There is obviously more than one way to save for retirement. There are different strategies and accounts that you can use when building up your nest egg. Chances are, you probably have more than one retirement account. Those odds increase if you’ve worked at more than one company throughout your career or if you’ve inherited a retirement account from a relative. While I’ve mentioned on here the efficiency of streamlining your retirement accounts (i.e. converting or rolling over accounts), that doesn’t mean that you have to have only one retirement account. In fact, it’s probably a good thing that you have more than one such account while you are working and saving for your post-career life. Given that different retirement accounts have different advantages–and disadvantages–it can be beneficial to be diversified with your retirement accounts so that you are prepared to make use of the advantages. This means that it’s perfectly fine to have both an IRA and an employer-sponsored 401(k), just to name two common retirement accounts, while you are working and saving. This will allow you to take advantage of either account should you find yourself in a situation where it would be incredibly beneficial. Such situations may arise based on the tax bracket you are likely to fall into in retirement, when you plan on taking distributions from your retirement accounts, expenses that may arise both before and during retirement, and any other things that could impact your retirement finances. If you already have more than one retirement account and want to understand what you should do with them or you want to open a retirement account in addition to one you already have, you should speak with a certified financial planner.
There’s a good chance that you either have or will change jobs multiple times throughout your career. Those job changes may be in the form of promotions within a corporation or jumping to a new company to take a higher position with increased pay and responsibility. Your job change may even involve a career change! However the inevitable job change occurs, don’t forget about your retirement funds and savings when you do so. With many employers offering retirement benefits–and with potential legislation allowing for more smaller companies to offer them in the future–chances are you have (or had) an employer plan; most likely a 401(k). You will need to think about what you want to do with such plans when you leave an employer. Will you want to roll it over into another plan? Can you maintain that plan even though you no longer work for that employer and does doing so make sense? What are the costs and fees associated with taking the money and running? These are all important questions that you may need to answer and consider. You will also want to make sure that you understand any deadlines or limitations involved with whatever you decide. You don’t want to miss a deadline–or worse, forget about the account altogether (yes, this does happen). You also want to make sure that any moves you make with that retirement money is done as efficiently and in as cost-effective a manner as possible. You would be wise to discuss any such moves with a financial planner before making them so as to make sure you are making the decision that’s right for you.
Did you know that some employer 401(k) retirement plans allow you to delay taking your required minimum distribution (RMD) if you are still working at 70½ and own less than 5% of the company? Doesn’t that sound enticing? If you have a 401(k) with your current employer, you should check to see if delaying your RMD is an option and whether it is right for you. If you envision yourself working well into your 70s, that may be viable option. It should be noted, however, that this delayed RMD option only works with your current employer and not plans you may have from past employers or with a traditional IRA. If you intend to delay taking RMDs from an employer account and will be funding your retirement from another source, you should make sure doing so is the most efficient and safest way possible. This means that you will most likely want to consult with a certified financial planner so as to draw up a plan as to how much will come from each account or–if you have more than two accounts–which accounts will be used first and which will be saved for later. Delaying taking RMDs is not a bad idea, but it is one that should be thought out and you really need to make sure that you meet eligibility requirements to do so.
Yesterday, I talked about how the IRS has increased contribution limits for Roth IRA by $500 for 2019. Well, it’s not just Roth IRAs that are getting a contribution limit bump, so too are 401(k)s and similar employer retirement plans. The increase is, again, $500, but it’s still better than nothing. This means that you can contribute up to $19,000 to an employer 401(k) if you are under 50. If you are over 50 and looking to take advantage of catch-up contributions, you can save an extra $6,000 on top of that $19,000 contribution limit (unfortunately, the catch-up contribution amount does not increase in 2019). These contribution limit increases, while small, still provide a great opportunity to put away more money in your retirement accounts. Remember, every little bit helps in the long-run. If you have questions regarding your employer plans and about how to budget so that you can take advantage of the higher contribution limits, you should speak with a certified financial planner or the custodian of your employer retirement account.
Aggregating required minimum distributions (RMDs) can be an efficient way to take your yearly RMD when you have multiple retirement accounts. However, you need to make sure you understand how aggregation works. One of the easiest ways to trip up when it comes to aggregation is to not know that only traditional IRA RMDs can be aggregated. Unfortunately, employer plans–such as a 401(k)–cannot be aggregated and RMDs from those plans must be taken separately if you have multiple retirement accounts. In other words, you can’t lump together an RMD from a traditional IRA and that of an employer plan and take it from one account. That’s a no-no. However, if you have multiple traditional IRAs , you can aggregate those RMDs and take one big one from one of those accounts. If you are considering doing RMD aggregation, you should speak with a certified financial planner as there may be further limitations depending on what you are intending to do.
It can be easy to fall behind on saving for retirement. There are many expenses and costs that you will have to deal with during the early decades of your career which may require you to either save less than you would like to for retirement. While that isn’t anything to scoff at, it isn’t something you should lose sleep over. Why? Because once you reach a certain age, you will be able to take advantage of catch-up contributions. For example, if you are over the age of 50, you can put an additional $1,000 into an IRA each year, which gives you a total annual contribution limit of $6,500. Those under the age of 50 can only contribute $5,500. The opportunity to save is even greater for 401(k)s, which allow for annual $6,000 catch-up contributions, which expands annual contributions to $24,500 for people over 50. If you have fallen behind on your retirement saving goals, putting the extra money into your account–when you become eligible to do so–can be very important and provide a chance to get back on track with your retirement funds. Even if you haven’t really fallen behind, you can still take advantage of these catch-up contributions as a way to put more aside for your retirement years. If you have questions about catch-up contributions and your retirement savings plan you should talk with the plan custodian or with a certified financial planner.
When it comes to saving for retirement, IRAs and 401(k)s get lots of love. They’re the two accounts that get talked about the most and, as a result, tend to be the most common accounts that people use when saving for retirement. While they are a great way to save for the future, they shouldn’t be the only accounts used when saving for retirement. Just like when it comes to investing, you should consider diversifying where you save your money for retirement. Yes, you should use accounts such as IRAs and 401(k)s to do so, but you should also save your money in non-retirement, taxable accounts that allow you access to your money before you reach the required age for IRA and 401(k) distributions (usually age 59 1/2). Having such accounts will allow you the ability to reach money should you need it, instead of having to take early distributions, which can often lead to IRS penalties. While you should only take money out of such accounts as an emergency, it can be comforting and practical to have a buffer to allow you access to emergency funds. If you have questions regarding non-retirement, taxable accounts, you should speak with a certified financial planner who can provide tips and suggestions regarding what type of accounts to set up and how much of your retirement funds you should save into such accounts.
These days, saving a $1 million dollars for retirement isn’t not quite as big a deal as it was for past generations. Yes, it is still a lot of money and–for most people–it is more than enough to provide a comfortable retirement, but it is not as hard to accomplish as it once was. If you start early enough and invest wisely, you can grow a sizable pot of money to retire on, most likely around the $1 million benchmark. However, people with a nest egg of $1 million, whether it be in an IRA or a 401(k), make up a small minority of retirees. Despite the small numbers who actually reach the $1 million retirement mountaintop, it is still looked upon as an important retirement goal and something that many people strive to reach when saving for retirement. The key is, as mentioned a few sentences earlier, is to start saving early and to work up to maxing out your contributions as well as maxing out any matching contributions your employers may offer. Also, be aware that life can have other plans for you and your ability to save $1 million for retirement. Unexpected life events may make it harder to save as much as you intended or may provide a windfall that greatly increases your odds of saving a large chunk of change for your post-work life. Those are things that you just can’t control sometimes and while $1 million might not be a feasible goal, you can still plan and save enough to lead a comfortable retirement. In short, don’t be afraid to make $1 million your nest egg goal, but don’t be scared if you fall short.
We live in a highly technological world where much of what we do–from ordering food to running a business–can be done online. It’s therefore highly likely that if you have a retirement plan with your employer that you can access your plan through a website. Those websites often provide a wealth of information and ways to make changes to your plan. You can change beneficiaries or investments with a few mouse clicks and by filling out a few text boxes. While you may not spend much time on such websites, you should at least explore them when you visit and see what information is contained on them. If your retirement plan offers documents regarding your plan and investments (i.e. tax documents or filings), then it most likely has information regarding contribution deposit rates. This information is important because it tells you when exactly your employer is depositing your contributions and whether it is doing so in a timely manner. Remember, there are two types of contributions to 401(k) plans: employer contributions and employee contributions. Employer contributions must be deposited before the tax filing date following the year that the contribution is made. However, employee contributions–those taken out of your paycheck each pay period–are held to a stricter standard because they are fully vested when made. Those must be kept separate by the employer from other types of contributions and must be deposited by the 15th business day of the month following the month in which the contributions were taken out of the paycheck (i.e. August 15th for July contributions). Thus, you will want to make sure your employer is following those rules. If they are not following those rules, they not only have to make your actual contribution but also a make-up contribution each month as well. This is not intended to create distrust of your employer, but rather so that you understanding how 401(k) deposits work. Such knowledge is important as it allows you to can track when money arrives in your account as well as when things may be wrong. If you have questions about your employer retirement plan you should speak with human resources or the benefits manager at your company or contact the provider of the plan.
If you are reading this blog, chances are you are a fiscally responsible adult. You make smart decisions with you money, live well within your means, and save as much as you can. However, that doesn’t mean that you don’t ever have to worry about bankruptcy. All it takes is a sudden illness or an unexpected expense or a lawsuit and suddenly you may find yourself in financial hot water. While you most likely won’t have to file bankruptcy in your lifetime, you may be wise to understand how it works and what you can protect from creditors. Seeing as this is a blog focused on retirement, we are going to talk about what is protected from creditors in regards to your retirement savings. Let’s start with an IRA. If you have an IRA that you have funded through your own contributions, then it’s very likely that most–if not all–of it is protected by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). BAPCPA, which is adjusted every three years for inflation, currently protects IRA funds of up to $1,283,025 from creditors in bankruptcy by exempting that amount from the bankruptcy estate. The one catch with IRAs, though, comes with those that are funded by money received as a beneficiary of an inherited IRA, which BAPCPA does not protect. IRAs aren’t the only retirement funds protected in bankruptcy. Employer sponsored SEP IRAs and SIMPLE IRAs are also fully protected as are 401(k)s. Understanding how bankruptcy could impact your retirement and financial plans is important and something that you may want to at least consider as a scenario when planning for retirement, even if just as a outside thought. If you have questions about bankruptcy, you may want to speak with a bankruptcy lawyer about the legal ramifications as well as how to plan to avoid it.