Retirement planning can seem complicated. Everyone has the ability to save money in some sort of a retirement plan, either at work or as an individual. About half of Americans have access to some type of retirement plan through work.  There are many different kinds of plans that employers can offer. The most common plans are the 401(k), 403(b), SEP IRA, and SIMPLE IRA. The most popular place to save for retirement is through an employer-sponsored plan. The most common retirement plan offered by businesses is the 401(k) plan.

401(k) Basics

Employer-sponsored plans are popular because retirement savings can be deducted from your paycheck. Many employers offer perks like matching contributions and profit-sharing that make saving in a 401(k) plan an even better deal. At a minimum, you should save enough to get the full match offered by your employer. For example, if your employer has a “3% match”, you should contribute at least 3% of your gross pay. Some employers have more generous matching. Employer matching is basically “free money” – don’t leave it on the table! Contribute at least enough of your pay to get the match, and if you can, you should save more in the plan.

The most you can contribute in 2020 is $19,500 if you are under age 50, or $26,000 if you are 50 or older. Saving part of your paycheck in an employer-sponsored retirement plan will also save you on taxes. Your savings in the plan are excluded from your income for tax purposes. Money your employer contributes, and earnings on your investments in the plan, are not taxed until you withdraw the money. All of these add up to big benefits for participants who save as much as possible in the plan.

Investing Your Savings

Most 401(k) plans offer a range of investment choices, and it is up to the participants to decide how their savings will be invested. This is good for experienced investors, but many of us will need more help deciding how to invest our savings. The best 401(k) plans offer a variety of low-cost investment options, investment advice from a true fiduciary, and individual financial planning for every participant. A fiduciary is someone who is legally obligated to act in your best interest. If your 401(k) plan doesn’t include personal advice and planning provided by a fiduciary, you should seek the advice of your own advisor.

Watch Out for Fees and Expenses

The investment options in all plans are not equal! Some plans have much higher expenses than other plans. Even within a plan, different investment options can have varying expenses.  Every dollar you pay in unnecessary fees and expenses reduces your long-term wealth.   As with any investment, you should understand what you own, why you own it, and the fees you’re paying for that investment. The default investment options in many plans are expensive mutual funds. If you don’t select your own investment choices, you may be unpleasantly surprised.

Your employer’s 401(k) plan is often the best place to start saving for retirement. The tax benefits of contributing to a plan, tax-deferred growth on plan investments make 401(k) a great idea for savers. If they are available, employer matching contributions can make 401(k) savings even better. Save early, save often, and save as much as you can. When the time comes to live on your retirement savings, you’ll be glad you did!

Nolen B Bailey | CFP®, CRPS®, ARPC
Director | Retirement Plan Services

 

By Sherrie Morgan, Director of Marketing & Public Relations

More consumers are turning to financial advisors to help them pave the way to a secure future. But how do you know who you can trust? Here are five positive signs to help guide your decision on choosing the best person for the job.

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Over the years, you’ve often heard how important it is to invest in the 401(k) plan at your workplace, but what is the big deal with a 401(k) anyway?

There are significant benefits of taking advantage of your 401(k). The first is the ability to contribute to your retirement before income taxes are withheld. Known as pre-tax contributions, these contributions come from your “gross” pay instead of your “net”, so they go into your retirement account before Uncle Sam gets his cut. This immediate tax deduction could bring the taxable income of someone making $40,000 per year down to $36,000 if they contribute 10% of their pay to their 401(k) plan. (more…)

If you are woefully behind on saving for retirement, then try to delay gratification on purchases, save your raises and pay off credit cards, financial experts say.

A national survey out Tuesday shows that about 36% of workers have less than $1,000 in savings and investments that could be used for retirement, not counting their primary residence or defined benefits plans such as traditional pensions, and 60% of workers have less than $25,000. (more…)

September 401(k) Newsletter

Posted on September 24, 2014 in

Are you within a few years of retirement? It’s time right now to get your financial house in order, and here’s what to include on your pre-retirement financial checklist.

In this month’s newsletter, Nolen Bailey, Director of Retirement Plan Services, outlines a retirement checklist and discusses options for 401(k) rollovers.

DOWNLOAD SEPTEMBER’S 401(k) NEWSLETTER