Leveling Up Retirement Savings With 401ks

Yamilet Suarez
Assistant Vice President/Wealth Advisor

35% of private sector workers over the age of 22 don’t work for a company that offers a plan.*

Yamilet Suarez, Assistant Vice President/Wealth AdvisorWhether you’re excited about your first day of full-time employment or starting to count the years to your last, your retirement savings plan should be on your mind. It’s the key to ensuring whatever comes your way later in life, you’ll have the money available to pay for it, even though you’re no longer working.

Starting Early Offers A Big Advantage

Saving early and often can you speed along the road to financial independence thanks to compounding returns over time. Even if you are only saving the equivalent of your monthly latte budget early on, over time you’ll be able to build a nice nest egg without feeling like you scrimped to save for it. Delaying and trying to get your savings back on track when you are older, takes much larger deposits since you have less time to save making it a much rougher road.

401Ks Supercharge Savings

While saving on your own gets results, saving money using a retirement account can significantly amplify any deposits you make. Retirement contribution plans, like the 401k plans offered by many companies, are tax-advantaged accounts.
With traditional 401k plans, the money you put into the account is not counted as ordinary income, so it’s not taxed. This lowers your overall tax bill for each year you contribute. The amount you contribute also grows on a tax-deferred basis until the money is withdrawn, which can help your balances grow faster. When you do make withdrawals, they’ll be taxed as if they are ordinary income. Since many people have a lower tax rate in retirement than when they were working, this adds to the advantage.

The Roth Difference

Roth 401ks are a little different from traditional 401ks. Contributions to Roth accounts are made with after-tax dollars. So, your contributions offer no immediate tax advantage. However, at retirement, once the Roth 401k is rolled over to a Roth IRA, and that Roth IRA is opened for five years, no taxes are due on your accumulated savings or after that…ever…making this type of account very attractive. It is highly recommended to open and maintain a ROTH IRA account aside from your employer-sponsored ROTH 401k. By doing this, the five-year time clock is started much earlier.

Six Tips for 401K Retirement Savings Success

To get the most out of your retirement savings plan, here are some useful tips.

  1. Not all 401k plans are created equally. Get as much information from your employer as you can before investing.
  2. Say “yes” to matching. If your employer offers to match your contributions, save at least enough to earn the maximum contribution each year. It’s like free money, something you receive in addition to your salary and any bonuses.
  3. It’s okay to set and forget it. Many people really aren’t into managing investment portfolios, so most employer plans offer target-date funds. These funds allow you to select a date near your planned retirement date, whether that is in 35 years or three. The money you invest is managed in a way appropriate for your timeframe. You don’t have to make any additional decisions.
  4. Just ask. If there is something you don’t understand, ask for help. After all, it’s your money. Most employer plans have a contact person you can talk to. And, if you want a second opinion, stop by the bank, we are happy to help.
  5. Keep your eye on the prize. Retirement is a long way off, what happens in the markets or to the economy during a single day, week or even a year, is like noise when you’re investing for 15-35 years from now.
  6. Start gradually. Get used to saving by starting with an amount that is comfortable. As you earn raises or bonuses, siphon off a portion of them toward retirement. Once you are on your way, sit down with a wealth advisor to determine what you do need to save to achieve your goals.

If you lack access to a retirement account at work, work for yourself or own a business that is too small to support a 401k plan, come in and talk to us. There are several tax-advantaged accounts you can consider to help boost your retirement savings. We’re always happy to talk you through your options. Contact me at 630-844-8633.

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Tips for Keeping Your Financial Resolutions

Joseph Huml, Vice President/Retail Regional Manager huml_portrait

Whether you are among the 41 percent of Americans who typically head into the new year equipped with a list of resolutions or are among those who just want to get your finances in shape, knowing how to move the dial from intent to progress can be tough.[1]

Here are some tips to help you succeed in boosting your financial health in 2017.

  1. Conduct a credit cleanup. Sometimes it helps to clear the slate by consolidating high-interest debt into lower rate loans. Homeowners, in particular, often find financial relief—along with financing for home repairs or unexpected expenses—by using a home equity line of credit (HELOC). Not only is the interest rate on this type of debt more affordable than other types of personal loans, the interest you pay may also be tax deductible.
  1. Join the club. To avoid feeling overextended by holiday spending next January, open a Club Savings Account this January. Arrange to have a small amount ($10–$25) transferred from your checking account with each paycheck. In late November, the accumulated amount will be transferred back into your checking account just in time for you to start shopping for the 2017 holiday season.
  1. Get more than credit. Compare the rates and rewards you receive on your current credit card to see if there are more attractive deals out there. Also, with many issuers offering attractive introductory rates for new accounts, moving your outstanding balances could potentially save you money.
  1. Up your reserve. While having an emergency reserve equal to at least three months of your regular expenses is advisable, it can be hard to achieve. A more attainable goal is to try to build up your emergency reserve gradually. For instance, consider setting up an automatic deposit for a modest amount from each paycheck that will allow you to end up with an additional month’s worth of emergency reserve by year-end.
  1. Experiment with bursts of retirement savings. While it’s hard to hit the maximum contribution limit to your retirement savings account each month, try raising your contribution during the three months a year when your expenses are lighter. These short bursts can add up over time.
  1. Get a second opinion. Take advantage of free investment consultations when they are available. Sometimes, a banker can see a better way to save on fees or interest expenses and may be able to provide insights into ways of allocating your investments for expected market changes.
  1. Improve your score. Review your credit reports and scores at least annually. Since your score influences the interest rates you pay—and even employers and landlords look at them—it’s beneficial to make sure yours is as high as possible. When you review your credit reports, look for any errors or omissions. Pay attention to the timeliness of the payments you do make. Late payments and skipped payments are the biggest detractors to your score.

For more information on how we can help you keep up your resolve to improve your finances this year, visit us here or call 1-877-866-0202. We can’t wait to talk to you about what we can do to help you make this your best financial year yet.