The Cost of the 4 Big 401k Mistakes

The Cost of The 4 Big 401K Mistakes

In a previous post, we talked about avoiding The 4 big mistakes in your 401(k).  This webinar will try to illustrate how much those errors could cost you over time.  

Webinar: The Cost of The Big 401K Mistakes

Important Information about These Illustrations

All of these examples are not actual investments.  Any rates of return shown are not guaranteed.  Past performance does not predict future results.  Your real life results could be better or worse than shown.  

Mistake 1: Failing to Maximize Your Employer Match

Cost of 4 big 401k mistakes

Mistake 2: Not Saving Enough

Mistake 3: Not Pursuing Growth

Mistake 4: Withdrawing Money From Your 401K

These Mistakes Can Cost You Thousands of Dollars

Given enough time, making these mistakes can cost you thousands of dollars.  Unfortunately, we still see people making these mistakes over and over.  Are you taking the right steps? If you aren’t sure, talk to a trusted advisor.  They can point you in the right direction and show you how to make improvements.  

If you happen to be looking for an advisor, we would love the opportunity to schedule a call. Just click the button to contact us.

 

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Avoid These 4 Big 401k Mistakes in 2020

Avoid These 4 Big 401k Mistakes in 2020

One of the biggest factors in your long-term financial success is avoiding the big mistakes. Unfortunately, we see many of the same common errors that—over a person’s career—can cost thousands if not hundreds of thousands of dollars. Try to avoid these 4 big mistakes in your 401k in 2020

Watch: Avoid These 4 Big 401k Mistakes in 2020

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Mistake 1: Not Maximizing Your Match

Many employers will match your 401k contribution.  If you put money in your account, your employer will too.  We typically see that amount range between 3% and 6% of your pay. 

Unfortunately, we see people who won’t maximize their employer’s match.  Not only are you not receiving all the pay you should, the long-term impact on your nest egg can be huge.    

Mistake 2: Not Saving Enough

Most financial planners suggest you should try to save between 10-15% of your pay for your future. In fact, the amount you save is the biggest factor in your long-term success.

Unfortunately, we see people who limit their savings level well below that. Often times, people will cap their savings in their 401(k) at the point where they maximize the employer match. For most of us, this probably won’t be enough to have the type of retirement we want.

Mistake 3: Not Pursuing Growth

A Nobel Prize winning economist once did a study that showed financial losses feel twice as bad as financial gains feel good. As a result, many people get more conservative with their savings than they should. This means they don’t put enough money in stocks.

Not being aggressive enough can lower your returns over time.  This actually adds more risk to your long-term plans.

Mistake 4: Withdrawing Money From Your 401k

Whether you change jobs or take an in-service distribution, withdrawing money from your 401k gets very expensive.

Most times we see this when people change jobs. Instead of rolling their balance to an IRA or their new employer’s plan, they withdraw the money. This results in taxes, early withdrawal penalties, and the loss of future compounded growth.

If your plan allows for in-service distributions, the costs will be similar.  Most of those distributions will be taxed and penalized.  The penalty applies when you are under age 59 ½.

How Much Will These Mistakes Cost?

How much will these mistakes cost you?  The numbers can be shocking.  The longer you have until retirement, the bigger the cost.  We have a special webinar where we illustrate the potential cost of these 4 mistakes. Click on the button to watch.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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3 Unpleasant Surprises That Impact Your Retirement

3 Unpleasant Surprises That Impact Your Retirement

Today, we are talking about 3 unpleasant surprises that could impact your retirement. 

  • Higher Medicare Premiums
  • Unplanned expenses
  • Higher income taxes

Click to watch or listen, or keep reading below.

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Surprise 1:  Higher Medicare Premiums

Let me introduce IRMAA. She was originally introduced in 2003. Her role expanded under the Affordable Care Act in 2011. IRMAA isn’t actually a person, it is an acronym. It stands for “Income-Related Monthly Adjustment Amount.”

This provision looks at your income from last year. If it exceeds certain thresholds, your premiums for both Medicare part B and Part D will be higher. The IRMAA surcharges range from $58 to almost $350 per month per person.

Surprise 2: Unplanned Expenses

Hopefully, you have a good understanding of your cash flow. But, we often find things don’t always as planned. Your air conditioner quits. You need a new roof. Healthcare expenses are more than you expect. Your kids need help.

Unplanned expenses happen. And, if the surprise is big enough, it can force you to alter your budget.  

3 unpleasant surprises - woman

Surprise 3:  Higher Taxes

When people retire, they expect their income to go down. And that should mean a smaller tax bill. But that decrease maybe wasn’t as much as you were expecting.

Here is the biggest reason this happens. Many people don’t realize part of their Social Security benefits will be taxable.

The thresholds for this tax trigger aren’t that high either. Couples with a modified adjusted gross income of more than $44,000 could see as much as 85% of their Social Security benefits taxed.

What Can Trigger These Events?

There are a few common events which could trigger these surprises.

Death of a Spouse

You are no longer using the joint tables and the income thresholds are much lower.

Required Minimum Distributions

For some, this might be an extra boost of income. But the impact could be bigger than you might expect.

Converting IRA’s to Roth IRA’s—

This can be a good estate planning strategy for you and your family. It might be even better with the new law eliminating Stretch IRA’s. But the impact could go beyond a one-time tax bill. Be sure to look at the potential impact to your medicare premiums and the taxation of your Social Security benefits.

Talk to a Trusted Advisor

Life is full of surprises and things rarely go exactly as we plan. You may not be able to avoid these traps, but you can be better prepared to deal with them. If you have any questions, be sure to speak to a trusted advisor.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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The SECURE Act for the Rest of Us

The SECURE Act for The Rest of Us

For those of us who don’t have to worry about required minimum distributions for a few decades, there are some new things in the SECURE Act for the rest of us. Those include:

  • better access to retirement plans,
  • new provisions for penalty-free withdrawals from your Retirement Accounts
  • and a tweak to 529 plans

We’ll go into some of those things on this week’s episode of Monday Morning Money.

Watch: The SECURE Act for The Rest of Us

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Webinar: Death of The Stretch IRA

The Stretch IRA provisions for non-spouse IRA beneficiaries has been eliminated by the SECURE Act.  We have created a short webinar (7 minutes) that explains the changes in more detail.  Click on the button to watch

   

 

Improved access to retirement plans

The main purpose of the SECURE Act is to improve access to retirement plans for more people. It is an acronym for Setting Every Community Up for Retirement Enhancement.

The primary focus is to make it easier and cost-effective for companies to set up a plan.  So a lot of those provisions don’t really apply to most of us.  

One item which could affect you though is expanded eligibility for part time workers.   The new law makes it easier for long-term, part-time employees to be eligible for a retirement plan. Under the new rules, if you work at least 500 hours in 3 consecutive years, you will now be eligible to participate in your employer’s plan.  This is far less restrictive than in past years.

More penalty free access to funds

You can now take penalty-free withdrawals from an IRA or retirement plan for birthing or adoption costs. If you are having a baby or adopting a child, you will be able to withdraw up to $5,000 to help cover those expenses. For a couple, this means they can withdraw up to $10,000 total–$5,000 each. You will still have to pay income taxes, but you will not face the 10% early withdrawal penalty.

SECURE Act for Us
SECURE Act Student Loans

A new tax advantaged way to pay student loans.

Another provision of the new law allows you to withdraw $10,000 from a 529 college savings plan to pay on student loans. Before this act, student loans were not considered a qualified education expense. That meant you had to pay taxes and penalties if you withdrew money from a 529 plan to pay towards those debts. Now you can access that money for that purpose.

Lifetime income provisions.

Administratively speaking, plan sponsors now have to make annual “lifetime income disclosure statements.” This tells you how much income you could get each month if you bought an immediate annuity. Those will simply be estimates.

There are also some provisions for plan sponsors to make it easier to offer annuities within a plan. This may or may not be a good thing. Annuities are one of the most abused financial products out there, therefore you should be very careful about using one.

Consult a trusted Advisor

Any time we see major changes like this, it is a good idea to review your plans. Talk to a trusted advisor to see if any of these new provisions will impact you.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Big Changes to Required Minimum Distributions

Big Changes To Required Minimum Distributions

A new law that passed at the end of 2019 will bring big changes to our retirement savings. This includes changes to required minimum distributions. We’ll talk about what’s different right after this.

Watch: Big Changes to Required Minimum Distributions

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After a major delay, the SECURE Act finally passed through the Senate. It was signed into law and will take effect in 2020. There are some major changes that will impact those trying to save for retirement. And likewise, there are some big changes that impact those already retired. Today we will focus on the changes impacting current retirees.

Changes to Required Minimum Distributions

The biggest alteration affects required minimum distributions. RMD’s have been a provision of the tax code for decades. It was a way to force people to start taking money from their IRA’s and retirement plans and pay taxes.

Under the old rules, you had to start taking money out of your qualified retirement accounts the year you reached age 70 1/2.

The SECURE act eliminated the half year and delayed the required beginning date. If you haven’t already started your RMD’s, meaning you aren’t already 70 1/2, you can now wait until the year you reach age 72.

But, if you’ve already started, you have to continue. You can’t suspend them.

The law will also change the table used to calculate the required amount. But those changes won’t take effect until 2021.

Death of the Stretch IRA

The second major provision is the elimination of the Stretch IRA. This impacts non-spouse beneficiaries of IRA accounts. Under the old rules, a non-spouse beneficiary could distribute their inherited balance over a long period of time.

Now the full account must be completely distributed in 10 years. There are a few exceptions, but this is significant.

For example, under the old rules, a 50 year-old could distribute an inherited IRA over 34 years. now they have to liquidate the account 3 times as fast. Here is the problem.  This also significantly accelerates the payment of income taxes on those balances.

Please keep in mind, this only applies to those accounts who belonged to someone who died after 2019. If you already have an inherited IRA account, your schedule will remain exactly the same.

Webinar: Death of The Stretch IRA

The Stretch IRA provisions for non-spouse IRA beneficiaries has been eliminated.  We have created a short webinar (7 minutes) that explains the changes in more detail.  

No Restrictions on IRA Contributions

If you are over age 70 1/2 and still working, you can now contribute to your IRA. The caveat is you have to have earned income to make that contribution. In years past, once you reached your required beginning date, you were no longer allowed to put money in a traditional IRA.

New Laws Mean It’s Time to Review Your Plans

New laws mean you should do a quick review of your overall plans.  These changes could impact you and what you and your family want to accomplish over the long-term.  So be sure to discuss these new provisions and how they might impact you.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos And Posts