401k

Saving And Investing in 2021

April 15, 2021 By Joe Wallace Leave a Comment

Saving and investing in 2021 is challenging. The state of the U.S. economy in 2021? It’s complicated. There’s a labor market shortage in some sectors, and meanwhile, there is an increased demand for labor. According to some sources, we’re going to see some fits and start going back to anything close to “normal”. Employment for many is a tricky issue, and having a dependable cash flow is the key to saving and investing in the best of times, let alone now.

American Economy Contradictions?

We live in complicated times. There is, by some reports, a contradiction between the demand for labor and some 500 thousand people who filed for unemployment benefits who filed in ONE WEEK. That said, jobless claims have hit a 13-month low according to Bloomberg Global Financial News.

Are you one of the people out of work, facing a work stoppage? Saving and investing is a completely different situation when your income is reduced or stopped altogether. What can one do?

Saving, Investing, And Job Loss

It’s a complete no-brainer. When your monthly budget is hit by a work stoppage, or already being damaged by one, will you stop putting money into your investments and savings accounts? This is a temporary smart move when mitigating the damage to your business-as-usual financial situation.

But what you should NOT do is to panic, raid your 401K or savings, and take such last-resort measures too early.

But what about those options? There is a hierarchy of things you can do before you begin tapping into the funds you have worked so hard to save. Some of these are very obvious, but they do add up. Others are not so obvious. Some of these cost-cutting measures you might never consider otherwise. Before raiding your savings account or 401k.

Take These Steps

Cut your subscriptions
Reduce your indulgences (restaurant delivery, Amazon purchases, etc.)
Change your insurance deductibles to reflect your pandemic driving habits
Call your credit card companies to ask for modified monthly payments
Call your home loan lender to explore your options for modified or suspended payments
Explore your loan refinance options, but make sure you don’t add more financial liability by doing so. Ask the lender about streamline refinance options that were available and how to get into a lower monthly payment
Consider a small personal loan if you are in dire straits. DO NOT apply for a payday loan, pink slip loan, or another non-collateralized lending. These loans cost far too much and will actually create a much bigger financial burden. Go to your usual lender. Ask about a personal loan to help you weather the pandemic.

Use your savings account as a last resort. The reason I give this advice? In my own personal experience, best results come from reserving the cash in your savings account. Reserved for unanticipated emergency expenses down the road.

My car will break down at just the wrong moment, or I will have an emergency dental procedure or other issue that requires some immediate cash. If you don’t take these random issues into account when planning your finances, you are already on the losing side of the equation.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Check out these helpful tools to help you save more. For investing advice, visit The Motley Fool.

Try These 401(k)s To Be Ahead of the Retirement Game

April 14, 2021 By Kathryn Vercillo Leave a Comment

If you want to be ahead of the retirement game then you need to plan in advance. The earlier that you start, the better off your future self is likely to be. If you work for an employer (rather than for yourself) then you should definitely take advantage of 401(k) plans. Did you know that there are a lot of different investment options to choose from for those plans? In order to be ahead of the retirement game, you want to invest wisely.

What Is a 401(k)?

You probably already know this. Nevertheless, it doesn’t hurt to have a refresher. A 401(k) is an investment plan for retirement. Some features include:

You’re allowed to contribute a percentage of your salary up to a certain annual limit which varies based on a several factors.
The best plans are employer-matching plans. In other words, you contribute a percentage and your employer matches that contribution.
You get special tax benefits for the money in the plan.
Once the money is in the 401(k), you can’t withdraw it without penalty until you’ve reached a certain age. (Usually that age is about 60.)
While the money is in the 401(k), it’s used for investment. Typically, you get to choose from a variety of different mutual funds for investing your 401(k).

The Top 100 Mutual Funds for 401(k) Investing

At the end of 2020, BrightScope compiled a list for Kiplinger of the top 100 mutual funds for 401(k) investing. If you want to be ahead of the retirement game, then you should choose mutual funds off of this list. Ranked from 1 – 100, the list briefly tells you the fund’s name, symbol, type and expense ratio. Additionally, it gives you the breakdown of the fund’s annualized total return at the 1 year, 3 year, 5 year, and 10 year mark. This gives you some good information about why each fund was selected to be part of the Top 100.

Be Ahead of the Retirement Game with American Funds

Kiplinger dug deeper into the Top 100 list to create a review of 14 American Funds. American Funds is a firm that you’ve traditionally had to work with through an adviser for investing. They’re a huge firm, although you may not be familiar with them by name. Many of the mutual funds in 401(k) retirement plans are American Funds. In fact, there are 14 American Funds on the Top 100 list. Eight of these are stock funds and the other six are target-date series portfolios.

Kiplinger reviews all 14 American Funds. They reiterate the fund information that you can find in the Top 100 report. However, they also add a quick “best for” tagline that makes it easy to see which fund might be for you. For example, they say that AMCPX is best for “nervous stock investors looking for a stable ride.” In contrast, ANWPX is best for “investors in search of growth across the globe.” If you know what kind of investor you are, then you can easily pick which American Funds are best for your 401(k) investment.

Other Top 10 Mutual Funds for 401(k) Investing

Although there are 14 American Funds in the Top 100 list, only one of those makes the Top 10. American Funds Europacific Growth (AEPGX) is an EAFE fund type with a .84 expense ratio. The one-year annualized total return is 16.81. It’s ten-year annualized total return is 6.27. It ranks #3 on the Top 100 list.

There are three other companies that have mutual funds in the Top 10 on this list: Dodge & Cox Stock, Fidelity, and Vanguard.

Dodge & Cox Stock

Coming in right at number ten on the list, Dodge & Cox Stock (DODGX) is a Large-Value U.S. Equities with a .52 expense ratio. It’s one-year annualized total return is 1.2. It’s ten-year annualized total return is 10.94.

Fidelity

There are two Fidelity options that make the Top 10 list: Fidelity 500 Index and Fidelity Contrafund.

Fidelity 500 Index (FXAIX) is a large-blend fund with a .02 expense ratio. The one-year annualized total return is 16.03. There’s no ten-year annualized total return listed. The five-year annualized total return is 13.43. This fund ranks #2 on the Top 10 list.

Down at #5 is Fidelity Contrafund (FCNTX), which is a Large-Growth U.S. Equities fund that has a .85 expense ratio. The one-year annualized total return is 34.22. The ten-year annualized total return is 15.37.

Vanguard

If you’ve been counting, then you know that we’ve covered four of the top ten funds so far (two from fidelity, the Dodge & Cox Stock, and one from American Funds.) The other six are all from Vanguard. Therefore if you want to be ahead of the retirement game without investing too much effort into research, then you might want to choose Vanguard mutual funds for your 401(k) investing.

The six Top 10 Vanguard funds are:

Vanguard Institutional Index (VINIX), which is a large blend fund. This is the #1 choice on the Top 100 list compiled for Kiplinger.
Coming in at #4 is Vanguard Total Bond Market Index (VBTLX), which offers Short/Intermediate Government Bonds.
At #6, just after the Fidelity Contrafund, is Vanguard 500 Index. This is another Large Blend fund.
Next up is Vanguard PRIMECAP (VPMCX). This one is Large-Growth U.S. Equities.
Then at #8 is Vanguard Wellington (VWELX), which is a moderate allocation fund.
And finally there’s Vanguard Mid Cap Index (VIMAX). This one, as the name suggests, is Mid Cap U.S. Equities.

You can check the Top 100 list for the details about the annualized total returns and expense ratios for each of these six Vanguard mutual funds. You can also check the list for the other 90 options in the Top 100. After all, you might find something lower on the list that feels best to you depending on your investment preferences and 401(k) limitations.

Choosing Your Mutual Funds for Retirement

As you can see, you have a range of options. You can choose mutual funds from several different big firms. Moreover, you can choose different types of funds including aggressive, conservative, and moderate funds. If you understand expense ratios and annualized total returns, then you can use this additional information to assist you in making your decision. On the other hand, if you want to make the best choice with the least research, then the additional information about each of the 14 American Funds choices could help you quickly figure out your best option.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Check out these helpful tools to help you save more. For investing advice, visit The Motley Fool.

What Are The Pros and Cons of a Early 401(k) Withdrawal?

April 22, 2020 By Tamila McDonald Leave a Comment

Every 401(k) plan is supposed to serve a specific purpose. It’s a retirement account that can give you a source of income when you leave the workforce. As a result, a 401(k) isn’t technically designed with early withdrawals in mind. However, that doesn’t mean you can’t pull some of the money. If you are wondering whether that’s a smart move, here are the pros and cons of an early 401(k) withdrawal.

Changes in Law During the Coronavirus to Help People Nearing Retirement

April 6, 2020 By Amanda Blankenship Leave a Comment

The outbreak of COVID-19 across the globe has impacted the stock market, employment rates, and people’s everyday lives in a huge way. Millions of Americans watched their nest eggs disappear. For those nearing retirement, it is enough to send you into a panic. Thankfully, government officials are proposing changes in law during the coronavirus outbreak to help.

Changes in Law During the Coronavirus to Help People

As the virus swept across the world, the stock market collapsed. Because many retirement accounts rely on investments, people watched their savings for their golden years dwindle down to nothing.

Additionally, individuals who have been laid off during this time no longer have an income to contribute to their retirement. There is good news though. Officials are putting some changes in law into place to help.

1. RMDs Will Be Put on Hold

Required minimum distribution (RMD) refers to the minimum amount an investor must withdraw from their account after reaching age 72. This is common with many 401(k) and IRA plans. If you do not take the minimum, a fine will be placed on your account. However, during the coronavirus outbreak, the government has put a hold on minimum required withdrawals.

This will be the case for the entire year. Ed Slott, a certified public accountant, said: “Now, clients can sit out a year and avoid the tax bill on their 2020 RMDs if they wish.”

2. Penalties Are Being Eased

Individuals with IRAs and 401(k) accounts that have been financially impacted by the virus are also able to withdraw up to $100,000 from their retirement account without penalty. Typically if an accountholder withdraws early, they are required to pay a 10% early withdrawal fee.

It is important to note that this only applies to people who have been diagnosed with the coronavirus, been laid off due to the virus, had reduced work hours, or have otherwise been impacted.

3. You Can Get Larger 401(K) Loans

As mentioned in the point above, people with 401(k) accounts are able to take $100,000 out without a penalty. This is more than the typical $50,000 limit for 401(k) loans.

Other retirement plans will only allow you to take out up to a percentage of your balance. These limits will also be lifted for the rest of 2020.

Other Changes in Law and Policy

Policymakers are also pushing to make other changes to help Americans get through this time financially. For instance, Navient, a major federal student loan lender, has waived all interest and allowed borrowers to be granted forbearance until September. This means no payments will be required during this time.

On top of that, many mortgage companies and other businesses are offering payment relief at this time to assist people through the coronavirus outbreak. If you need assistance or are unable to make a payment at this time, the best thing to do is give the company a call and ask what your options are.

Readers, what do you think about the changes in law during the coronavirus outbreak? Are they helping you in any way?

Checkout The Taxation of These 4 Retirement Vehicles

March 19, 2020 By Tamila McDonald Leave a Comment

Many people want to make sure that they are financially secure during their golden years. As a result, they stash money away in various retirement savings vehicles. Thus, allowing them to have a nest egg for when they leave the workforce. However, many savers accidentally overlook a critical part of the equation: taxation of retirement vehicles. This can lead to trouble. Particularly if you aren’t prepared for what you’ll owe.

The Taxation of Retirement Vehicles

Taxation levels for retirement accounts vary. Not all sources of retirement income are subject to the same rules. It isn’t uncommon for that to lead to some confusion. Causing some to make unwise choices as they try to plan for retirement.

If you want to plan for retirement successfully. You should understand how various post-retirement income sources can be taxed is critical. Otherwise, you may find yourself with an unexpected federal tax bill at the end of the year that you’ll struggle to pay. Alternatively, you could overestimate your tax burden. This could cause you to make withdrawals or spend differently than you otherwise would. If you want to make sure that you are ready to handle retirement. Here’s a look at how four different retirement vehicles are typically taxed.

1. Social Security

Before 1983, Social Security benefits were universally tax-free. However, that isn’t the case today. While many who receive Social Security income don’t pay taxes on it, others do. If the person’s “provisional income” is high enough. They could owe federal taxes on as much as 85 percent of their Social Security benefits.

According to the IRS, a beneficiary’s provisional income has to be below $25,000 ($32,000 for married couples who file jointly) for their Social Security to go fully untaxed. From $25,000 to $34,000 (or $32,000 to $40,000 for married filing jointly), up to 50 percent of the Social Security benefit is taxable. Once you cross $34,000 ($44,000 for married filing jointly), up to 85 percent is subject to taxation.

2. 401(k)s and Traditional IRAs

Both 401(k) plans and traditional IRAs are tax-deferred. Contributions are potentially deductible the year they are made. Therefore, allowing a person to lower their taxable income by increasing their retirement savings.

However, once it comes time to make withdrawals, it’s tax time. Every withdrawal is taxed based on the person’s ordinary tax rate. This happens regardless of whether the money is from your original contributions, employer-matching funds, or gains.

3. Pensions

In many cases, a pension is funded with pre-tax income, so you don’t pay taxes on the contributions. However, like a 401(k) or traditional IRA. You’ll have to pay taxes once you start making withdrawals. In most cases, pensions are taxed by the federal government at your ordinary tax rate.

The only time that may not occur is if there are after-tax pension contributions. When that happens, the pension withdrawals that connect to that money can be tax-free. However, relatively speaking, this is a rare scenario.

4. Roth IRAs

When it comes to long-term tax advantages, Roth IRAs offer a big benefit. The contributions themselves aren’t deductible when they are made, so taxes are paid when during the year that money is earned. However, when it’s time to make qualifying withdrawals during retirement, that cash is probably going to be tax-free, including the value of your account gains.

There are some instances where a person might have to pay taxes on Roth IRA gains withdrawals. First, if you make a withdrawal of any gains before you are 59 ½ years old, you’ll be subject to taxation and early-withdrawal penalties. Second, if your account isn’t at least five years old, you aren’t eligible for tax-free withdrawals until you hit the five-year mark.

Otherwise, once you hit 59 ½ and the account is old enough, you don’t have to worry about taxes on that money. It’s that simple.

Did you consider taxation of retirement vehicles when planning to retire? Why or why not? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Retirement Contribution Limits Are Increasing in 2020

November 12, 2019 By Amanda Blankenship Leave a Comment

The Internal Revenue Service (IRS) released updates for 2020 earlier this week. Amongst those updates, the agency announced changes to the retirement contribution limits that will take effect during the 2020 tax year.

Changes to the Retirement Contribution Limits

And, for once, the IRS is giving people a break. Starting in 2020, the IRS has increased the retirement plan contribution limit to $19,500 (up from $19,000). This includes 401(k), 403(b), and 457 plans. Catch up contributions will also be increased from $6,000 to $6,500.

That’s just the basics though. If you’d like to learn more about the ins-and-outs of the changes recently announced, head over to the IRS website. You can also read a quick summary of the changes taking effect in 2020 in the IRS news bulletin.

The best part of the IRS announcing the increase in limits is contributing more to your retirement accounts will help you build wealth. Not to mention, retirement contributions are not typically taxed. Your money will be put to work in the stock market while you effortlessly get ready to retire.

Readers, what do you think about the latest changes to the retirement contribution limits?