Are you even sure what you’re investing in? How is the performance? What about expenses? If you’re like most people, the answer to these questions is “I’m not sure.”
Due to the complexity of 401k plans, not being sure is entirely understandable. While there are some incredible savings and tax benefits, there often isn’t the education that needs to go along with 401k planning. Additionally, it’s unfortunate that people are missing out on incredible opportunities by not investing in their 401k.
If you’re not self-taught or your coworker doesn’t show you the ropes with how to properly invest or, more importantly, how much to invest, it’s basically left up to you, which then becomes a guessing game. Moreover, often even your employer isn’t able to help out much.
Your retirement depends on you making the right decisions on how much and where to invest. A 401k is one of the biggest nest eggs you will ever acquire, so it is paramount that it's treated diligently and with care.
What is a 401k and what are the benefits?
A 401k plan is a retirement savings plan that is sponsored by an employer. It allows employees to save and invest a piece of their paycheck before taxes are taken out, and taxes will not be applied until the money is withdrawn from the account (there are a few nuances between the traditional 401k and Roth 401k that we won't dig into here).
Now, let's take a look at some of the benefits.
1. Employer Matching - If your employer matches any portion of your 401k contributions, it is virtually free money for investing. With that in mind, your 401k should be strategically implemented by a financial advisor to ensure that you are always participating in the best available investment strategies.
2. Tax Breaks - Two tax breaks come with your 401k contributions, and your money grows tax-deferred. If you were to have that money invested outside a 401k, you would have to pay taxes on your interest at the end of the year. A 401k lets that money grow until you withdraw it, which in turn allows your money to increase much more quickly.
3. Compound Interest - This is interest on top of interest on top of interest...you get the point. Long term, this is one of the most powerful factors in the universe and allows for significant financial gains.
4. Contributions - As of 2018, the maximum contribution is $18,500 and, if you're over 50, you can contribute an additional $6,000. The maximum is normally increased around $500 every year.
5. Diversified Portfolio - A 401k offers a cost-efficient way to create a professional and diversified portfolio.
6. Efficient Movement - You can roll over the 401k tax-free to an IRA or another 401k, which keeps your savings tax-deferred.
7. It's not Social Security - To put it bluntly, Social Security is not enough for retirement. It is unreasonable and unrealistic to expect that Social Security will provide enough money for a good standard of living by the time Generation X and Millennials retire. With this in mind, a 401k or workplace retirement program reviewed and optimized by a professional financial advisor offers peace of mind that you are planning efficiently for retirement.
With the above in mind, letting your 401k operate without a plan in place can result in an incredible amount of value lost in both the short and long term. Let the Certified Financial Planners® at NextGen Wealth help design a plan that's right for you.
NextGen Wealth's 401k Review Service
The Certified Financial Planners® at NextGen Wealth have designed this service for individuals who are already actively investing in an employer-sponsored retirement plan but have questions about whether they are doing the right thing.
Who does the 401k review service benefit?
1. Individuals who are already participating in a 401k or workplace retirement plan.
2. Individuals who are inexperienced in retirement investing.
3. Individuals who want to learn more about financial investing.
What Does This 401k Review Service Provide?
A wonderful question and one that we will address right now.
The first to better understand your current situation and determine if it’s a right fit, and the second to review the 401k Plan we’ve created and most importantly, implement it
Professional research to review all of the investment options available within your 401k
Your own specific investment recommendations
Retirement Road Map
A retirement road map to show if you’re investing enough or how much you should be saving
Personal access to our state-of-the-art Financial Dashboard
Personalized Financial Plan
Access to create your own free Personalized Financial Plan (I highly recommend taking advantage of this!)
So How Much Does This Cost?
The cost for our 401k Review Service is $295. This includes everything mentioned above for one 401k or any employer-sponsored retirement plan, as well as personal access to a professional financial planner throughout the process. Contact us if you are interested in our 401k Review Service or have any questions regarding the process.
Common 401k and Workplace Retirement Plan Mistakes
It is common to see mistakes when we review 401k’s and workplace retirement plans. The world of finance and investing is massively complicated, and in part, it is designed that way. A marine biologist is not expected to know the ins and outs of car engine repair, yet a stigma of individual retirement knowledge is almost expected for hard-working families and individuals.
Our financial advisors often see these common mistakes:
- Individuals are blindly picking funds.
- Individuals are not strategically diversifying their investments.
- Individuals assuming a 5% contribution will lead to a comfortable retirement
- Individuals Investing in expensive mutual funds when better or lesser costly alternatives might be available
At NextGen Wealth, our financial advisors understand that 401k and workplace retirement planning is immensely complicated. This is why we work diligently to adequately explain and educate our customers to help them receive the highest return on investment (ROI). If you are interested in maximizing your 401k investments, contact the professional financial planners at NextGen Wealth today.
401k And Workplace Retirement FAQ
We see many questions regarding workplace retirement plans and how it relates to financial independence. Sometimes the answer to simple questions can offer immense clarity to the process. With that in mind, here are some common questions we have seen in our years working as financial advisors.
1. We have 403(b) and 457 plans; can you still help?
Yes. We can help with any type of retirement plan.
2. How much can an employee and employer contribute to a 401k plan?
As of 2018, the employee maximum is $18,500. If you are over 50, you can add an additional $6,000. Total maximum contributions, including the employer, is $55,000 for 2018. These maximums typically increase on an annual basis.
3. I may have contributed too much to the 401k plan, can you help?
Yes. Typically, your employer and the 401k service provider will cut you a check with taxes taken out.
4. Is a 401k only available through an employer?
5. What is a plan fiduciary?
A plan fiduciary is who takes care of the plan to ensure your interests, the employee, is placed above all other interests. It is imperative that your plan has a fiduciary.
6. Am I a plan fiduciary by sponsoring a 401k plan?
No. Your employer is either the fiduciary or they have hired it out to someone else.
7. What does a qualified 401k plan mean?
A qualified plan simply means you're contributions are tax-deductible.
8. What does a defined contribution plan mean?
A defined contribution plan is a 401k because you are making defined contributions every paycheck. The opposite of this is a defined benefit plan such as a pension where the end benefit amounts are defined by the employer.
9. Are employee contribution limits the same every year?
No. They typically increase every year.
10. Can I use my money before I retire?
There are hardship withdraw provisions and your employer may allow you to borrow against your 401k.
11. How much should I contribute?
The minimum you should contribute is the amount that will get you the maximum match by your employer. However, a good rule of thumb is to get to 10-15% of your salary. If you are unable to do this, then simply start with what you can afford and increase it by 1-2% every year.
12. Can I borrow from my 401k?
Most employers do allow you to borrow from your 401k.
13. Can I contribute to a 401k and a Roth or regular IRA?
Yes. You can contribute the maximum amounts to both a 401k and a Roth IRA or Traditional IRA.
14. Can you manage my money or other investments?
Yes. That is typically the relationship we have with our clients.