401k Savings

Are You Maximizing Your Employee Benefits?

For many of you, your salary and bonus are likely just a part of the total compensation you receive from your employer. Why not give yourself a raise by learning about and taking advantage of all your company benefits? This article will help you ensure that you’re making the most of the benefits your employer offers.

Retirement Plans

Your company’s 401(k) plan can play an important role in your future financial security. If your employer matches contributions, you should be contributing at least enough to get the maximum match. If you plan to max out your contributions, make sure you don’t do so too early in the year and potentially miss out on the matching.

For those of you that are considered highly compensated, your employer may also provide a nonqualified deferred compensation plan with matching to cover wages above the qualified limit. It is important to find out how the plans interact and how you can maximize your benefit.

Stock Options and RSUs

Some companies still grant employee stock options as a form of compensation. These can add significant value to your long-term financial success, but they can be complicated and have additional risk that needs to be considered.

 
  • Risk of termination before vesting

  • Risk of market volatility in the stock price

  • Risk of asset concentration

 

There are also several tax considerations that need to be evaluated when working with stock options and RSUs. I recommend working with a financial advisor to determine what works best for you.

Health Insurance

Many companies subsidize health insurance coverage for their employees, and some offer a choice of different plans.

 
  • HMOs generally have lower premiums and lower costs to access health care but limit which providers you can see.

  • PPOs allow you to choose any physician, but they charge higher fees if you decide to see an out-of-network provider.

 

Before selecting a plan, I recommend confirming that your doctor is a preferred provider.

If one of your health insurance choices is a high-deductible health plan, you may have the option to set aside money in a health savings account (HSA) to pay for qualified health care expenses on a pretax basis. HSA contributions remain in your account until you use them, distributions for qualified medical expenses are tax-free, and the account is portable. Some companies even contribute to employees’ HSA accounts.

Flexible Spending Account

Your company may offer flexible spending accounts (FSAs) for a variety of expenses, including health care, dependent care, transportation, and parking. If you have any of these qualified expenses, you may benefit by having pretax money taken out of your paycheck to fund them. For example, if it costs you $100 per month to park at work, you can set aside that amount in an FSA to cover the expense. By contrast, you’d have to earn $157.36 to pay for this expense after taxes, assuming a total tax rate of 36.45 percent.

Life and Disability Insurance

Some employers provide life insurance coverage equal to a multiple of your salary. In many cases you may be able to purchase group supplemental life insurance coverage through payroll deductions. While this can be convenient, the coverage amounts and features may be limited, so I recommend shopping the market to ensure that you’re getting coverage at the best price.

Your employer may also pay for long-term disability insurance. LTD payments from an employer-paid policy are taxable to you; if you pay the premiums, you will receive LTD payments tax-free. If your company gives you the option of paying for your own LTD coverage, you should weigh the cost of covering the premiums yourself versus the benefit of receiving tax-free payments.

Additional Benefits

Some companies offer employee discounts on everything from wireless plans and vision care to movie tickets, hotels, and car rentals. Your employer may also offer reimbursement for certain education expenses.

I see far too often employees missing out on key employer benefits. Working with an adviser and doing a little research could be well worth your while! Contact Us today so we can help you maximize your benefits.

Should You Consolidate Your Retirement Accounts?

If you’re like many of the young professionals I work with every day, myself included, you’ve probably had a few different jobs at this point in your career. In many cases you may have started saving for retirement using the available employer plan or even an individual retirement account (IRA). As you change jobs, it may make sense to consolidate all of your savings into one account to achieve a coordinated investment plan.

Why consolidate?

Consolidating your retirement accounts offers several potential benefits:

 

Less administrative hassle. You’ll receive just one account statement, making it easier to keep track of your funds. Consolidating your accounts also simplifies required minimum distribution calculations and tracking. You’d be surprised how often we discover clients have additional accounts they forgot they even had.

No overlap. If you have multiple accounts, that doesn’t necessarily mean that your investments are properly diversified. In fact, your money may be invested in similar asset classes with significant overlap. Consolidating your retirement accounts gives you a clearer view of your asset allocation picture, as well as any adjustments you may need to make.

Easier rebalancing. Any retirement savings account requires periodic rebalancing to keep it in line with your objectives. By consolidating your accounts, you’re more likely to achieve a cohesive investment strategy.

Proper Beneficiary Management. I can’t tell you how often we see clients with multiple IRAs and 401k plans, all with different beneficiary designations. Even more shocking is how often that information is incorrect or outdated. Consolidation makes it much easier to keep these up to date and accurate.

 

How to consolidate

Moving a retirement account to a new employer plan or to an IRA can be done via direct rollover or trustee-to-trustee transfer.

With a trustee-to-trustee transfer, the funds are sent directly from one plan to another. The plan administrator will make the check payable to your new IRA custodian (never to you directly). That is why this type of transfer is often referred to as a direct rollover. Unlike regular rollovers, there is no tax withholding requirement for this type of transaction. When requesting a transfer from your employer’s plan or another retirement account, be sure to use the right terms to avoid unwanted tax consequences. If you’re unsure, contact your financial planner for assistance.

Should you move your employer plan to an IRA?

A former employer will generally let you keep your money in its retirement plan for as long as you want. You may also choose to move those savings to an IRA. Before making the switch to an IRA, however, it’s wise to consider the following factors:

 

Investment choices. An employer’s 401(k) plan may be lower cost, but your choice of investments will be limited, as 401(k) plan sponsors tend to simplify the investment decision for employees by reducing the number of options. With an IRA, you have a potentially unlimited choice of investments, including individual stocks, mutual funds, and alternative investments rarely offered by employer plans.

Control over distributions. Another benefit of IRAs is that you have more control over when your retirement savings are paid to you. Distribution requirements vary among IRA providers, so be sure to understand the choices available to you and your beneficiaries.

Creditor protection. If creditor protection is a concern, both employer plans and IRAs safeguard your retirement savings from creditors to a certain extent. Employer plans generally offer better protection than IRAs do, however. The level of protection an IRA offers depends on your state laws.

Early withdrawal. One reason to keep funds in an employer account, at least temporarily, is that you may need to tap into your retirement savings before you reach age 59½. There is no tax penalty for taking a distribution from your former employer’s plan after you reach age 55. Although you’ll still pay income taxes, you will avoid the 10-percent penalty for early withdrawal, which would be assessed if you withdrew funds from an IRA before age 59½. Exceptions to the penalty on early IRA distributions include:

 
 
  • Unreimbursed medical expenses that amount to more than 10 percent of your adjusted gross income
  • Disability
  • Distributions from a beneficiary IRA upon the death of the original IRA owner
  • Qualified higher-education expenses
  • Qualified first-time home purchase
  • Distributions under a “substantially equal payment” plan, per Section 72(t) of the Internal Revenue Code
 

A Retirement Strategy That Works For You

As you can see there are some great benefits to consolidating your retirement accounts, however, there are many factors that should be considered. I recommend working with a financial planner to determine what is right for you. Please feel free to reach out to me if you have questions. I'd rather develop the best strategy for you and help you implement it properly, than you potentially creating issues trying to do it yourself.

Ramping Up Your Retirement Savings

No matter where you are in your life, saving for retirement is likely one of your most important financial goals. But, even if you have professional guidance and a clear strategy for your desired future, you could still be missing some straightforward ways to maximize your savings.

The reality is: Most people do not save enough money for retirement. In fact, the National Institute on Retirement Security estimates that Americans have at least a $6.8 trillion gap between the amount they have saved and the amount they need.  Alarmingly, they found the gap could be as high as $14 trillion.

While we are always here to help you address major life events and financial changes, we also wanted to share some simple ways to increase your savings now.

 

Reevaluate Small Budget Items

Changing major aspects of your budget — such as your housing or healthcare costs — can significantly impact your savings potential, but may also take time to implement. To start saving more today, look at the little places where you spend money and see where you can trim your expenses. For example, do you eat lunch out every day or buy a specialty coffee most mornings? Do you have entertainment packages you aren’t really using, such as cable TV or online memberships? Saving a few dollars each day can add up to thousands of dollars over a year, which is money you can put toward your retirement.

Remember to Imagine the Retirement You Desire

Effective retirement strategies often focus on building a clear vision of how you would like to spend life after your career. As you go about your daily life and make financial decisions, how often do you reflect on this vision? Rather than only thinking about your retirement goals during financial reviews or major choices, start incorporating this picture into your regular decision-making process. For example, each time you make a purchase, ask yourself if you’d rather have this item or put the money toward the retirement you desire. You may discover that by grounding each purchase in this way, you spend less on items you don’t really care about — and have more money to put toward the retirement you’ve dreamed about. 

Capture Your Employer’s Full 401(k) Match

U.S. employees lose $24 billion a year by not saving enough in their 401(k) to claim their company’s full matching. If your employer matches your retirement contributions, make sure you contribute at least enough to claim what is essentially free money. And if you are age 50 or older, remember that you can contribute an extra $6,000 each year to your 401(k) on top of the $18,000 annual limit.

Invest Additional Funds

When you receive a raise, bonus, tax refund, inheritance, or other financial windfall, spending the funds can be very tempting. Instead, if you choose to invest this money into your retirement, you can boost your savings without affecting your current bottom line. In addition, if you put a bonus into a 401(k) or IRA, you may also enjoy tax benefits and not owe anything until you withdraw the funds.

 

Saving for retirement is a big responsibility, but it does not have to be a burden. With these simple changes — and support from professionals who care about your future — you can focus on creating a lifestyle that matches your dreams. We are here to help you at each step, so please let us know if you have any questions about these tips or the bigger strategies guiding your retirement.