. As Morningstar documented in its 2017 Fundamentals for Investors report, from 1926 through 2016, 74 percent of one-year returns from the U.S. stock market were positive, 86 percent of five-year returns were positive, and 100 percent of 15-year returns were positive.</p> <p>As with so many things, the best way to learn about investing is to get started. Taking the steps described above should get you moving in the right direction.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F6-questions-all-rookie-investors-should-ask&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F6%2520Questions%2520All%2520Rookie%2520Investors%2520Should%2520Ask%2520%25281%2529.jpg&amp;description=6%20Questions%20All%20Rookie%20Investors%20Should%20Ask"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/6%20Questions%20All%20Rookie%20Investors%20Should%20Ask%20%281%29.jpg" alt="6 Questions All Rookie Investors Should Ask" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/6-questions-all-rookie-investors-should-ask">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-millennials-can-do-right-now-for-an-early-retirement">8 Things Millennials Can Do Right Now for an Early Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/left-a-job-do-a-rollover">Left a job? Do a rollover.</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-critical-401k-questions-you-need-to-ask-your-employer">8 Critical 401(k) Questions You Need to Ask Your Employer</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/you-may-be-putting-your-retirement-money-in-the-wrong-place">You May Be Putting Your Retirement Money in the Wrong Place</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment 401(k) compound interest IRA new investors questions retirement savings returns rookies Tue, 06 Feb 2018 09:30:08 +0000 Matt Bell 2096590 at http://www.wisebread.com 8 Things Millennials Can Do Right Now for an Early Retirement http://www.wisebread.com/8-things-millennials-can-do-right-now-for-an-early-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-things-millennials-can-do-right-now-for-an-early-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/this_team_is_built_for_success.jpg" alt="This team is built for success" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When you're young, it's hard to think of retirement planning as a priority. You have barely entered the workforce; now you have to think about what to do when you've <em>stopped</em> working?</p> <p>But if you are of the millennial generation, the road to a comfortable retirement should begin now. And with the right moves, you may even be able to retire early. Consider these financial moves to supercharge your retirement plan.</p> <h2>1. Develop a net worth mindset</h2> <p>One of the keys to saving for a comfortable retirement is to focus on accumulating things that grow in value while reducing your liabilities.</p> <p>This means earning and saving as much money as possible while eliminating debt. It means investing and watching your money grow, through things like stocks and real estate. It means avoiding spending money on things that will lose financial value or have no value to begin with.</p> <p>This mindset will help you develop a high &quot;net worth,&quot; calculated by how much your assets exceed your liabilities. You can't retire unless you have a high net worth, and you can't get there unless you make the right financial choices &mdash; especially at an early age. (See also: <a href="http://www.wisebread.com/6-money-moves-to-make-if-your-net-worth-is-negative?ref=seealso" target="_blank">6 Money Moves to Make If Your Net Worth Is Negative</a>)</p> <h2>2. Open an IRA</h2> <p>If you have any earned income at all, you can open an individual retirement account (IRA), which allows you to invest in almost anything and enjoy tax savings along the way. With a traditional IRA, any money you invest is deducted from your taxable income. With a Roth IRA, contributions are taxed upfront, but any investment gains can be withdrawn tax-free when you retire. You will pay a penalty and taxes if you withdraw money before you turn 59&frac12;.</p> <p>These retirement accounts can be powerful saving vehicles if you have the discipline to set aside as much money as you can. The earlier you invest, the more time your money has to grow. (See also: <a href="http://www.wisebread.com/5-retirement-accounts-you-dont-need-a-ton-of-money-to-open?ref=seealso" target="_blank">5 Retirement Accounts You Don't Need a Ton of Money to Open</a>)</p> <h2>3. Put money in a 401(k)</h2> <p>If you are employed by a company, there's a good chance that you have access to a 401(k) or similar plan. Don't ignore your human resources representative when they hand you a stack of plan documents urging you to sign up.</p> <p>A 401(k) plan allows you to invest in a variety of mutual funds and other investments, and your company will often match your contributions up to a certain amount. Money you contribute is deducted from your taxable income. You should invest as much as you can into your 401(k), but it's imperative that you at least contribute enough to get the maximum in matching funds. Your contributions, coupled with the matching funds, can add up to millions of dollars by the time you decide to retire. (See also: <a href="http://www.wisebread.com/401k-or-ira-you-need-both?ref=seealso" target="_blank">401K or IRA? You Need Both</a>)</p> <h2>4. Open a taxable brokerage account</h2> <p>There's no rule that says all your investments need to be in retirement accounts. Regular taxable brokerage accounts don't have the same tax advantages as IRAs or 401(k) plans, but they do offer other perks, chiefly the flexibility to withdraw money whenever you want it. This is especially key for someone looking to retire before age 59.</p> <p>Taxable brokerage accounts can be used to accumulate dividend stocks, bonds, or other investments that provide income that will allow you to retire early. (See also: <a href="http://www.wisebread.com/7-investment-accounts-all-30-somethings-should-have?ref=seealso" target="_blank">7 Investment Accounts All 30-Somethings Should Have</a>)</p> <h2>5. Get a side hustle</h2> <p>To accumulate enough money for an early retirement, you'll need a healthy and steady income. If your day job doesn't quite pay enough, look for other ways to generate cash. This may mean freelance writing or playing guitar at local coffee shops. Maybe it's tutoring math, working as a DJ, or doing ASMR videos on YouTube.</p> <p>If you're young, you have energy and freedom, and the ability to make some cash on the side. Earn it, invest it, and watch it help you retire for good from work at an early age. (See also: <a href="http://www.wisebread.com/14-best-side-jobs-for-fast-cash?ref=seealso" target="_blank">14 Best Side Jobs For Fast Cash</a>)</p> <h2>6. Learn to budget</h2> <p>It's simple: The only way to invest money is to save it, and the only way to save it is to spend less than you earn. This may be easier said than done, especially if you aren't making a lot of money early in your career. But it needs to happen.</p> <p>Start by tracking your spending so you know precisely where your money is going. Then create buckets for various categories of spending (rent, food, entertainment, etc.). Budgeting requires focus and discipline, but can be fun &mdash; and ultimately rewarding &mdash; when you see your savings grow. (See also: <a href="http://www.wisebread.com/9-ways-staying-on-budget-can-be-fun-really?ref=seealso" target="_blank">9 Ways Staying on Budget Can Be Fun (Really!)</a>)</p> <h2>7. Tackle that debt</h2> <p>You may have student loans. As a result, you may also have credit card debt. If this is weighing you down, it's time to do something about it or an early retirement will be impossible.</p> <p>Begin by going after some of the most onerous debt first &mdash; usually, this is the credit card debt with the highest interest rate. Once the debt is eliminated, you can begin to focus on actually saving and investing, rather than simply making ends meet. (See also: <a href="http://www.wisebread.com/the-fastest-method-to-eliminate-credit-card-debt?ref=seealso" target="_blank">The Fastest Method to Eliminate Credit Card Debt</a>)</p> <h2>8. Get insured</h2> <p>The ability to retire early is as much a product of avoiding disaster as accumulating wealth. It's hard to save and invest aggressively if you find yourself saddled with tens of thousands of dollars in medical bills, or expenses to replace items lost when your apartment flooded.</p> <p>You may think that health insurance is a waste of money because you are young and in good shape. You may think that you're a good driver and don't need comprehensive auto insurance. But if you truly want to gain financial independence and work toward an early retirement, you must be properly insured. Even if you have insurance now, review your policies to make sure you're covered at the right levels. Fail to do this, and you may find a single disaster will send your financial future off track. (See also: <a href="http://www.wisebread.com/15-surprising-insurance-policies-you-might-need?ref=seealso" target="_blank">15 Surprising Insurance Policies You Might Need</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F8-things-millennials-can-do-right-now-for-an-early-retirement&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F8%2520Things%2520Millennials%2520Can%2520Do%2520Right%2520Now%2520for%2520an%2520Early%2520Retirement.jpg&amp;description=8%20Things%20Millennials%20Can%20Do%20Right%20Now%20for%20an%20Early%20Retirement"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/8%20Things%20Millennials%20Can%20Do%20Right%20Now%20for%20an%20Early%20Retirement.jpg" alt="8 Things Millennials Can Do Right Now for an Early Retirement" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-things-millennials-can-do-right-now-for-an-early-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-biggest-ways-millennials-risk-their-retirements">5 Biggest Ways Millennials Risk Their Retirements</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-financial-perks-of-being-in-your-20s">The Financial Perks of Being in Your 20s</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-questions-all-rookie-investors-should-ask">6 Questions All Rookie Investors Should Ask</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life">7 Easiest Ways to Catch Up on Retirement Savings Later in Life</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-alternatives-to-a-401k-plan">5 Alternatives to a 401(k) Plan</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401(k) budgeting compound interest extra income insurance IRA millennials net worth saving money side gigs taxable brokerage accounts young adults Wed, 24 Jan 2018 10:00:05 +0000 Tim Lemke 2084738 at http://www.wisebread.com Which of These 9 Retirement Accounts Is Right for You? http://www.wisebread.com/which-of-these-9-retirement-accounts-is-right-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/which-of-these-9-retirement-accounts-is-right-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/time_to_invest_for_retirement.jpg" alt="Time to invest for retirement" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You might think that the simplest way to put away money for retirement would be to save or invest your money as you see fit &mdash; without reporting your contributions to anyone, and without following any special rules. The problem with following a freestyle retirement plan like this is taxes. You would pay full income taxes on the money that goes into your account, and you would pay capital gains taxes as your investment grows.</p> <p>Fortunately, there are many retirement savings plans out there that can reduce your tax burden now and in the future, all while avoiding capital gains tax. And while there are many types of retirement accounts, you can &mdash; and should! &mdash; contribute to more than one. The 2018 contribution limit for traditional and Roth IRAs is $5,500 ($6,500 if you're age 50 or older). For 401(k) plans, the current contribution limit is $18,500 (plus an additional catch-up contribution of $6,000 if over age 50). (See also: <a href="http://www.wisebread.com/which-retirement-account-is-right-for-you?ref=seealso" target="_blank">Which Retirement Account Is Right for You?</a>)</p> <p>Here are some of the most popular tax-advantaged retirement plan options.</p> <h2>1. Traditional IRA</h2> <p>Contributions made to a traditional IRA are tax-deductible, which can reduce your current year income tax bill. However, you will have to pay income tax when you withdraw funds starting at age 59&frac12;. If your income is high now and you will be in a lower tax bracket after retirement, contributing to a traditional IRA may be a good move.</p> <h2>2. Roth IRA</h2> <p>Contributions to a Roth IRA are post-tax, so contributing to one of these accounts won't reduce your tax bill upfront. But when you withdraw the funds in the future, you won't have to pay income tax. A Roth IRA can be favorable if you are a young investor in a low tax bracket now. Also, if you are concerned that tax rates could go up in the future, contributing to a Roth IRA allows you to pay a known tax now versus a potentially higher tax in the future when you withdraw funds. (See also: <a href="http://www.wisebread.com/6-reasons-every-millennial-needs-a-roth-ira?ref=seealso" target="_blank">6 Reasons Every Millennial Needs a Roth IRA</a>)</p> <h2>3. Traditional 401(k)</h2> <p>Employees can contribute wages to a 401(k) investment account as elective salary deferrals. The traditional 401(k) account works much like a traditional IRA where income can be contributed before taxes, but you will have to pay income tax on future withdrawals. Some employers provide matching contributions to 401(k) plans, and if you are not participating enough to obtain that match, you are leaving free money on the table. Keep in mind, however, that employer plans have fewer investment options than traditional IRAs, and that there may be limits on whether you can withdraw employer contributions early in, for example, a hardship distribution. (See also: <a href="http://www.wisebread.com/401k-or-ira-you-need-both?ref=seealso" target="_blank">401K or IRA? You Need Both</a>)</p> <h2>4. Roth 401(k)</h2> <p>The Roth 401(k) is an alternate 401(k) plan where employees can contribute after-tax funds. As with a Roth IRA, the Roth 401(k) allows you to pay a known tax <em>today</em> at your current tax bracket instead of an unknown tax rate in the future. A Roth 401(k) is also an attractive option to younger workers who are in a lower tax bracket now and who have a lot of time for funds to grow. If your employer offers matching funds, again, try to contribute at least the minimum required amount to receive the match. (See also: <a href="http://www.wisebread.com/7-things-you-should-know-about-your-401k-match?ref=seealso" target="_blank">Things You Should Know About Your 401(k) Match</a>)</p> <h2>5. SEP IRA</h2> <p>An SEP (Simplified Employee Pension) plan allows business owners &mdash; often the self-employed &mdash; to contribute to traditional IRAs on behalf of themselves and any employees they have. An SEP IRA has many of the same rules as a traditional IRA, but the employer is required to make all contributions to the SEP IRA, and employees can't make any.</p> <p>An SEP IRA allows employers to adjust how much they contribute to an employee's account depending on the company's cash flow that year. Contributions cannot exceed the lesser of 25 percent of the employee's compensation, or $55,000, in 2018.</p> <p>Money contributed to an SEP IRA is tax-deductible for the current year, and is subject to income tax when withdrawn in retirement. (See also: <a href="http://www.wisebread.com/the-sep-ira-is-how-the-self-employed-do-retirement-like-a-boss?ref=seealso" target="_blank">The SEP-IRA Is How the Self-Employed Do Retirement Like a BOSS</a>)</p> <h2>6. SIMPLE IRA</h2> <p>A SIMPLE (Savings Incentive Match Plan for Employee) IRA is a retirement savings plan for businesses of any size, although it is still aimed at small businesses. A SIMPLE IRA allows employees to invest in their own accounts, in addition to receiving employer contributions of 1-3 percent of the employee's compensation. An employee may contribute up to $12,500 to a SIMPLE IRA in 2018.</p> <p>Contributions made to a SIMPLE IRA (by both the employer and employee) are tax-deductible upfront and subject to income tax rates upon withdrawal.</p> <h2>7. 403(b) plans</h2> <p>A 403(b) plan, also known as a tax-sheltered annuity or TSA plan, is similar to a 401(k) &mdash; but is offered by public schools and 501(c)(3) tax-exempt organizations. Like 401(k) plans, 403(b) plans may be offered in either a traditional tax-advantaged or after-tax Roth version. (See also: <a href="http://www.wisebread.com/403b-vs-401k-how-are-they-different?ref=seealso" target="_blank">403(b) vs. 401(k): How Are They Different?</a>)</p> <h2>8. Payroll deduction IRAs</h2> <p>Payroll deduction IRAs allow employees or even self-employed workers to automatically contribute to a traditional or Roth IRA through payroll deductions. The employees set up the account and then let the employer know how much they'd like to contribute from each paycheck. This is perhaps the simplest retirement program that a business can establish for its employees.</p> <h2>9. HSA &quot;IRA&quot;</h2> <p>A HSA (health savings account) is available to those who are enrolled in a high-deductible health plan (HDHP). An HSA allows you to contribute pretax funds into a savings or investment account, and you can withdraw funds tax-free at any time for qualified health expenses. Once you reach age 65, money left in an HSA basically acts like a traditional IRA &mdash; there is no restriction that the funds must be spent on health expenses, but they will be subject to income tax upon withdrawal. (See also: <a href="http://www.wisebread.com/how-an-hsa-could-help-your-retirement?ref=seealso" target="_blank">How an HSA Could Help Your Retirement</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fwhich-of-these-9-retirement-accounts-is-right-for-you&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FWhich%2520of%2520These%25209%2520Retirement%2520Accounts%2520Is%2520Right%2520for%2520You_.jpg&amp;description=Which%20of%20These%209%20Retirement%20Accounts%20Is%20Right%20for%20You%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Which%20of%20These%209%20Retirement%20Accounts%20Is%20Right%20for%20You_.jpg" alt="Which of These 9 Retirement Accounts Is Right for You?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/which-of-these-9-retirement-accounts-is-right-for-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life">7 Easiest Ways to Catch Up on Retirement Savings Later in Life</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/15-retirement-terms-every-new-investor-needs-to-know">15 Retirement Terms Every New Investor Needs to Know</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-critical-401k-questions-you-need-to-ask-your-employer">8 Critical 401(k) Questions You Need to Ask Your Employer</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) 403(b) company match contributions health savings account HSA IRA retirement plans Roth tax advantaged taxes Wed, 24 Jan 2018 09:00:06 +0000 Dr Penny Pincher 2090876 at http://www.wisebread.com 7 Things You Need to Know About 401(k) Hardship Withdrawals http://www.wisebread.com/7-things-you-need-to-know-about-401k-hardship-withdrawals <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-things-you-need-to-know-about-401k-hardship-withdrawals" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_holding_coins_under_401k_nest_egg.jpg" alt="Woman holding coins under 401k nest egg" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You know it's a bad idea to take money out of your retirement plan before you turn 59 &frac12; years old. Not only will you face hefty financial penalties, you're risking your financial stability in the future. But what if you're facing an economic hardship and you're in dire need of the money?</p> <p>If you have a traditional IRA or Roth account, you can take an early withdrawal at any time. In some cases, you can even avoid the withdrawal penalty, if you meet certain criteria. It's harder, however, to withdraw money early from your current employer-sponsored 401(k) plan. You'll need to check if your plan allows for an early withdrawal. Some plans will only allow contributors to take out what are known as <em>hardship withdrawals</em> before you hit age 59 &frac12;.</p> <p>The bad news is there aren't many situations in which you can qualify for these hardship withdrawals. And of course, taking money out of your 401(k) plan early is never an ideal financial move. (See also: <a href="http://www.wisebread.com/5-dumb-401k-mistakes-smart-people-make?ref=seealso" target="_blank">5 Dumb 401(k) Mistakes Smart People Make</a>)</p> <p>Here are a few key things you need to know about hardship withdrawals.</p> <h2>1. &quot;Hardships&quot; have set definitions</h2> <p>IRS rules spell out a narrow list of circumstances in which you can qualify for a hardship withdrawal. If you want to use your money for anything other than these special cases, you're out of luck.</p> <p>For all scenarios, there must be an immediate and heavy financial need to take an early 401(k) withdrawal. Acceptable scenarios include unexpected medical expenses, tuition and educational fees, and burial or funeral expenses. You can also qualify for a hardship withdrawal for costs related to purchasing a home, if your home is damaged and you need to pay for repairs, and to keep yourself from being evicted or foreclosed on.</p> <h2>2. Hardship withdrawals come with big penalties</h2> <p>If you do need cash quickly, your 401(k) plan might seem like a logical place. After all, the money in your plan is <em>yours</em>. But a 401(k) plan is supposed to force you to save for your retirement, not be a source of emergency funds. That's why most plans won't allow you to take money out of them until employment with your company ends.</p> <p>Hardship withdrawals are the exception to this. But if you use this exemption to take money out of a 401(K) plan before you turn 59 &frac12;, you'll be hit with penalties. First, these early withdrawals are taxed as ordinary income. Even worse, your early withdrawal will also be hit with a 10 percent federal tax penalty.</p> <p>This makes withdrawing 401(k) funds early, even for a financial hardship, painful. If you have an alternative way to get the money you need, you should take advantage of it. (See also: <a href="http://www.wisebread.com/how-to-come-up-with-1000-in-the-next-30-days?ref=seealso" target="_blank">How to Come Up With $1,000 in the Next 30 Days</a>)</p> <h2>3. There can be penalty exceptions</h2> <p>That 10 percent penalty is harsh, but there are circumstances in which you might not be hit with it. You might be able to avoid that penalty if you are disabled or if your medical debt is higher than 7.5 percent of your adjusted gross income. You might also avoid the penalty if a court has ordered you to give the money from a hardship withdrawal to a former spouse, a child, or a dependent.</p> <h2>4. Not all plans allow for hardship withdrawals</h2> <p>Not all 401(k) plans have the option to take hardship withdrawals. Your employer decided whether it wanted to offer such withdrawals when it set up its plan. There is no requirement from the IRS that employers offer such an option.</p> <p>To determine if your plan allows for these withdrawals, contact your plan administrator. In most companies, this will be someone in your human resources department.</p> <h2>5. There are limits to your withdrawal</h2> <p>Even if you quality for a hardship withdrawal, you can't take out an unlimited amount of money. IRS rules state that you can only take money from your 401(k) account if you have no other funds to cover your hardship. And then, you can only withdraw enough funds to cover the costs of your financial emergency. You can't take extra dollars for a financial cushion.</p> <h2>6. You may need proof of your hardship</h2> <p>Your plan administrator may require proof that you need to take the hardship withdrawal. This might mean you'll have to provide your administrator with copies of medical bills, repair bills, or an eviction notice. You might also need to provide copies of your bank account statements proving that you don't have other funds available to cover your financial emergency.</p> <h2>7. When the money is gone, it's gone</h2> <p>After you take a hardship withdrawal, you are typically forbidden to make any deposits into your 401(k) account for six months. Once that six-month period ends, you are allowed to start depositing money back into your 401(k) account as you had been doing before.</p> <p>This brings up what might be the biggest negative to hardship withdrawals: The money you take out of your 401(k) plan is gone forever. It is not a loan. You aren't simply borrowing it and putting it back. This could really hurt come retirement time.</p> <p>This is why you should search for other means to cover your financial emergency. Turn to hardship withdrawals only as an absolute last resort. (See also: <a href="http://www.wisebread.com/3-sources-of-fast-cash-besides-your-401k?ref=seealso" target="_blank">3 Sources of Fast Cash Besides Your 401(k)</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-things-you-need-to-know-about-401k-hardship-withdrawals&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Things%2520You%2520Need%2520to%2520Know%2520About%2520401%2528k%2529%2520Hardship%2520Withdrawals.jpg&amp;description=7%20Things%20You%20Need%20to%20Know%20About%20401(k)%20Hardship%20Withdrawals"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Things%20You%20Need%20to%20Know%20About%20401%28k%29%20Hardship%20Withdrawals.jpg" alt="7 Things You Need to Know About 401(k) Hardship Withdrawals" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/7-things-you-need-to-know-about-401k-hardship-withdrawals">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-every-retirement-saver-should-know-about-required-minimum-distributions">What Every Retirement Saver Should Know About Required Minimum Distributions</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-easy-ways-to-get-richer-in-2018">4 Easy Ways to Get Richer In 2018</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-saving-too-much-money-for-a-college-fund-is-a-bad-idea">Why Saving Too Much Money for a College Fund Is a Bad Idea</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-can-you-do-if-you-cannot-afford-to-pay-your-taxes">What can you do if you cannot afford to pay your taxes</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-age-milestones-that-impact-your-retirement">6 Age Milestones That Impact Your Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance 401(k) education costs emergencies hardship withdrawals housing costs IRS medical bills penalties taxes Tue, 23 Jan 2018 09:30:09 +0000 Dan Rafter 2091490 at http://www.wisebread.com 7 Things You Should Know About Your 401(k) Match http://www.wisebread.com/7-things-you-should-know-about-your-401k-match <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-things-you-should-know-about-your-401k-match" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy_bank_with_401k_nest_egg.jpg" alt="Piggy bank with 401(k) nest egg" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you are working and have access to a 401(k) plan from your employer, you may have heard references to a &quot;company match&quot; on contributions. What does this mean? It means that your employer is helping you save for retirement by matching the money you contribute, up to a certain amount.</p> <p>These matching funds can be a very powerful way to save money over time, and it's important take advantage of a company's full 401(k) match if you can. Every company has different policies regarding these matching funds, and things can often be confusing for new investors. Here are some key things to know.</p> <h2>1. The match is free money</h2> <p>A 401(k) match is not a bonus based on your job performance. It's not a payment made in lieu of your salary. It's truly a contribution from your company to help you save for your retirement, which you can use to invest in a variety of mutual funds and other investments.</p> <p>There's only one catch, which is that you need to direct a portion of your own money into the 401(k) plan first. That's why they call it a match. Some employers will automatically sign you up for the 401(k) plan and set aside a certain percentage of your salary as a contribution each pay period. (Don't worry &mdash; you can always adjust that amount.) If you are unclear on how much you should contribute to your 401(k), try to at least put aside enough to get the maximum company match. If you miss out on the full match, you are missing out on free cash that could add up to tens of thousands of dollars or more over time. (See also: <a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one?ref=seealso" target="_blank">How to Tell if Your 401K Is a Good or a Bad One</a>)</p> <h2>2. Companies match differently</h2> <p>There is no standard or required way for employers to match 401(k) contributions. Some companies are very generous and match every dollar you contribute, no matter how much you put in. Others will match only a very small percentage. Matching contributions can change if a company is doing better or worse financially. When searching for a job, learning about a company's matching policy can help you decide whether you want to work there. Think of the 401(k) plan as part of a company's overall benefits package.</p> <p>A company's match may also offer some insight into the overall health of the firm. If a company recently stopped matching contributions, that's a red flag that the company may be in trouble.</p> <h2>3. There is often a &quot;vesting&quot; period</h2> <p>Many employers will begin matching contributions as soon as you begin working there, but you may have to give back those matching funds if you leave the company after a specific time. For example, if you've been setting aside 5 percent of your salary into your 401(k) and your company is matching that, you don't necessarily get to keep the company's contributions right away. You may have to wait one year, three years, or even longer to keep that money permanently. This is called a <em>vesting period</em>.</p> <p>About half of employers offer immediate vesting, according to one Vanguard survey. But others have different vesting schedules. Some will allow you to keep a portion of company contributions after a certain amount of time, and increase that total annually until you are fully vested. (Example: 20 percent vested in year one, 40 percent vested in year two, etc.)</p> <p>Vesting schedules and policies can be confusing and can change, so be sure to read your 401(k) plan documents carefully. And if your company does have a vesting period for its 401(k) match, try to avoid leaving before that time is up, as doing so could result in you forfeiting thousands of dollars plus any future investment gains. (See also: <a href="http://www.wisebread.com/8-critical-401k-questions-you-need-to-ask-your-employer?ref=seealso" target="_blank">8 Critical 401(k) Questions You Need to Ask Your Employer</a>)</p> <h2>4. Contribute more, get more</h2> <p>Here's a brain teaser for you: If Company A makes a dollar-for-dollar match on all employee contributions up to 4 percent, and Company B matches contributions up to 8 percent at 50 cents on the dollar, which company is contributing more?</p> <p>The answer is that they are both contributing the same amount. The difference, however, is that Company B is using its matching funds to incentivize workers to contribute more of their own money. If you take advantage of Company B's full match, you will have more money in total because your own contribution will be higher. Contributing more yourself will also save you money because those funds are deducted from your taxable income.</p> <h2>5. Matching money doesn't count against contribution limits</h2> <p>The IRS places a limit on the amount of money you can contribute to a 401(k) each year. For 2018, that limit will be $18,500. It's important to note that this limit only applies to money that the <em>individual </em>contributes. Money from the company match does not count against this total. Thus, the total amount of money from all sources going into your 401(k) each year could be much more than the IRS limit. Feel free to contribute as much as you can, take advantage of the full company match, and watch your savings grow. (See also: <a href="http://www.wisebread.com/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future?ref=seealso" target="_blank">6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future</a>)</p> <h2>6. Sometimes the match comes as company stock</h2> <p>In some cases, employers will contribute all or part of a 401(k) match in the form of company stock. While free company stock is better than nothing, it's risky to have it comprise too much of your savings. Your employer already pays your salary, so your financial security is already tied to the company's success. Past employees of Enron and other failed companies can attest to the risk of having too much of their savings tied up in company stock.</p> <p>If you receive company stock in your retirement plan, consider adjusting your investment mix so company stock doesn't comprise more than 5 to 10 percent of your portfolio. (See also: <a href="http://www.wisebread.com/7-things-you-need-to-know-about-investing-in-company-stock?ref=seealso" target="_blank">7 Things You Need to Know About Investing in Company Stock</a>)</p> <h2>7. It doesn't pay to front load your contributions</h2> <p>Let's say it's January and you just got a big pay raise, a bonus, or both. You may be tempted to throw as much money as you can into your 401(k) at that point. If your employer matches based on pay period, you may miss out on matching funds if you max out your contributions early.</p> <p>So for example: Let's say you earn $200,000 annually and choose to set aside 30 percent of your income per month in the first few months of the year. And let's say your company matches all contributions up to 5 percent of your salary per pay period. Under this scenario, you will have maxed out your contributions by April and won't be able to contribute any more for the rest of the year. Meanwhile, your employer has only contributed up to the maximum company match for those first few months. In this case, your company will have put in about $3,332 when you would have received $10,000 in matching funds if you had spread the contributions out.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-things-you-should-know-about-your-401k-match&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Things%2520You%2520Should%2520Know%2520About%2520Your%2520401%2528k%2529%2520Match.jpg&amp;description=7%20Things%20You%20Should%20Know%20About%20Your%20401(k)%20Match"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Things%20You%20Should%20Know%20About%20Your%20401%28k%29%20Match.jpg" alt="7 Things You Should Know About Your 401(k) Match" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/7-things-you-should-know-about-your-401k-match">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life">7 Easiest Ways to Catch Up on Retirement Savings Later in Life</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-reasons-every-millennial-needs-a-roth-ira">6 Reasons Every Millennial Needs a Roth IRA</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-signs-your-retirement-is-on-track">8 Signs Your Retirement Is on Track</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-401k-in-2017-heres-whats-new-for-you">Your 401K in 2017: Here&#039;s What&#039;s New for You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) contributions employers investing matching stocks vesting periods Wed, 17 Jan 2018 09:30:05 +0000 Tim Lemke 2085770 at http://www.wisebread.com 7 Easiest Ways to Catch Up on Retirement Savings Later in Life http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/investing_money_for_retirement_in_piggy_bank.jpg" alt="Investing money for retirement in piggy bank" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>According to a survey by the Employee Benefit Research Institute, three in 10 workers report that preparing for retirement causes them emotional distress. Why? Well, because most people feel they are sorely behind when it comes to retirement savings.</p> <p>The Economic Policy Institute reports that baby boomer families, on average, have just a little over $160,000 saved for retirement. With longer life spans, inflation, and increasing health care costs, it's possible that many retirees won't have enough to comfortably sustain their retirements.</p> <p>If you feel behind with your retirement savings, you may be panicking. However, there's hope for you. If you're open to suggestions, a few smart moves will help you catch up on savings even late in the game. (See also: <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make?ref=seealso" target="_blank">7 Retirement Planning Steps Late Starters Must Make</a>)</p> <h2>1. Change your mindset</h2> <p>One of the best ways to take the pressure off catching up with retirement savings is to change your mindset.</p> <p>Rob Hill, owner of financial advisory firm R. Hill Enterprises, Inc., helps people plan for retirement and other stages of life. He says that in order to catch up with your savings, you need to first be more flexible with your idea of retirement. &quot;The first thing I would suggest is not looking at retirement as an age, but rather a financial position,&quot; he says.</p> <p>Hill explains that focus can ease anxiety and make a catch-up goal more feasible for some. He explains, &quot;The goal of retirement is not a pile of assets, it is cash flow that makes retirement possible.&quot;</p> <p>If you look at retirement in this light, you may discover you have more retirement runway than you thought and that building up your nest egg is a little more possible.</p> <h2>2. Make catch-up contributions</h2> <p>If you're over 50 years old, you can contribute more than usual to your 401(k). For 2018, employees within the age guidelines can contribute $18,500 plus a catch-up contribution of $6,000, for a total of $24,500. This approach can be even more helpful if your employer offers a match.</p> <p>Kevin Ward, of Park Elm Investment Advisors, notes another way to save: an IRA &mdash; either a traditional IRA or a Roth IRA. &quot;Aside from your employer-sponsored plan, you can save $5,500 in an IRA,&quot; he says. &quot;For those over 50, there is an additional catch-up contribution of $1,000, for a total of $6,500.&quot; (See also: <a href="http://www.wisebread.com/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future?ref=seealso" target="_blank">6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future</a>)</p> <h2>3. Contribute to a health savings account (HSA)</h2> <p>Though HSAs were created as savings vehicles for health care expenses, there are some tax advantages and treatments that can make this type of account a supplemental retirement option. In order for you to open an HSA, you must have a qualified health care plan, like a high deductible health plan (HDHP).</p> <p>Shobin Uralil, founder of HSA management platform Lively, says placing money in an HSA has many benefits and &quot;loopholes&quot; that make this a great addition for retirement savings.</p> <p>&quot;You can save pretax money and then use pretax dollars to pay for qualified out-of-pocket medical expenses,&quot; he says. &quot;After the age of 65, you can use HSA funds for anything you want, not just qualified out-of-pocket medical expenses.&quot;</p> <p>It's also worth noting that HSAs have no mandatory distributions in retirement so you can save into your 70s, 80s, and beyond. This is helpful for anyone behind on retirement saving and needing more time to save. (See also: <a href="http://www.wisebread.com/how-an-hsa-could-help-your-retirement?ref=seealso" target="_blank">How an HSA Could Help Your Retirement</a>)</p> <h2>4. Be frugal</h2> <p>You might be excited about the idea of saving more money, but wondering how you'll actually achieve those higher savings rates. Your best bet is to reduce your current lifestyle expenses. Of course, you'll want to adjust your spending to a level that is comfortable for you. But keep in mind the ultimate goal of having enough money to support your retirement.</p> <p>The options for saving money are unlimited. With some creativity and motivation, you should be able to find some frugal habits that will help you make your savings goals &mdash; everything from downsizing your home, to eating out only once per month. (See also: <a href="http://www.wisebread.com/6-ways-you-can-cut-costs-right-before-you-retire-0?Ref=seealso" target="_blank">6 Ways You Can Cut Costs Right Before You Retire</a>)</p> <h2>5. Postpone collecting Social Security</h2> <p>This is another strategy that can help you earn more income during retirement. The Social Security Administration reports that postponing Social Security benefits past your full retirement age can boost future payments by up to 8 percent for every year the income is deferred until age 70.</p> <p>Tom Foster, national spokesperson at MassMutual, works with financial advisers and employers to educate them about 401(k) plans. He recommends postponing Social Security benefits because the returns are pretty significant if you can hold off. He notes, &quot;Few investment strategies net such a return, never mind one with a guarantee.&quot; (See also: <a href="http://www.wisebread.com/6-smart-ways-to-boost-your-social-security-payout-before-retirement?ref=seealso" target="_blank">6 Smart Ways to Boost Your Social Security Payout Before Retirement</a>)</p> <h2>6. Keep working</h2> <p>A 2013 Georgetown University study estimates that there will be as many as 55 million job openings by 2020 due to baby boomers retiring and leaving the workforce. So the chances are, there will be plenty of demand for those who want to stick around and work longer.</p> <p>Fortunately, we live in a wonderful time where the internet allows people to work longer, under flexible conditions from almost anywhere in the world. If you can keep working longer, it will add to your potential to save up even more money. (See also: <a href="http://www.wisebread.com/4-creative-remote-jobs-that-can-supplement-your-retirement-income?ref=seealso" target="_blank">4 Creative Remote Jobs That Can Supplement Your Retirement Income</a>)</p> <h2>7. Keep investing</h2> <p>It used to be that people drastically reduced their investment portfolios in anticipation of their &quot;golden years.&quot; In order to reduce the risk of losing the principal amount of their savings, a retiree might be prompted to go with a very conservative investing strategy by keeping their assets in cash, bonds, or a combination of both.</p> <p>Nowadays, people are living and working longer and may be able to invest and save more aggressively for longer periods of time.</p> <p>Cliff Caplan, CFP at Neponset Valley Financial Partners, suggests that people needing to save more should continue to invest for growth. &quot;Establish and continually fund a growth-oriented account that can benefit from lower long-term capital gains treatment,&quot; he says. &quot;Dollar cost averaging can also be used to reduce volatility in a portfolio.&quot; (See also: <a href="http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50?ref=seealso" target="_blank">7 Reasons to Invest in Stocks Past Age 50</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520To%2520Travel%2520More%2520With%2520a%2520Full-Time%2520Job.jpg&amp;description=7%20Easiest%20Ways%20to%20Catch%20Up%20on%20Retirement%20Savings%20Later%20in%20Life"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20To%20Travel%20More%20With%20a%20Full-Time%20Job.jpg" alt="7 Easiest Ways to Catch Up on Retirement Savings Later in Life" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/aja-mcclanahan">Aja McClanahan</a> of <a href="http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-to-invest-in-stocks-past-age-50">7 Reasons to Invest in Stocks Past Age 50</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/which-of-these-9-retirement-accounts-is-right-for-you">Which of These 9 Retirement Accounts Is Right for You?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-roadblocks-to-retirement-and-how-to-clear-them">7 Roadblocks to Retirement (And How to Clear Them)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) catching up contributions cutting expenses HSA IRA late starters risk saving money social security stocks Tue, 16 Jan 2018 10:00:06 +0000 Aja McClanahan 2085769 at http://www.wisebread.com 5 Things Every Small Business Owner Needs to Know About Employee Retirement Accounts http://www.wisebread.com/5-things-every-small-business-owner-needs-to-know-about-employee-retirement-accounts <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-things-every-small-business-owner-needs-to-know-about-employee-retirement-accounts" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_hanging_open_sign_on_door.jpg" alt="Woman hanging open sign on door" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Among small businesses, employer sponsored 401(k) plans seem to have gotten a bad rap. According to the United States Government Accountability Office, between 51 and 71 percent of small business employees don't have access to a workplace retirement savings plan.</p> <p>There is a misconception that retirement plans are just for huge companies. However, this isn't true, and offering a retirement savings plan is the biggest step that a small business can take to increase workers' retirement savings. Let's review some of the many reasons why offering an employer-sponsored retirement account is a great idea for small businesses of all types. (See also: <a href="http://www.wisebread.com/8-common-myths-about-starting-a-small-business?ref=seealso" target="_blank">8 Common Myths About Starting a Small Business</a>)</p> <h2>1. Employees may prefer a retirement plan over a salary increase</h2> <p>According to a 2015 Glassdoor survey, 31 percent of workers valued a workplace retirement account, such as a 401(k) or pension plan, over an increase in pay. This makes sense; several studies have shown that workers benefit from automatic paycheck deductions to contribute to a workplace retirement plan. The Employment Benefit Research Institute found that two-thirds of employed workers not currently saving for retirement say they would be likely to start if automatic paycheck deductions ranging from 3 to 6 percent were used by their employer. By offering a retirement plan, small businesses may be able to attract more talent.</p> <h2>2. There are low-cost options available</h2> <p>Many small-business owners have the misconception that their only option to set up a workplace retirement plan for their employees is to pay an annual 1.5 to 2 percent fee to a provider. But nowadays, business owners have access to many lower cost options. Here are three examples of 401(k) providers for small businesses and their schedule of fees for employers:</p> <ul> <li> <p><a href="https://captain401.com/pricing/" target="_blank">Captain 401</a>: $499 setup fee; monthly cost starting at $120 plus $4 per employee.</p> </li> <li> <p><a href="https://www.employeefiduciary.com/401k-plan-pricing" target="_blank">Employee Fiduciary</a>: $500 setup fee for new plans; $1,500 annual fee plus a custody fee of 0.08 percent of plan assets.</p> </li> <li> <p><a href="https://www.myubiquity.com/retirement/plans/expressk/" target="_blank">Ubiquity</a>: $495 setup fee; monthly cost starting at $115 plus other transaction service charges.</p> </li> </ul> <p>Besides providing lower costs, choosing a third-party plan provider allows you to delegate certain plan responsibilities, such as implementing nondiscrimination testing for retirement plans (in layman's terms, making sure that a company isn't favoring specific employees when making contributions). This lets you focus more on core activities of your business.</p> <h2>3. Eligible small businesses can claim tax credits</h2> <p>Those fees to set up and run a retirement plan may be tax deductible. If your small business employed 100 or fewer individuals who were compensated at least $5,000 in the preceding year, and your business hasn't offered a workplace retirement plan in the past three years, it may be eligible for the Credit for Small Employer Pension Plan Startup Costs.</p> <p>Using Form 881, eligible small-business owners can claim a credit of up to $500 for qualified setup and administration fees, and costs to educate employees about the plan for each of the first three years of the plan. You can start claiming the credit in the tax year before the tax year in which the plan becomes effective, and you may carry it back or forward to other tax years if you can't use it in the current year.</p> <p>Just remember that whatever plan expenses you use toward this credit, you can't use as business expense deductions.</p> <h2>4. Employer contributions are tax-deductible</h2> <p>In 2017, the Employee Benefit Research Institute found that nearly 73 percent of workers not currently saving for retirement would be at least somewhat likely to start if contributions were matched by their employer. The good news for employers is that the IRS usually allows them to deduct these matches, subject to contribution limits on qualified employee plans (including the employer's own plan).</p> <ul> <li> <p>Defined contribution plan: An employer can deduct contributions to an employee retirement plan, up to 25 percent of the employee's annual salary. In 2017, no more than $270,000 of an employee's annual salary could be used when calculating that 25 percent.</p> </li> <li> <p>Defined benefit plans: The IRS recommends hiring an actuary to figure out your deduction limit based on the rules of your defined benefit plan.</p> </li> </ul> <p>Remember that all deferred employer contributions, including earnings and gains, are tax-free for employees until distributed by the small-business plan. This is why an employer contribution is so valuable.</p> <p>Let's assume that an employee and your small business have a 20 percent and a 10 percent tax rate, respectively. If you were to give that employee a $4,000 raise, he would only actually see $3,200 of that and your small business would pay $400 in taxes. On the other hand, with a $4,000 employer contribution to the employee's plan, the employee gets the full $4,000 now and the employer gets to deduct the $4,000 as a business expense.</p> <h2>5. Some states provide their own retirement plans</h2> <p>Across the nation, many states have launched, or are preparing to launch, state-sponsored plans to help workers save for retirement. Here are a few examples:</p> <ul> <li> <p>California: The <a href="http://www.treasurer.ca.gov/scib/" target="_blank">California Secure Choice</a> program (scheduled for soft launch in late 2018) will offer a retirement savings option to millions of workers employed by small businesses (under 100 employees) who don't have access to a retirement plan.</p> </li> <li> <p>Connecticut: Nearly 600,000 workers lack access to a workplace retirement plan in the state of Connecticut. The <a href="http://www.ctdol.state.ct.us/retirement%20authority/" target="_blank">Connecticut Retirement Security Program</a> (currently in planning stages) will aim to offer retirement plans to private sector workers without a retirement option through their employer.</p> </li> <li> <p>Oregon: <a href="https://www.oregonsaves.com" target="_blank">OregonSaves</a> launched in November 2017 and aims to offer workers employed by small businesses of less than 100 people a retirement savings plan. The program is expanding in &quot;waves,&quot; with the next wave planned for spring 2018.</p> </li> </ul> <p>Depending on the state that your small business operates in, you may have to address whether or not your small business will offer a workplace retirement plan soon.</p> <p>For example, let's say you have a small business in Oregon. OregonSaves is planning its next registration &quot;wave&quot; for spring 2018 for small businesses with 50 to 99 employees. If your business is<em> not </em>offering a retirement plan, you'll have to start enrolling employees in the state program (unless the employees opt out) on May 15, 2018. Following suit, small businesses that employ 20 to 49 workers will have to enroll on December 15, 2018.</p> <h2>The bottom line: Take action today</h2> <p>As a small-business owner, it makes sense to take a look at offering a retirement savings plan to your employees. This is a perk that employees value, is available through lower cost options, and provides tax breaks to both employees and employers.</p> <p>In the near future, your employees may have to enroll in a state-sponsored retirement plan depending on whether or not you offer a workplace retirement plan. Offering an employer-sponsored retirement plan is an effective way to attract and retain the best talent and demonstrate that you have your employees' best interest in mind.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F5-things-every-small-business-owner-needs-to-know-about-employee-retirement-accounts&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F5%2520Things%2520Every%2520Small%2520Business%2520Owner%2520Needs%2520to%2520Know%2520About%2520Employee%2520Retirement%2520Accounts.jpg&amp;description=5%20Things%20Every%20Small%20Business%20Owner%20Needs%20to%20Know%20About%20Employee%20Retirement%20Accounts"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/5%20Things%20Every%20Small%20Business%20Owner%20Needs%20to%20Know%20About%20Employee%20Retirement%20Accounts.jpg" alt="5 Things Every Small Business Owner Needs to Know About Employee Retirement Accounts" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/5-things-every-small-business-owner-needs-to-know-about-employee-retirement-accounts">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life">7 Easiest Ways to Catch Up on Retirement Savings Later in Life</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/which-of-these-9-retirement-accounts-is-right-for-you">Which of These 9 Retirement Accounts Is Right for You?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-things-you-should-know-about-your-401k-match">7 Things You Should Know About Your 401(k) Match</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-get-the-most-from-your-employer-s-automated-retirement-plan">5 Ways to Get the Most From Your Employer’s Automated Retirement Plan</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-critical-401k-questions-you-need-to-ask-your-employer">8 Critical 401(k) Questions You Need to Ask Your Employer</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Entrepreneurship Retirement 401(k) benefits business expenses contributions employees small businesses tax deductions Thu, 11 Jan 2018 09:30:10 +0000 Damian Davila 2085310 at http://www.wisebread.com What Every Retirement Saver Should Know About Required Minimum Distributions http://www.wisebread.com/what-every-retirement-saver-should-know-about-required-minimum-distributions <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-every-retirement-saver-should-know-about-required-minimum-distributions" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/money_and_time_background.jpg" alt="Money and Time Background" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You may be aware of the fact that contributing money to a tax-deferred retirement account, like a traditional IRA or a 401(k), means you get to put money aside before it is taxed. This reduces your current tax burden and gives you a great incentive to save for retirement.</p> <p>Unfortunately, Uncle Sam will eventually want his cut of that money. That's where required minimum distributions (RMDs) come in.</p> <p>The good news is that you have until age 70&frac12; before you have to worry about RMDs. But it's still important to understand how RMDs work and what to expect before you get to that age milestone.</p> <h2>What is a required minimum distribution?</h2> <p>Deferring taxes is great for the taxpayer, but the IRS can't afford for taxpayers to defer their taxes indefinitely. Individuals with tax-deferred retirement accounts have to actually withdraw money &mdash; and thereby pay taxes &mdash; or else those taxes will never get paid.</p> <p>Everyone holding a 401(k) or IRA account (with the exception of Roth IRAs) must begin withdrawing money from those accounts during the year they reach age 70&frac12;. This ensures that account holders have enough time to allow their money to grow without permanently sheltering their money from federal taxes.</p> <p>The IRS has established minimums that you must withdraw each year after reaching age 70&frac12;. If you fail to withdraw the proper RMD, you face a stiff penalty: The IRS will take 50 percent of the amount you should have withdrawn.</p> <h2>Calculating your RMD</h2> <p>It's also important to note that you are responsible for calculating and withdrawing the correct RMD each year &mdash; and the calculations aren't necessarily easy. Even if the custodian of your IRA or 401(k) does the math and paperwork for you, you are the responsible party in the IRS's eyes.</p> <p>So how do you figure out your RMD? You need to start with three pieces of information:</p> <ol> <li> <p>Your date of birth.</p> </li> <li> <p>The balance of each tax-deferred account as of Dec. 31 of the year <em>before </em>the year in which you turn 70&frac12;.</p> </li> <li> <p><a href="https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf" target="_blank">The IRS distribution table</a>.</p> </li> </ol> <p>This IRS distribution table calculates your life expectancy based on your age. The table gives you a number that corresponds to the number of years the IRS expects you to live.</p> <p>For instance, let's say a retiree was born on February 4, 1948, and will turn 70 in the first half of 2018. This retiree has a single IRA, with a balance of $250,000 at the end of 2017 (the calendar year before the year in which she turns 70&frac12;). To calculate her RMD, she'd look up her age (70) on the IRS distribution table to find the distribution period, which in this case is 27.4. She would then divide her IRA balance by the distribution period for her 2018 RMD:</p> <p style="text-align: center;">IRA balance / Distribution Period = RMD</p> <p style="text-align: center;">$250,000 / 27.4 = $9,214</p> <p>To keep on the right side of Uncle Sam, she will need to withdraw a minimum of $9,214 from her $250,000 IRA in 2018. But remember, the operative word is &quot;minimum.&quot; Account holders can always take more than their RMD if they choose to do so.</p> <h2>Why am I celebrating my 70&frac12; birthday?</h2> <p>While 70&frac12; may seem like an arbitrary number, there is a lot of thought put into this milestone age. The IRS makes a distinction between people born in the first half of the year, and those born in the second half. If your birthday falls between July 1 and Dec. 31, you don't officially have to take an RMD until the year you turn 71.</p> <p>This means that those with birthdays in the first half of the year take their first RMD the year they turn 70, and those with the later birthday take their first RMD the year they turn 71 &mdash; which averages out to 70&frac12;. (See also: <a href="http://www.wisebread.com/6-age-milestones-that-impact-your-retirement?ref=seealso" target="_blank">6 Age Milestones That Impact Your Retirement</a>)</p> <h2>Required beginning dates</h2> <p>To offer retirees a little more time to get their ducks in a row, the IRS does not require account holders to take their first RMD until April 1 of the year <em>following</em> the one in which you reach age 70&frac12;. That April 1 deadline is known as the required beginning date. The year in which that date falls depends on whether you have a birthday in the first or second half of the year.</p> <p>So, our Aquarian born Feb. 4, 1948 will turn 70&frac12; on Aug. 4, 2018. But remember, those born in the first half of the year calculate their RMD based on the year <em>before </em>they turn 70. So while she can wait to take her first RMD until April 1, 2019, at that point she'll calculate that RMD based on her age of 70 (which was her age as of Dec. 31, 2017), as well as her account balance as of Dec. 31, 2017.</p> <p>The first year following the year in which you reach 70&frac12; you will usually have <em>two </em>required distribution dates. Besides the April 1 date we just discussed, you'll also have to take another withdrawal by Dec. 31 of that same year. For our Aquarian, that means she will have to take a second RMD by Dec. 31, 2019. This RMD will be calculated based on her 2019 age of 71 and her account balance as of Dec. 31, 2018. This distribution catches her up on her requirements, and during all subsequent years, she is only required to take one RMD.</p> <p>The required beginning date is similar for anyone with later birthdays. Let's say you're a Virgo with an Aug. 31, 1948 birthday. You'll turn 70&frac12; on Feb. 28, 2019, which means you won't have to take your first RMD until April 1, 2020, and you'll calculate the amount based on your age of 71 (which is your age as of Dec. 31, 2018) as well as your account balance as of Dec. 31, 2018 &mdash; the year before you turned 70&frac12;. In addition to the April 1, 2020 distribution you will also have to take your 2020 RMD by Dec. 31, 2020, which you will calculate based on your age then of 72, and your account balance on Dec. 31, 2019.</p> <h2>Figuring out your required beginning date</h2> <table> <tbody> <tr> <td> <p><strong>If your birthday falls between Jan. 1 and June 30</strong></p> </td> <td> <p><strong>If your birthday falls between July 1 and Dec. 31</strong></p> </td> </tr> <tr> <td> <p>Your required beginning date is April 1 of the calendar year you turn 71.</p> </td> <td> <p>Your required beginning date is April 1 of the calendar year you turn 72.</p> </td> </tr> <tr> <td> <p>You will use the age of 70 to calculate your first RMD amount.</p> </td> <td> <p>You will use the age of 71 to calculate your first RMD amount.</p> </td> </tr> <tr> <td> <p>Your second RMD is due by Dec. 31 of the calendar year you turn 71.</p> </td> <td> <p>Your second RMD is due by Dec. 31 of the calendar year you turn 72.</p> </td> </tr> </tbody> </table> <h2>How your RMDs are taxed</h2> <p>Since the entire exercise of taking RMDs is about making sure you pay the income taxes you owe, it's important to understand how your distributions will be taxed.</p> <p>Your RMDs will be taxed as regular income at your applicable federal tax rate for the tax year for which you are making the withdrawal. This, in fact, may be the easiest-to-understand aspect of RMDs.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fwhat-every-retirement-saver-should-know-about-required-minimum-distributions&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FWhat%2520Every%2520Retirement%2520Saver%2520Should%2520Know%2520About%2520Required%2520Minimum%2520Distributions.jpg&amp;description=What%20Every%20Retirement%20Saver%20Should%20Know%20About%20Required%20Minimum%20Distributions"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;">&nbsp;<img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/What%20Every%20Retirement%20Saver%20Should%20Know%20About%20Required%20Minimum%20Distributions.jpg" alt="What Every Retirement Saver Should Know About Required Minimum Distributions" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/what-every-retirement-saver-should-know-about-required-minimum-distributions">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-age-milestones-that-impact-your-retirement">6 Age Milestones That Impact Your Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/which-of-these-9-retirement-accounts-is-right-for-you">Which of These 9 Retirement Accounts Is Right for You?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-things-you-need-to-know-about-401k-hardship-withdrawals">7 Things You Need to Know About 401(k) Hardship Withdrawals</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-common-retirement-regrets-you-can-avoid">3 Common Retirement Regrets You Can Avoid</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) age 70 ½ IRA IRS penalties required minimum distributions rmds taxes Wed, 10 Jan 2018 09:30:11 +0000 Emily Guy Birken 2084542 at http://www.wisebread.com How to Avoid These 3 Investment Worries That Will Derail Your Retirement http://www.wisebread.com/how-to-avoid-these-3-investment-worries-that-will-derail-your-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-avoid-these-3-investment-worries-that-will-derail-your-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/retirement_chances_0.jpg" alt="Retirement chances" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Wall Street analysts often describe bull market investors as climbing a &quot;wall of worry.&quot; The point being that even during good times, many investors find plenty to fret about. When these worries keep you from investing in your retirement, you run the risk of derailing your future.</p> <p>Let's take a closer look at three common investing-related concerns that could keep you from saving enough for your later years, along with some ideas for moving forward despite your fears.</p> <h2>1. Fear of investing in general</h2> <p>Of all the aspects of managing money, investing is the one that frightens people the most. At first glance, that's understandable. Just look at what happened during the Great Recession. From October 2007 until March 2009, the U.S. stock market fell by more than 50 percent.</p> <p>Think about that. If you had $100,000 invested at the beginning of that horrible stretch, you ended it with less than $50,000. That experience was enough to drive some people out of the market completely, and keep them out.</p> <p>How can you conquer your fear of investing? One way is to adopt the mindset of a long-term investor, not a short-term trader.</p> <p>Investors understand two important facts. First, the market doesn't move in a straight, smooth path. They expect to experience many ups and downs. Second, the longer you stay invested, the better your chances of making money.</p> <p>For example, according to a Morningstar analysis, of all the one-year U.S. stock market investment holding periods from 1926 to 2016, 26 percent showed a loss. Widen your perspective to all five-year periods, and just 14 percent showed a loss. And when you stretch your view to 15-year periods, none showed a loss.</p> <p>How would a long-term perspective have helped an investor who put money in the market at the beginning of 2007? Someone who started that year with $100,000, held on through the brutal downturn, and kept holding on, would have ended 2016 with nearly $200,000. (See also: <a href="http://www.wisebread.com/4-simple-ways-to-conquer-your-fear-of-investing?ref=seealso" target="_blank">4 Simple Ways to Conquer Your Fear of Investing</a>)</p> <h2>2. Fear of 401(k) plans</h2> <p>Pity the poor 401(k) plan. Critics complain of high fees, and they say it's unreasonable to expect participants to know how much to contribute or what to invest in.</p> <p>It's true that some plans <em>are </em>filled with excessively high-cost investment options. However, the more recent trend has been for plans to add low-cost index funds. If you work for a larger company, you may be able to see an evaluation of your plan's fees via <a href="https://www.brightscope.com/" target="_blank">Brightscope</a>. If they seem high, talk with someone in your human resources department and ask about having some lower-cost investment options added to the plan. (See also: <a href="http://www.wisebread.com/watch-out-for-these-5-sneaky-401k-fees?Ref=seealso" target="_blank">Watch Out for These 5 Sneaky 401K Fees</a>)</p> <p>To figure out how much to contribute, use one of the many free online tools that are available, such as <a href="https://www.fidelity.com/calculators-tools/fidelity-retirement-score-tool" target="_blank">Fidelity's Retirement Score</a> calculator. Estimating how much you <em>should </em>be saving in order to be adequately prepared for retirement will help make the distant goal of retirement more tangible and may motivate you to contribute more than you are now.</p> <p>As for deciding what to invest in, many 401(k) plan providers offer target-date funds, which make investing very simple. Just choose the fund named for the year closest to the year of your intended retirement date, such as the Fidelity Freedom 2040 Fund or the Vanguard Target Retirement 2045 Fund. Such funds are designed with the mix of stocks and bonds the fund company has deemed appropriate for someone your age. They automatically adjust that mix over time, becoming more conservatively invested as you near retirement age. (See also: <a href="http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement?ref=seealso" target="_blank">What You Need to Know About the Easiest Way to Save for Retirement</a>)</p> <h2>3. Fear of missing out (FOMO)</h2> <p>Does it seem like everyone around you is making money by investing in something you're not quite sure you understand? In the late '90s, it was the stocks of online companies, which kept zooming even though the companies were far from profitable. Remember Pets.com or Webvan?</p> <p>Today's investment craze is cryptocurrencies. Every day seems to bring a new story about Bitcoin investors who doubled their money or more <em>in hours</em>. But what exactly <em>is </em>a cryptocurrency? Could you explain it to a sixth grader in a few simple sentences?</p> <p>Investing in something you don't understand because of the <a href="http://www.wisebread.com/are-you-letting-fomo-ruin-your-finances?ref=internal" target="_blank">fear of missing out</a> has great potential to do more harm than good. What to do instead? Take a lesson from Sarah Stanley Fallaw. As founder of DataPoints, a company that studies the factors that enable people to build wealth, she's continuing the work her late father, Thomas Stanley, popularized in the best-selling book he co-authored, <em>The Millionaire Next Door</em>. One of the factors she has identified centers on what <em>not </em>to do, which she describes as <em>social indifference</em>:</p> <p style="margin-left: 40px;">&quot; &hellip; Those who ignore trends have higher net worth, regardless of their age, income, and percentage of wealth that they inherited,&quot; she told MarketWatch in 2016. &quot;Building wealth means ignoring what others are doing, which may be more challenging today than in the 1990s.&quot;</p> <p>So, just because <em>everyone </em>seems to be piling into Bitcoin doesn't mean you have to. At very least, take the time to understand what you're investing in and why. (See also: <a href="http://www.wisebread.com/what-is-cryptocurrency-anyway?ref=seealso" target="_blank">What is a Cryptocurrency Anyway?</a>)</p> <h2>It comes with the territory</h2> <p>If investing gives you pause, welcome to the human race. Because the markets are unpredictable and can be volatile in the short-run, most investors feel some fear, at least occasionally. But that doesn't mean you have to let it keep you from investing for your later years. The suggestions above should help.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-to-avoid-these-3-investment-worries-that-will-derail-your-retirement&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Avoid%2520These%25203%2520Investment%2520Worries%2520That%2520Will%2520Derail%2520Your%2520Retirement.jpg&amp;description=How%20to%20Avoid%20These%203%20Investment%20Worries%20That%20Will%20Derail%20Your%20Retirement"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20to%20Avoid%20These%203%20Investment%20Worries%20That%20Will%20Derail%20Your%20Retirement.jpg" alt="How to Avoid These 3 Investment Worries That Will Derail Your Retirement" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/how-to-avoid-these-3-investment-worries-that-will-derail-your-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life">7 Easiest Ways to Catch Up on Retirement Savings Later in Life</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-simple-ways-to-conquer-your-fear-of-investing">4 Simple Ways to Conquer Your Fear of Investing</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement">What You Need to Know About the Easiest Way to Save for Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-get-the-most-from-your-employer-s-automated-retirement-plan">5 Ways to Get the Most From Your Employer’s Automated Retirement Plan</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-millennials-can-do-right-now-for-an-early-retirement">8 Things Millennials Can Do Right Now for an Early Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) cryptocurrency fear of missing out fears FOMO risk target date funds worries Mon, 08 Jan 2018 10:00:06 +0000 Matt Bell 2083334 at http://www.wisebread.com 4 Easy Ways to Get Richer In 2018 http://www.wisebread.com/4-easy-ways-to-get-richer-in-2018 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-easy-ways-to-get-richer-in-2018" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/smiling_woman_posing_with_piggy_bank.jpg" alt="Smiling woman posing with piggy bank" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The new year is a great time to start practicing better financial habits. Implementing good money habits on January 1 and committing to keeping them up throughout the year will make you richer by the end of 2018 than you were at the start.</p> <p>Read on to learn just how much adopting these habits can enrich you throughout 2018.</p> <h2>1. Increase your 401(k) contribution by 1 percent: End 2018 with nearly $1,000 more</h2> <p>You are certainly aware of the importance of saving for retirement. Putting money aside when you are young will allow compound interest to do its magic and provide you with a comfortable retirement. In addition, if your employer matches some of your contributions to your retirement account, you can increase your retirement nest egg that much faster.</p> <p>But if you already feel financially squeezed, you might assume that it's not worth the trouble to put aside the little bit extra. That is simply untrue. With just a 1 percent additional contribution to your 401(k), you could end 2018 almost $1,000 richer than if you'd instead blown that money on something frivolous.</p> <p>Here's how. The average full-time wage and salary worker in the U.S. currently earns $44,668 per year, according to the Bureau of Labor Statistics. Let's say that's your salary. That means increasing your savings rate by 1 percent would add $446 more per year to your retirement account. And since $446 over 12 months is only going to result in $18.60 deducted from your bimonthly paychecks, it's unlikely you'll even notice the difference.</p> <p>If your employer matches your contribution and you have not yet maxed out the matching amount, that $446 will magically become $892.</p> <p>The average rate of return for 401(k) plans ranges between 5 and 8 percent per year. If we assume an 8 percent return on the investment of $892, that's $71.36 in growth for 2018 alone. So for a mere $18.60 per paycheck, you might end the year $963.36 richer.</p> <p>And even if you are not lucky enough to have employer matching &mdash; or you've already maxed it out &mdash; you could get the same result by increasing your 401(k) contribution by 2 percent. That would still only &quot;cost&quot; you $37.22 per bimonthly paycheck, and result in nearly $1,000 in additional wealth by the end of the year. (See also: <a href="http://www.wisebread.com/5-simple-ways-to-boost-an-underperforming-401k?Ref=seealso" target="_blank">5 Simple Ways to Boost an Underperforming 401(k)</a>)</p> <h2>2. Reduce how often you dine out: End 2018 with $900 more</h2> <p>According to a 2016 Zagat survey on American dining, the average person eats a restaurant- or commercially-prepared meal 4.5 times a week. All that dining out adds up. The Bureau of Labor Statistics found the average American household spent $3,154 on restaurant dining in 2016.</p> <p>If you cut out one restaurant meal per week in 2018, you can end the year $455 richer. Cut out two meals per week, and you'll have $911 more in your pocket.</p> <p>Here's the math. The Bureau of Labor Statistics calculates that the average American household spent $4,049 in 2016 on groceries. Assuming those households are dining out 4.5 times per week or for 234 meals per year &mdash; we can figure out exactly how much you save by brown bagging your lunch or eating at home.</p> <p>Presuming you eat three meals a day, seven days a week, 52 weeks of the year, there are a total of 1,092 meals to account for in the year. If you're eating 234 of those meals at restaurants, you are spending $4,049 per year on 858 meals at home (1,092 meals total - 234 restaurant meals = 858 meals at home). Now, $4,049 divided by 858 meals comes to an average cost of $4.71 per meal.</p> <p>If you're spending $3,154 on 234 restaurant meals per year, you're spending an average $13.47 per meal ($3,154 / 234 meals = $13.47). That means you're saving $8.76 per meal whenever you eat at home rather than at a restaurant ($13.47 - $4.71 = $8.76).</p> <p>Let's say you reduce your dining out by one meal per week, or 52 meals total. That will save you $455.52 total ($8.76 x 52 = $455.52). Reduce your dining out by two meals per week, or 104 meals total for the year, and you'll save about $911.04 ($8.76 x 104 = $911.04). (See also: <a href="http://www.wisebread.com/are-you-eating-the-10-most-over-priced-restaurant-menu-items?Ref=seealso" target="_blank">Are You Eating the 10 Most Over-Priced Restaurant Menu Items?</a>)</p> <h2>3. Send an extra $100 to your credit card each month: Save more than $1,000 in interest</h2> <p>According to ValuePenguin, the average indebted household carrying credit card debt owes $10,955. According to CreditCards.com, the average APR is 16.15 percent, which works out to 0.013 percent per day. This means the average household will pay $3,675 in interest over the life of the loan if they make the minimum payment of 3 percent (or $329) per month, and it will take 45 months (that is, from January 2018 all the way through to October 2021) to reach the payoff date.</p> <p>But if you send just $100 more to your credit card per month, you'll save $1,117 in interest, and cut a full 13 months off your repayment schedule. You can achieve this by simply putting an additional $50 from each bimonthly paycheck toward debt repayment. That would also help you reach debt freedom a year earlier. (See also: <a href="http://www.wisebread.com/the-fastest-method-to-eliminate-credit-card-debt?ref=seealso" target="_blank">The Fastest Method to Eliminate Credit Card Debt</a>)</p> <h2>4. Do more with your tax refund: End 2018 with nearly $6,500 more</h2> <p>If you're like the average American, your tax refund in 2017 was around $3,050. But too many people fritter that money away. While it's certainly exciting to get a payday from Uncle Sam every tax season, you could be doing much more with your money than blowing it as soon as the IRS check clears.</p> <p>Let's say you file your return in April and get your refund in May. If you put that $3,050 into an index fund by June and it earns 8 percent interest, you'll have $3,195 by the end of the year. That's $145 in earnings.</p> <p>In addition to that, you decide to change your withholding in January 2018 so you're not giving the IRS an interest-free loan. You keep $254 more from each paycheck ($3,050/12 = $254), and invest it in that 8 percent index fund. By the end of the year, you'll have earned $135 in interest, for a total of $3,183.</p> <p>All together, your savings and interest add up to $6,378 for 2018. That's a hefty boost to your long-term financial security in exchange for saving the tax windfall you would have otherwise spent.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F4-easy-ways-to-get-richer-in-2018&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F4%2520Easy%2520Ways%2520to%2520Get%2520Richer%2520In%25202018.jpg&amp;description=4%20Easy%20Ways%20to%20Get%20Richer%20In%202018"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/4%20Easy%20Ways%20to%20Get%20Richer%20In%202018.jpg" alt="4 Easy Ways to Get Richer In 2018" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/4-easy-ways-to-get-richer-in-2018">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-easy-ways-to-build-an-emergency-fund-from-0">7 Easy Ways to Build an Emergency Fund From $0</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-come-up-with-1000-in-the-next-30-days">How to Come Up With $1,000 in the Next 30 Days</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-millennials-with-kids-may-become-the-richest-retirees-yet">How Millennials With Kids May Become the Richest Retirees Yet</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-ways-you-can-cut-costs-right-before-you-retire-0">6 Ways You Can Cut Costs Right Before You Retire</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/youve-been-saving-money-all-wrong-heres-why">You&#039;ve Been Saving Money All Wrong. Here&#039;s Why</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Extra Income 401(k) contributions credit card debt cutting costs expenses restaurants richer saving money taxes withholdings Mon, 01 Jan 2018 09:00:07 +0000 Emily Guy Birken 2074908 at http://www.wisebread.com 5 Alternatives to a 401(k) Plan http://www.wisebread.com/5-alternatives-to-a-401k-plan <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-alternatives-to-a-401k-plan" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/stacks_of_coins_in_bank_notes_with_white_eggs.jpg" alt="Stacks of coins in bank notes with white eggs" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The status of 401(k) plans has been in the news a lot recently, as part of the wider discussion about tax reform on Capitol Hill. While it does appear that tax benefits for the popular employer-sponsored retirement plans will remain unchanged for now, even the prospect of change has left some people feeling unsettled about what to do with their money moving forward.</p> <p>To be clear, a 401(k) plan remains a very powerful tool to help you save for retirement, especially if your company is generous in matching contributions. But if you are feeling confused or are not happy with what your current 401(k) plan offers, there are some other options available to help you build a retirement fund. Here's the skinny on a handful of 401(k) alternatives.</p> <h2>1. Roth IRA</h2> <p>A Roth Individual Retirement Account (IRA) is a popular option among people who don't have access to a 401(k) or other retirement plan through their employer. With a Roth, you can contribute up to $5,500 annually ($6,500 if over age 50), and since you contribute with post-tax dollars, the gains on those investments can be withdrawn tax-free when you retire. Roth IRAs are popular due to the flexibility to choose your own investments. It's also possible to use the account for certain emergency costs, such as medical bills or a home threatened by foreclosure, and you can even use it as a college savings account, though there may be penalties and taxes if you withdraw gains before age 59 &frac12;. (See also: <a href="http://www.wisebread.com/using-your-roth-ira-as-an-emergency-fund-ever-a-good-idea?ref=seealso" target="_blank">Using Your Roth IRA as an Emergency Fund &mdash; Ever a Good Idea?</a>)</p> <p>A Roth IRA is a good alternative to a 401(k) for those who don't have access to one. Even if you do have a 401(k), sometimes a Roth IRA is a better option, such as in cases when an employer does not offer matching contributions, or the fund choices are expensive or limited. (See also: <a href="http://www.wisebread.com/401k-or-ira-you-need-both?ref=seealso" target="_blank">401(k) or IRA? You Need Both</a>)</p> <p>Roth IRAs are also useful because you can contribute as long as you have earned income; other retirement plans require you to begin making withdrawals by age 70 &frac12;.</p> <h2>2. Traditional IRA</h2> <p>A traditional IRA is similar to a Roth IRA, but the tax advantages are more in line with a 401(k). In this case, any contributions to the account are deducted from your taxable income up front; you will be required to pay taxes on the gains when you retire.</p> <p>It's entirely possible and sensible to have both a traditional IRA and a Roth IRA in order to get tax advantages both now and later. Note that with a traditional IRA, you must start taking required minimum distributions starting at age 70 &frac12;.</p> <h2>3. Taxable brokerage account</h2> <p>There are no tax advantages to opening a good old-fashioned, regular, taxable brokerage account. But you do get flexibility that can't be offered by a 401(k) or IRA. With a regular taxable account, you can invest in whatever you want and buy and sell whenever you want without any early withdrawal penalties, though you will pay taxes on any gains. This type of brokerage account is great if you want to buy dividend stocks to boost your income, or use the investments for something other than retirement.</p> <h2>4. Peer-to-peer lending</h2> <p>This is a relatively new investment option that allows people to connect online with borrowers and collect interest income. Through peer-to-peer lending sites such as Lending Club and Prosper, you become a lender and loan money to someone in need of cash, profiting from the interest on that loan.</p> <p>With peer-to-peer lending, lenders can earn considerably more than what they might earn from interest from the bank, and may even outpace stock market returns, depending on the riskiness of the loans they buy. But there is always some risk that the borrower will default. And keep in mind that interest from peer-to-peer lending is taxed as normal income, rather than investment gains. (See also: <a href="http://www.wisebread.com/everything-you-need-to-know-about-peer-to-peer-investing-with-lending-club?ref=seealso" target="_blank">Everything You Need to Know About Peer-to-Peer Investing With Lending Club</a>)</p> <h2>5. Stick your money in the bank</h2> <p>Putting your money into a savings account is always an option, though not the best one on this list. These days, interest rates are so low that in many cases the growth of your savings will barely outpace inflation. You may be able to find better-than-average rates at some online banks or by opening a certificate of deposit, but there's no chance you'll be able to match the returns of the stock market over the long term. It's fine to use a bank account for your emergency fund, but for long-term savings, look elsewhere.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F5-alternatives-to-a-401k-plan&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F5%2520Alternatives%2520to%2520a%2520401%2528k%2529%2520Plan.jpg&amp;description=5%20Alternatives%20to%20a%20401(k)%20Plan"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/5%20Alternatives%20to%20a%20401%28k%29%20Plan.jpg" alt="5 Alternatives to a 401(k) Plan" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/5-alternatives-to-a-401k-plan">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-for-retirement-when-you-are-unemployed">How to Save for Retirement When You Are Unemployed</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-millennials-can-do-right-now-for-an-early-retirement">8 Things Millennials Can Do Right Now for an Early Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k">6 Valid Reasons Not to Contribute to Your 401(k)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/yes-you-can-pay-for-education-with-an-ira">Yes, You Can Pay for Education With an IRA</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/money-a-mess-try-this-personal-finance-starter-kit">Money a Mess? Try This Personal Finance Starter Kit</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401(k) banking gains peer to peer lending Roth IRA saving money savings account taxable brokerage account traditional ira Mon, 18 Dec 2017 09:30:10 +0000 Tim Lemke 2070181 at http://www.wisebread.com How Millennials With Kids May Become the Richest Retirees Yet http://www.wisebread.com/how-millennials-with-kids-may-become-the-richest-retirees-yet <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-millennials-with-kids-may-become-the-richest-retirees-yet" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/saving_for_college.jpg" alt="Saving for college" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Millennials have gotten a bad rap when it comes to financial responsibility. It has been widely reported that the rising generation is behind on financial milestones like home buying, having kids, and earning income. But at least one group of millennials is breaking the stereotype when it comes to retirement savings. According to a 2017 survey by NerdWallet that polled employed people, millennials (ages 18&ndash;34) who have children outpace the retirement savings rate of baby boomer parents (ages 55+) and of Generation X parents (ages 35&ndash;54).</p> <p>Employed millennial parents report that they are saving about 10 percent of their income &mdash; that&rsquo;s more than Gen X parents and baby boomer parents, who are saving around 8 and 5 percent, respectively. It&rsquo;s also in line with the recommendations by many experts to save 10 to 15 percent of your annual income for retirement.</p> <p>Across all generations, parents are considered more retirement ready than non-parents. Among survey participants saving for retirement, 84 percent of parents say they&rsquo;re contributing a portion of their salary to retirement, compared to 69 percent of non-parents. The study&rsquo;s authors don&rsquo;t delve into why, but it could be that having children focuses one&rsquo;s mind on all kinds of savings for the future, despite the added burden of child-rearing costs.</p> <h2>The wonder of compound interest</h2> <p>To be fair, millennials generally earn less money than their parents, making it much easier to save a larger percentage of their income. Still, younger parents are pulling out all the stops when it comes to prioritizing saving. NerdWallet says the millennial parents&rsquo; higher savings rate could help them retire more than $1 million richer than baby boomer parents, and $400,000 richer than Gen X parents.</p> <p>Here&rsquo;s why. Although the difference between the 10, 8, and 5 percent being saved by the various generations of parents doesn&rsquo;t seem like much, even small differences can make a large impact over time.</p> <p>For example, take two people earning $40,000 per year. Person A saves 10 percent ($4,000) of their income while person B saves 7 percent ($2,800) of their income per year. If those annual contribution levels remain consistent over 30 years, assuming a moderate 5 percent return, person A will have over $265,000 saved up while person B will have only $186,000 in the bank. That&rsquo;s not taking into account any salary increases.</p> <p>You can see that a few percentage points can make all the difference when it comes to saving. The time value of money is a great motivator to make small budget adjustments in order to save more. (See also: <a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement?ref=seealso" target="_blank">10 Signs You Aren't Saving Enough for Retirement</a>)</p> <h2>Making sacrifices</h2> <p>In the 2,000 person survey, millennial parents reported making more sacrifices to accomplish their savings goals. In fact, 76 percent of millennial parents report doing so to make room for a higher savings rate, compared to 69 percent of Gen X parents and 60 percent of baby boomer parents. The most common sacrifices mentioned were dining out, vacations, entertainment, bigger homes, buying a car, pursuing more education, and even having more kids.</p> <p>These small lifestyle changes, when added up, can make a large impact on a person&rsquo;s savings rate. In fact, the survey reports that 38 percent of employed millennial parents are saving more than 15 percent of their income while only 24 percent of Gen X parents and 23 percent of baby boomer parents report saving that same percentage of their income.</p> <h2>Life-changing adjustments</h2> <p>Millennial parents are also saving more than their Gen X and baby boomer counterparts after major life changes like getting higher paying jobs, getting married, having a child, dropping the day care bill, or buying a house. When a large windfall comes or a significant amount of money is freed up, millennials seem to be good at directing these funds to places where they will grow, like a savings or retirement account.</p> <p>If we use the example above, with person A already putting away $4,000 per year and then saving an additional $100 per month, the total savings yield is $345,000 versus $265,000 over 30 years. Saving an additional $100 per month, perhaps because day care is done or a raise is received, is well within reach for not only millennials, but also for the average person or family.</p> <h2>Auto enrollment</h2> <p>Millennials&rsquo; ability to save more than other generations might have to do more with technology and automation than discipline and financial savvy. According to a 2017 report on retirement and benefits plans, more employers are incorporating auto-enrollment into their compensation plans, and millennials are direct beneficiaries of this change. Eighty-two percent of millennials are currently enrolled in a retirement savings vehicle compared to 77 percent of Gen Xers and 75 percent of baby boomers.</p> <p>This same report found that 97 percent of people who are automatically enrolled in employer-sponsored savings plans don&rsquo;t opt out. Again, just saving a few dollars each pay period can make a significant impact on how much a person can save over time. (See also: <a href="http://www.wisebread.com/5-ways-to-automate-your-finances?Ref=seealso" target="_blank">5 Ways to Automate Your Finances</a>)</p> <h2>How can you join the ranks of millennial super savers?</h2> <p>Millennial or not, and parent or not, it&rsquo;s never too late to start saving for retirement. You can make small changes to your money habits that could have a large impact down the line. Here are a few things to try in order to jump-start your savings habits:</p> <ul> <li> <p>Automate your savings so you get used to living on less.</p> </li> <li> <p>Have a plan in place ahead of time for using extra income to save more for retirement.</p> </li> <li> <p><span style="background-color: transparent; font-size: 13px; color: rgb(0, 0, 0);">Create a budget to find extra income by either cutting expenses, earning more, or both. Use the extra money to pad your retirement savings.</span></p> </li> </ul> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-millennials-with-kids-may-become-the-richest-retirees-yet&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520Millennials%2520With%2520Kids%2520May%2520Become%2520the%2520Richest%2520Retirees%2520Yet_0.jpg&amp;description=How%20Millennials%20With%20Kids%20May%20Become%20the%20Richest%20Retirees%20Yet"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20Millennials%20With%20Kids%20May%20Become%20the%20Richest%20Retirees%20Yet_0.jpg" alt="How Millennials With Kids May Become the Richest Retirees Yet" width="250" height="374" /></p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/aja-mcclanahan">Aja McClanahan</a> of <a href="http://www.wisebread.com/how-millennials-with-kids-may-become-the-richest-retirees-yet">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-millennial-money-habits-every-retiree-should-learn">6 Millennial Money Habits Every Retiree Should Learn</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-millennials-can-do-right-now-for-an-early-retirement">8 Things Millennials Can Do Right Now for an Early Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-easy-ways-to-get-richer-in-2018">4 Easy Ways to Get Richer In 2018</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-just-5-a-day-can-improve-your-financial-future">How Just $5 a Day Can Improve Your Financial Future</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-financial-basics-every-new-grad-should-know">The Financial Basics Every New Grad Should Know</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance 401(k) auto enrollment baby boomers compound interest expenses generations lifestyle millennials retirement saving money Wed, 13 Dec 2017 09:00:08 +0000 Aja McClanahan 2068670 at http://www.wisebread.com 8 Critical 401(k) Questions You Need to Ask Your Employer http://www.wisebread.com/8-critical-401k-questions-you-need-to-ask-your-employer <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-critical-401k-questions-you-need-to-ask-your-employer" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/401k_retirement_plan.jpg" alt="401(k) Retirement Plan" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The 401(k) plan is one of the most popular ways for workers to build up their nest eggs for retirement. As of June 2017, 55 million Americans held an estimated $5.1 trillion in assets in 401(k) plans. Whether you're already enrolled or planning to enroll in your employer-sponsored retirement plan, there are several details that you should find out to make the most of it. Let's review some key 401(k) questions you need to ask your employer. (See also: <a href="http://www.wisebread.com/5-dumb-401k-mistakes-smart-people-make?ref=seealso" target="_blank">5 Dumb 401(k) Mistakes Smart People Make</a>)</p> <h2>1. When am I eligible to make contributions?</h2> <p>Different plans have different rules. You shouldn't assume that the same rules from your previous workplace retirement savings plan will apply to that of your current job. Some plans may require you to wait at least six to 12 months before you can contribute to your account, while others may allow you to do so right away. In a review of 4.4 million 401(k) plans in 2016, Vanguard found 67 percent of plans offered immediate eligibility for employee contributions.</p> <h2>2. Do you offer a company match?</h2> <p>America is experiencing very low unemployment levels. In October 2017, the Bureau of Labor Statistics reported the national unemployment rate stood at 4.1 percent, with some states reaching even lower rates (North Dakota and Colorado recorded 2.5 percent and 2.7 percent, respectively, that same month). Looking to retain and attract talent, more and more employers match employee contributions to their retirement accounts. In Vanguard's <em>How America Saves 2017</em> report, 94 percent of employers offered matching 401(k) contributions in 2016, up from 91 percent in 2013. After you find out how much of a match your workplace offers, be sure to contribute at least up to that amount. If you don't, you'll be leaving free money on the table.</p> <h2>3. What type of formula do you use for matching contributions?</h2> <p>In 2016, there were over 200 different ways in which employers matched their employee contributions, according to Vanguard. By far the most common formula (70 percent of plans) is 50 cents for every dollar up to 6 percent of your pay. Assuming that you make $50,000, this would mean that your employer would contribute up to $1,500 if you were to contribute $3,000 to your 401(k).</p> <p>Here are the next two most common types of matching formulas found in the study:</p> <ul> <li> <p>$1.00 per dollar on first 3 percent of pay, then $0.50 per dollar on next 2 percent of pay (22 percent of plans).</p> </li> <li> <p>A dollar cap, often set at $2,000 (5 percent of plans).</p> </li> </ul> <p>It's important to find out the matching formula used by your employer so that you know how much you need to contribute to your plan to maximize that match. In 2016, 44 percent of surveyed plans required a 6 to 6.99 percent employee contribution for a maximum employer match.</p> <h2>4. When do employer contributions become fully vested?</h2> <p>While all of your 401(k) contributions become fully vested immediately, funds contributed by your employer may take longer to actually become yours. Knowing the applicable vesting schedule is essential to know how much of your 401(k) you'd keep if you were to separate from your employer at any point in time.</p> <p>Depending on your employer, matching contributions may be immediately yours (cliff vesting) or gradually over a period of time (graded vesting). In the Vanguard study, 47 percent of plans granted immediate ownership of employer contributions, 30 percent of plans gradually granted ownership over a five- to six-year period, and 10 percent had a three-year cliff vesting waiting period. (See also: <a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one?ref=seealso" target="_blank">How to Tell if Your 401(k) Is a Good or a Bad One</a>)</p> <h2>5. Can I take hardship withdrawals?</h2> <p>In a perfect world, you would leave your 401(k) funds alone until retirement. However, life happens and it may throw you a curve ball leaving you in a major cash crunch. Some plans offer holders the ability to withdraw money early without the 10 percent IRS penalty due to hardship exemptions, such as certain medical expenses, avoiding foreclosure, and funeral and burial expenses.</p> <p>Some plans may even allow you to take hardship withdrawals for less gloomy situations, such as buying your first home and paying for college expenses for yourself, your spouse, or your children. Eighty-four percent of plans offered hardship withdrawals in the Vanguard study.</p> <h2>6. What are my investment options?</h2> <p>In 2016, 96 percent of surveyed 401(k) plans designated a target-date fund as the default investment option. There are many reasons, including high expense ratios and variable return rates, why you should look beyond target-date funds and consider all funds available in your 401(k).</p> <p>On average, 401(k) plans offered 17.9 funds to plan holders in 2016. Over recent years, more and more plans are offering a suite of low-cost index funds covering domestic equities, foreign equities, U.S. taxable bonds, and cash. In 2016, 57 percent of plans offered such an index &quot;core&quot; of funds covering at least these four asset types. Take a good look at what your 401(k) has to offer so that you can select the best funds for your unique financial goals. (See also: <a href="http://www.wisebread.com/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments?ref=seealso" target="_blank">Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments</a>)</p> <h2>7. Do you offer financial advice?</h2> <p>Plans may offer a wide variety of financial advice, ranging from access to a financial adviser a few times out of the year to fully-fledged management of your investments. These perks often come at a cost ranging from 0.25 to 1 percent of your account balance. Still, depending on your financial situation, getting professional advice may be worth every penny to maximize your nest egg or handle tricky tax scenarios.</p> <p>Besides checking for a human financial adviser, inquire about whether or not your plan offers you robo-advisers. Often charging much lower fees than human advisers, robo-advisers can offer valuable services, including automatic portfolio rebalancing and tax-loss harvesting (selling securities that have experienced a loss to offset taxes on both gains and income). (See also: <a href="http://www.wisebread.com/9-questions-you-should-ask-before-hiring-a-robo-adviser?ref=seealso" target="_blank">9 Questions You Should Ask Before Hiring a Robo-Adviser</a>)</p> <h2>8. Can I make Roth contributions?</h2> <p>If you are just starting your career, have a large upside income potential, or are expecting a big salary bump in the next few years, having the ability to make after-tax contributions to your nest egg is important. Under these scenarios, taking the tax hit early in your retirement account would make sense because you would be at a much lower tax rate now than in the future. This is why 65 percent of Vanguard 401(k) plans offered Roth 401(k) contributions in 2016. For some plan holders, a Roth 401(k) is a great way to grow contributions tax-free forever.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F8-critical-401k-questions-you-need-to-ask-your-employer&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F8%2520Critical%2520401%2528k%2529%2520Questions%2520You%2520Need%2520to%2520Ask%2520Your%2520Employer.jpg&amp;description=8%20Critical%20401(k)%20Questions%20You%20Need%20to%20Ask%20Your%20Employer"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/8%20Critical%20401%28k%29%20Questions%20You%20Need%20to%20Ask%20Your%20Employer.jpg" alt="8 Critical 401(k) Questions You Need to Ask Your Employer" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/8-critical-401k-questions-you-need-to-ask-your-employer">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/which-of-these-9-retirement-accounts-is-right-for-you">Which of These 9 Retirement Accounts Is Right for You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life">7 Easiest Ways to Catch Up on Retirement Savings Later in Life</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-inventor-of-the-401k-has-second-thoughts-about-your-retirement-plan-now-what">The Inventor of the 401K Has Second Thoughts About Your Retirement Plan — Now What?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-signs-youre-making-all-the-right-moves-for-retirement">8 Signs You&#039;re Making All the Right Moves for Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-traps-to-avoid-with-your-401k">7 Traps to Avoid With Your 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) contributions employer match financial advice hardship withdrawals IRA questions vesting period work Tue, 12 Dec 2017 09:30:15 +0000 Damian Davila 2069139 at http://www.wisebread.com 8 Signs You're Making All the Right Moves for Retirement http://www.wisebread.com/8-signs-youre-making-all-the-right-moves-for-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-signs-youre-making-all-the-right-moves-for-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggybank_with_glasses.jpg" alt="Piggy bank with glasses" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The 2017 Retirement Confidence Survey from the Employee Benefit Research Institute made a disheartening discovery; only six in 10 U.S. workers feel confident that they'll be able to retire comfortably. That means 40 percent think they won't.</p> <p>That's grim news. But you don't have to fall into this group if you're making the right financial moves to prepare for your after-work years.</p> <p>It can be tricky to know for sure how confident you should feel about your nest egg, but some key signs can indicate that you're on your way to building a happy and healthy retirement.</p> <h2>1. You've worked out the kind of retirement you want</h2> <p>The best way to prepare for retirement? You have to plan for it. This means knowing how you want to spend your after-work years. After all, if you plan on traveling the globe after retiring, you'll need plenty of money. If you instead plan to spend more time visiting your grandchildren, reading, or playing golf, you might not need to save quite as much.</p> <p>The key is to determine what kind of retirement you want long before it arrives. That way, you can financially plan for it. And if you're in a relationship, remember that both you and your partner have to agree, and prepare for, the retirement lifestyle that suits you both. (See also: <a href="http://www.wisebread.com/how-to-find-your-new-identity-after-retirement?ref=seealso" target="_blank">How to Find Your New Identity After Retirement</a>)</p> <h2>2. You've set a retirement age</h2> <p>Do you know when you want to retire? You should. That decision can have a huge impact on your finances once you leave the working world.</p> <p>If you were born between 1943 and 1954, your full retirement age is 66. If you were born after 1959, your full retirement age is 67. You can start claiming Social Security benefits once you turn 62. But if you wait until you hit full retirement age &mdash; or beyond &mdash; the money you receive each month will be far higher. In fact, if you start claiming your Social Security benefits at 62, your monthly payment will be lowered by 30 percent compared to how much you'd get at full retirement age.</p> <p>And if you can hang on until age 70, you'll collect a monthly benefit that is 132 percent of the monthly amount you would have received if you started claiming Social Security at full retirement age.</p> <p>There's nothing wrong with claiming your benefits early, if you've planned for this. But make sure you know how much money you'll need before retiring early. (See also: <a href="http://www.wisebread.com/5-questions-to-ask-before-you-start-claiming-your-social-security-benefits?ref=seealso" target="_blank">5 Questions to Ask Before You Start Claiming Your Social Security Benefits</a>)</p> <h2>3. You've made a retirement budget</h2> <p>Before you hit retirement age, it's important to determine how much money you expect to spend and receive each month once that steady paycheck has disappeared. This means it's time to create a monthly retirement budget.</p> <p>For income, you can include any pensions, Social Security payments, disability payments, rental income, or annuity income you plan on receiving. You can also include the amount of money you expect to draw from your retirement savings. For expenses, include everything that you'll spend money on each month, including groceries, eating out, mortgage, auto payments, health care expenses, and utility bills.</p> <p>Once you know how much you'll be spending and how much you'll be earning in retirement, you can better prepare for it. (See also: <a href="http://www.wisebread.com/heres-how-you-should-budget-your-social-security-checks?ref=seealso" target="_blank">Here's How You Should Budget Your Social Security Checks</a>)</p> <h2>4. You've paid off your debts</h2> <p>The best way to increase the odds of a happy retirement is entering your post-work years without any debt. That means paying off your credit cards, paying off your mortgage, and making sure you don't owe any money on your car once you've retired.</p> <p>Paying off debt isn't easy. It's why so many of us are struggling under mountains of credit card debt. Before your retirement hits, though, start funneling money toward your debt. The more you pay off, the less financial stress you'll face in retirement. (See also: <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?ref=seealso" target="_blank">The Fastest Way to Pay Off $10,000 in Credit Card Debt</a>)</p> <h2>5. You've maximized your retirement savings contributions</h2> <p>You should be contributing to an IRA, 401(k) plan, or a combination of both. But as retirement gets closer, make sure you are contributing the maximum amount to these retirement savings vehicles. Doing so will leave you with the greatest financial cushion for retirement.</p> <p>It might seem like a financial sacrifice to devote, say, 15 percent of your regular paycheck to a 401(k) account. But by saving that much, as opposed to 5 percent or 10 percent, you can dramatically increase the amount of money you'll have when retirement arrives. (See also: <a href="http://www.wisebread.com/10-signs-you-arent-saving-enough-for-retirement?ref=seealso" target="_blank">10 Signs You Aren't Saving Enough for Retirement</a>)</p> <h2>6. You're playing catch-up</h2> <p>Once you hit your 50th birthday, you can contribute even more money each year to your 401(k) plan or IRAs. Take advantage of this benefit to provide a late-in-life boost to your retirement savings.</p> <p>For the 2017 tax year, you are allowed to contribute up to a maximum of $18,000 in a 401(k) plan. But if you're 50 or older, you can make what are known as catch-up contributions and contribute an extra $6,000 &mdash; meaning that you can put a total of $24,000 into your 401(k) this year. For the 2018 tax year, 401(k) contribution limits will be raised to $18,500, which means those age 50 or older can contribute up to a total of $24,500 per year. (See also: <a href="http://www.wisebread.com/6-ways-meeting-the-2018-401k-contribution-limits-will-brighten-your-future?ref=seealso" target="_blank">6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future</a>)</p> <p>Traditional and Roth IRAs also have catch-up policies for investors 50 or older. For the 2017 tax year, you can contribute up to $5,500 in either form of IRA. But if you are 50 older, you can contribute an additional $1,000, meaning that you can save up to $6,500 this year in a Roth or traditional IRA. This will be remaining the same in the 2018 tax year.</p> <h2>7. You've prioritized your spending &mdash; even when it comes to your kids</h2> <p>It's not easy telling your kids no, even when both they and you are adults. But when it comes to saving for retirement, you might have to do just this.</p> <p>You might want to help your children pay for their college tuition. And hopefully, you've already saved for this. But if you didn't, you shouldn't be putting off saving for retirement to help your adult children pay for college.</p> <p>Your children have other options when it comes to college: They can find a less expensive school, attend community college for two years, or apply for loans and grants. If you can't afford to save for both retirement and your children's college tuition, you absolutely must put saving for retirement first.</p> <p>If you don't? You might just become a financial burden for your adult children when you can't afford to maintain a healthy retirement lifestyle. (See also: <a href="http://www.wisebread.com/are-you-ruining-your-retirement-by-spoiling-your-kids?ref=seealso" target="_blank">Are You Ruining Your Retirement by Spoiling Your Kids?</a>)</p> <h2>8. You've tinkered with your savings formula</h2> <p>Early in your working days, it's a sound strategy to invest in a riskier mix of stocks, bonds, and other investment vehicles. The potential rewards are higher, and you have more years to recoup whatever losses you might suffer from a potentially more volatile portfolio.</p> <p>But once you get closer to retirement, it's time to rebalance your investments to eliminate much of the risk. When you're 10 or five years from retirement, you want a safer investment mix because time is running short. You won't have as many years to recover from the downs that sometimes come with a high-risk, high-reward savings portfolio.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F8-signs-youre-making-all-the-right-moves-for-retirement&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F8%2520Signs%2520Youre%2520Making%2520All%2520the%2520Right%2520Moves%2520for%2520Retirement.jpg&amp;description=8%20Signs%20Youre%20Making%20All%20the%20Right%20Moves%20for%20Retirement"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/8%20Signs%20Youre%20Making%20All%20the%20Right%20Moves%20for%20Retirement.jpg" alt="8 Signs You're Making All the Right Moves for Retirement" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/8-signs-youre-making-all-the-right-moves-for-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life">7 Easiest Ways to Catch Up on Retirement Savings Later in Life</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/half-of-americans-are-wrong-about-their-retirement-savings">Half of Americans Are Wrong About Their Retirement Savings</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-face-4-ugly-truths-about-retirement-planning">How to Face 4 Ugly Truths About Retirement Planning</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-millennials-can-do-right-now-for-an-early-retirement">8 Things Millennials Can Do Right Now for an Early Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/which-of-these-9-retirement-accounts-is-right-for-you">Which of These 9 Retirement Accounts Is Right for You?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) contributions debt family full retirement age IRA nest egg saving money social security benefits Tue, 05 Dec 2017 09:00:07 +0000 Dan Rafter 2066271 at http://www.wisebread.com 7 Roadblocks to Retirement (And How to Clear Them) http://www.wisebread.com/7-roadblocks-to-retirement-and-how-to-clear-them <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-roadblocks-to-retirement-and-how-to-clear-them" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/sticky_note_on_notice_board.jpg" alt="Sticky note on notice board" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>How often do you dream about retirement? It's nice to think about the day when you can stop answering to a boss, and instead spend your time relaxing, traveling, and enjoying life to the fullest. Well, if you want that dream to become a reality, you may need to make some significant life changes <em>now</em>. If you're guilty of the following things, you could end up working well past your planned retirement age. (See also: <a href="http://www.wisebread.com/how-much-should-you-have-saved-for-retirement-by-30-40-50?ref=seealso" target="_blank">How Much Should You Have Saved for Retirement by 30? 40? 50?</a>)</p> <h2>1. You simply aren't putting enough money away</h2> <p>Most people vastly underestimate the amount they need to stash away for their golden years. The problem comes from the fact that many financial planners will tell you to put between 10 and 15 percent of your income toward retirement. However, that assumes you started saving in your 20s.</p> <p>If you are now 40, and only started putting money away 10 years ago, you need a higher savings rate in order to make up for those missing years. In fact, you would have to put around 25 percent of your salary away each month and work until you're 70 in order to make up for the shortfall. And as always, compound interest is the real key to saving. By missing out on those years in your 20s, you will have significantly impacted your future nest egg. (See also: <a href="http://www.wisebread.com/how-to-start-saving-for-retirement-at-40?ref=seealso" target="_blank">How to Start Saving for Retirement at 40+</a>)</p> <h2>2. You aren't taking advantage of your employer's 401(k) match</h2> <p>Simply put, any kind of match that your employer gives you is free money, and it would be silly not to take advantage of every cent. The average match out there is 3 percent of your pay, although companies can vary greatly on what they offer. This means that if you only put in 2 percent of your salary, you are leaving 0.7 percent of your income on the table. It may not seem like a lot, but that can really add up over time.</p> <p>If your company offers you 50 percent on the dollar for up to 6 percent of your pay, you should be putting 6 percent away. If it's a dollar amount match, say $2,500 per year, make sure you put in at least that amount. (See also: <a href="http://www.wisebread.com/5-dumb-401k-mistakes-smart-people-make?ref=seealso" target="_blank">5 Dumb 401(k) Mistakes Smart People Make</a>)</p> <h2>3. Your plan is not aggressive enough</h2> <p>Most 401(k) plans have something called a &quot;target date&quot; that is used to figure out what your retirement portfolio will look like. If you have 30 years to go until retirement, you will almost certainly want at least a moderately aggressive portfolio. This will be comprised primarily of stocks, which offer higher gains, but are more volatile and can lose their value quickly. However, the stock market will always recover over time, and if you have that time to spare, this is the plan you should use.</p> <p>If you have less time to go until retirement, your portfolio will have way less stocks in it, opting instead for a larger percentage of bonds. These are much safer, but they don't have the ability to make as much money as stocks. If you came into the retirement savings habit late, you should talk to a professional about how to organize your portfolio. You simply may not have enough time to make money with a conservative plan, but could also risk losing money with a more aggressive one. (See also: <a href="http://www.wisebread.com/start-planning-now-for-when-your-target-date-fund-ends?ref=seealso" target="_blank">Start Planning Now for When Your Target-Date Fund Ends</a>)</p> <h2>4. You're spending too much of your disposable income</h2> <p>A coffee here. A magazine there. Eating out every week. These small expenditures really add up, and instead of saving the money you'll need to survive after you stop working, these frivolous buys are burning holes in your pocket.</p> <p>Yes, life's little luxuries are important for your morale and self-esteem from time to time, but get a handle on those expenses and budget accordingly. You may find that you're spending $40 a month just on coffee. That's $480 a year. Let's say you plan on retiring in 30 years, and you stop getting that morning coffee for one year. A good rate of return on retirement investments is about 8 percent. Thirty years down the road, that $480 will become almost $5,000. If you cut your daily coffee out entirely, it will add over $63,500 to your retirement fund in a 30 year period. Now think about it: Is that &quot;luxury&quot; really worth it? (See also: <a href="http://www.wisebread.com/7-effortless-ways-to-prevent-budget-busting-impulse-buys?ref=seealso" target="_blank">7 Effortless Ways to Prevent Budget-Busting Impulse Buys</a>)</p> <h2>5. Social Security benefits alone will not be enough</h2> <p>It seems unfair that we pay into the system all our working lives, and when it comes time to retire, we get very little back. But, that is simply the result of a population that is living longer, yet retiring at the same age of 65. There just isn't enough money in Social Security to totally support you unless you have almost everything completely bought and paid for by the time you retire, and even then, it will be tough going.</p> <p>Right now, benefits for retired workers average around $1,374 per month, or just over $16,400 annually. When you consider that the federal poverty line is currently $12,060 for a one-person household, that's a little too close for comfort.</p> <p>While it's possible to survive on that, barely, you have to ask yourself: Do you really want to spend the last 20+ years of your life scraping to make ends meet? (See also: <a href="http://www.wisebread.com/6-smart-ways-to-boost-your-social-security-payout-before-retirement?ref=seealso" target="_blank">6 Smart Ways to Boost Your Social Security Payout Before Retirement</a>)</p> <h2>6. You're using your home like a cash machine</h2> <p>It's so tempting to dig into the equity in our homes, especially when the housing market is strong and interest rates are so low. But, every time you refinance your home to take out money, and start another 30-year mortgage, you are seriously impacting the quality of your retirement.</p> <p>Ideally, by the time you retire, you'll want that home to be paid for; no mortgage left, only taxes and maintenance. But if you are 40 years old and just did a 30-year refinance to take out some cash, you've ensured you'll be paying that mortgage until you hit 70. Not only that, but every time you do a cash-out refi, you're spending money on fees.</p> <p>If you must refinance, consider doing a 10 or 15-year fixed rate term instead. Get that mortgage paid off quickly. You'll also pay thousands less in interest over the life of the loan. (See also: <a href="http://www.wisebread.com/3-times-a-refinance-is-the-wrong-move?ref=seealso" target="_blank">3 Times a Refinance Is the Wrong Move</a>)</p> <h2>7. You're not aiming to become a millionaire</h2> <p>When people start tucking away money for retirement, they don't really consider the lump sum they are going to need when they eventually stop working. And ask any average Joe if they will be a millionaire one day, and they will laugh at you and say something like, &quot;Yeah, right!&quot;</p> <p>But, everyone should be doing what they can to become a millionaire in retirement. While it may not be possible to hit that figure exactly, you should still aim as high as you can.</p> <p>It's commonly advised that by the time you hit retirement age, you should have <em>at least</em> 10 times your current salary in your retirement account. With the current median income hovering around the $60K mark, that means that you should have just over half a million dollars in your fund if you retire this year. If you're a higher earner, let's say you earn $120K a year, that figure should be over a million. (See also: <a href="http://www.wisebread.com/heres-how-far-1-million-will-actually-go-in-retirement?ref=seealso" target="_blank">Here's How Far $1 Million Will Actually Go in Retirement</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-roadblocks-to-retirement-and-how-to-clear-them&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Roadblocks%2520to%2520Retirement%2520%2528And%2520How%2520to%2520Clear%2520Them%2529.jpg&amp;description=7%20Roadblocks%20to%20Retirement%20(And%20How%20to%20Clear%20Them)"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/7%20Roadblocks%20to%20Retirement%20%28And%20How%20to%20Clear%20Them%29.jpg" alt="7 Roadblocks to Retirement (And How to Clear Them)" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> of <a href="http://www.wisebread.com/7-roadblocks-to-retirement-and-how-to-clear-them">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-easiest-ways-to-catch-up-on-retirement-savings-later-in-life">7 Easiest Ways to Catch Up on Retirement Savings Later in Life</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-longevity-is-changing-retirement-planning-and-what-to-do-about-it">5 Ways Longevity Is Changing Retirement Planning (And What to Do About It)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-signs-its-time-to-retire">8 Signs It&#039;s Time to Retire</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-to-protect-your-retirement-from-inflation">4 Ways to Protect Your Retirement From Inflation</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) benefits golden years homeownership nest egg poverty refinance saving money social security stocks Wed, 29 Nov 2017 10:00:06 +0000 Paul Michael 2062578 at http://www.wisebread.com