The  Money Tasks You’re Avoiding And How To Make Progress (Part 1)

The Money Tasks You’re Avoiding And How To Make Progress (Part 1)

Financial wellness is like eating healthy – it’s hard work and no fun but you know it’s good for you. Think about it, you always feel better after a healthy meal instead of a highly-processed one. But building a balanced meal plan takes more time and effort to accomplish. The same is true for a healthy financial plan. Not every financial planning task is exciting and groundbreaking, but each step secures your goals and vision for the future.  So let’s dust off your to-do list and explore actionable resources to help you accomplish some healthy financial tasks. 

1. Increase (or Get) Life Insurance

Life insurance is one of the easiest tasks to forget, yet it’s crucial if you carry significant debt or have dependents who rely on your income. The truth is, everyone who buys life insurance hopes their loved ones never need to use it, but it’s a true safety net for your family. 

Life insurance comes in many shapes and sizes; the two broadest categories are:

  • Permanent life insurance
  • Term life insurance

Permanent policies can offer good benefits but aren’t right for everyone. Due to the comprehensive nature of these plans, premiums are nearly four times higher than term policies and often don’t offer enough benefits to justify the sky-high rates. While these policies can accumulate a cash balance and investment opportunities, you can usually see more substantial returns through regular portfolio contributions.

Term insurance lets you buy a policy for a set time, anywhere from 10 to 30 years. The coverage lasts for that specific time and stops when the term ends. Term coverage is much more affordable than permanent coverage, which makes the monthly commitment much easier to stomach. Your coverage cost usually depends on:

  • The provider (you can get a better price depending on the company you buy a policy from, so shop around and understand any fees before signing on the dotted line). 
  • The amount of coverage (a $1 million policy will be cheaper than a $2 million).
  • Your age (younger people tend to have lower premiums).
  • Your health (healthy people (i.e non-smoker, physically fit, etc.) tend to pay less).
  • Gender (men typically pay more than women) 

One of the most common questions about life insurance is how much coverage you’ll need. Your coverage level is unique to you and your situation. Here are a few things to consider:

  • Your income
  • Family size and additional income
  • Existing insurance coverage
  • Net worth
  • Current portfolio and retirement assets

Did you just start a family, buy your first or second home, or start your own business? All of these should spark review to potentially increase coverage that meets your changing needs. Keep in mind, not everyone needs life insurance. Someone with no debt or dependents doesn’t need the added monthly expense.

2. Prepare Your Estate Planning Documents

People have a laundry list of reasons to avoid estate planning. But it’s not as painful as it’s made out to be. 

In fact, in the wake of the pandemic, many are re-evaluating their documents to ensure everything’s up to date. From video conferencing with their attorney to digitally updating or drafting a new will, people have been creative in how they approach this financial chore. Not sure where to get started? Let’s look at some key estate planning documents:


A will outlines your wishes for your estate. One of the most common reasons people put off creating one is a perceived lack of assets. Do you own a car or house? Are you an entrepreneur who owns their own business? What about valuable jewelry or collectibles? Maybe even a coffee can full of cash? Once you start looking, you’ll find you have several assets to plan for. A will gives you a dedicated space to help ensure your estate gets divided according to your wishes.


In their will, parents either need to add or update guardians for their children. A guardian is someone who will care for your children should you be unable to. While a guardian cares for the children’s wellbeing, a trustee handles the finances like taxes and inheritance. 


For those planning to leave significant assets to family and loved ones, a trust is an excellent vehicle to consider. Trusts are private and secure, giving you the freedom to select one that will work best for you. For example, if you want your legacy to have a charitable-focus, you might consider a charitable remainder trust which funnels a certain amount to your chosen charity and the remainder to your beneficiary. 

Financial Power of Attorney

This gives someone the ability to handle financial matters on your behalf like settling debts, paying taxes, and more. 

Medical Directive

This gives the person of your choice the ability to make medical decisions on your behalf should you become incapacitated. It’s best to choose someone like-minded who will respect your wishes. 

All these tasks can’t be completed at the same time. Sit down and see where you’re at and make a detailed plan from there. If you’re starting from scratch, maybe start with drafting a will. If you haven’t updated your plan in years, see if your beneficiaries are still aligned or if you need to change a guardian or power of attorney. 

Estate planning is meant to bring confidence, clarity, and peace of mind to your financial plan. Taking the time to update your documents ensures your life is in order to create a seamless financial transition to children, family, or charitable organizations. 

3. Set Up or Rebalance Your 401(k)

A 401(k) is a tax-efficient way to save for retirement. Pre-tax contributions lower your taxable income and boost future savings. But to maximize the plan, you first have to set it up. Creating a new account can seem daunting (which is probably why you put it off in the first place), but it doesn’t have to be stressful.

When creating your account, you’ll have to make a few decisions:

Choosing which account to fund

Traditional, Roth, or even both depending on your plan.

Selecting your contributions

Most 401(k)s are funded by payroll deferrals, which means you select a percentage of your salary to fund the account. Struggling with how much to contribute? Start by putting in enough to qualify for a company match if you have one (normally 4-6%). A good rule is to increase your contributions with a raise, bonus, or other salary bump.

Making investment choices

While your company’s provider has some control over the pool of investments you have to choose from, you are able to decide how you want to allocate your investments.  Start by determining how much risk you want to assume (high, moderate, or low) and assess from there. 

Establishing your 401(k) is not a one and done activity. It’s important to periodically rebalance your portfolio. Rebalancing means buying and selling funds in your plan to maintain a consistent allocation and risk preference. It’s best to make rebalancing part of your annual (or even quarterly) process as it limits volatility and helps maintain your risk levels and time horizon.

Having the appropriate amount of life insurance, getting your estate documents in order and setting up your 401(k) and rebalancing every six months are just a few of the tasks you need to make progress on (and are probably avoiding). In our next post, we’ll cover four additional areas that I see people drag their feet on when it comes to taking care of their money.

What is A 401(k) Rollover And How Can It Impact You?

What is A 401(k) Rollover And How Can It Impact You?

Moving jobs can come with many changes: cleaning out your desk, onboarding and learning a role at your new employer, and adjusting to a different team and office environment. One thing people don’t always think about is what to do with all the money accrued in their 401(k). 

After all, it is your money! Having a game plan is critical. 

In general, you have three options:

  • Keep the money where it is
  • Cash it out (except don’t do that unless you want up to half of the value taken away by taxes)
  • Roll the funds over into a different account, usually your new company’s 401(k) or an IRA

A 401(k) rollover can be a beneficial strategy to maximize your money while still keeping it safe to grow and yield returns. So what’s a 401(k) rollover, how does it work, and which account makes the most sense to store your assets? 

Let’s find out.

What Is a 401(k) Rollover?

A 401(k) rollover is a process where you transfer funds from one 401(k) provider into another tax-advantaged retirement account. This process gives you the opportunity to take your money with you from job to job. 

Did you know that on average people will change jobs 12 times throughout their career? That would be a lot of open 401(k) accounts if you never transfer your plan when you move. 401(k) rollovers can also be beneficial for keeping track of your accounts and encouraging active participation in your retirement savings. 

How a 401(k) Rollover Works

A 401(k) rollover allows you to transfer money in your old employer account into a new tax-advantaged retirement account (such as a new 401(k) or an IRA). You can do this in two ways: through an indirect or direct transfer. 

Indirect Transfer

An indirect transfer is slightly more complicated than a direct transfer in that the money passes through more hands before it ends up in your new account. 

With an indirect transfer, you notify both your new plan administrator (401(k) or IRA that you want to start a rollover, and you let your old 401(k) provider know that you want to empty your account. Your old provider will mail you a check to you personally as the employee. You then must deposit the check into your new IRA account within 60 days in order to avoid owing full taxes on the distribution plus penalties.  

Under IRS rules, your old employer is typically required to withhold  20% of your account balance in case you don’t deposit the money in your new account within 60 days. 

After you deposit your first check, you’ll then need to make out another one to cover the 20% initially withheld (or else this could be deemed a distribution). That means you’ll need to have enough in a savings or other account to replace that 20%. When all is said and done, you will get that 20% back at tax time should you meet the 60-day deadline.

While totally do-able, this process requires you to put in more work, fork over the additional 20% balance, and keep track of deadlines and changing hands. Plus you’re limited to one indirect rollover in a 12 month period. It is often much smoother to go ahead with a direct transfer. 

Direct Transfer

A direct transfer is much more, well, direct. With this process, you still notify your new provider that a rollover is initiated, and let your old provider know you want to roll the funds over into your new plan. 

What’s different is that your old provider will either mail or electronically deliver a check directly to your new plan provider, and it’s automatically deposited for you. This option is much more straightforward, and ensures that you won’t owe additional taxes assuming that the transfer is done with equal accounts, for example, a traditional to a traditional or a Roth to a Roth.

Important Rules to Know About 401(k) Rollovers

As with most things in life, there are a set of rules that you should know before you initiate a 401(k) rollover. The most important being the 60-day rule. 

60-Day Rule

In the case of a 401(k) rollover, 60 is the magic number. When you begin a transfer, you have 60 days to transfer the funds into your new account. Should you miss that deadline, you will be faced with massive tax consequences. Bypassing the 60-day limit triggers the IRS to think that you simply cashed the funds, which will all be counted toward your ordinary income. 

There are some notable exceptions to this rule. In 2016, the IRS created a list of 11 reasons why you can be late to make the transfer including a lost check, severe home damage, or a death or illness in the family. 

Handling Company Stock

If your old 401(k) held stock from your previous company, it’s important to know that by transferring to an IRA, you will miss out on tax benefits. Your new 401(k) asset allocation will be determined by your employer which means that they probably wouldn’t allow you to retain stock in your old company. Be sure to work with a tax professional to navigate this situation and come up with a plan that makes the most sense for you depending on how much stock you owned in your old company and what a full transfer might mean for your tax bill. 

Why Do a 401(k) Rollover?

Sometimes it makes sense to leave your money in your old employer’s 401(k) plan. In fact, if you have over $5,000 in the account, your employer has to give you the option to keep the money in the account. 

More likely than not, while you were working for them, they were also paying for the administrative fees associated with the account upkeep. They may no longer be willing to do that, even if you keep your money in their plan. 

If you have anywhere from $1,000-$5,000 in your account, your employer is legally obligated to send you a letter and document in writing the options that you have. It is then up to you to inform them what you want to do. If you choose not to respond, they can roll the money over to an IRA on your behalf which is called an involuntary cash-out. 

For accounts with $1,000 or less, many employers will write you a check. Just be sure to deposit that check in a new 401(k) or IRA within 60 days to avoid the tax penalty.

What Accounts Can You Roll the Money Into?

Now that you know what a 401(k) rollover is, understand how it is done, and the rules to keep in mind, it’s time to take a look at the specific accounts you can use to give your retirement savings a new home. 

Today, we are going to look at two options, transferring the money into your new 401(k) or moving it into an IRA.

Rollover Into a New 401(k)

Your new 401(k) is an excellent option for your rollover. The 2020 contribution limit is $19,500 or $26,000 for those over 50. The good news? Your rollover won’t count toward that contribution limit. 

Take some time to evaluate your new company’s 401(k) policy. Are you happy with your investment choices? Is there enough diversity in the type of investment options you have? Does the company offer a competitive match program? Understanding what you will get from the new employer should be an important factor in deciding if you want to roll the money over. 

If you have an incredible employer match and good investment opportunities, rolling it over into this new account might make a lot of sense for you. 401(k) accounts are also generally quite safe from creditors and lawsuits, providing extra protection than the looser lines of an IRA. 

Another important factor is the required minimum distributions (RMDs) in retirement. Your 401(k) will have you take your RMDs once you turn 72, thanks to the SECURE Act. You will need to pay ordinary income tax on those distributions, so be sure to factor that into your tax plan. 

Rollover Into an IRA

An Individual Retirement Account (IRA) is another great choice for investors to consider. In general IRAs have more flexibility and customization in your investment choices which can allow you to allocate your money as you see fit. 401(k) accounts are often quite stringent and strict with how you diversify your investments but an IRA gives you more flexibility and freedom in that department. 

An IRA can also help you consolidate your financial picture and give you a better sense of where you are in your financial journey. Having multiple accounts can get tricky to forecast where you really are and how close you are to reaching your savings goals. 

You also have more flexibility on what fees you pay with an IRA. Since you can decide where you want to open your account, you have more control over the type and amount of fees that you pay. With a 401(k) you have little control over administrative and other fees since the program is set up through your employer. 

IRAs also have more wiggle room when it comes to distributions. The government will allow you to take money out of your IRA early without penalty for things like college costs and that can’t happen with a 401(k).

You will still need to factor in distribution requirements. A Traditional IRA operates in the same way as the 401(k), where all distributions are taxed at your ordinary-income rate. Whereas a Roth IRA doesn’t have taxes upon distribution since the money contributed is after-tax.

The Bottom Line

401(k) rollovers are an excellent strategy for you to bring your money with you as you change jobs and advance in your career. It is important to know the options that you have in order to make the best decision for you and your financial future. 

Are you ready to initiate a 401(k) rollover but want to talk through your specific situation? Give us a call today.

What is A 401(k) Rollover And How Can It Impact You?

10 Things to Know About Your 401(k)

If you’re a member of the modern workforce, you likely have access to a 401(k). A 401(k) is a retirement savings vehicle sponsored by your employer. Through your 401(k), you’re able to contribute funds and invest them according to your risk tolerance and retirement timeline. The goal is to grow a sizable retirement nest egg for yourself over the course of your career by leveraging compound interest as you continue to contribute to your 401(k).

As a financial planner, one thing I’m always surprised by is how many people have access to a 401(k), but don’t necessarily know what to expect from their plan (or how to use it). In fact, many people contribute on auto-pilot without updating their investing preferences, if they contribute at all. 

It’s time to change that. Let’s go over ten unique things about your 401(k) that you may not have known before – and how they benefit you and your retirement savings. 

#1: Your 401(k) is Directly Connected to Your Employer

The contributions you make to your 401(k) are 100% yours, but the account itself is technically sponsored by your employer. To contribute to a traditional 401(k), you’ll need to find out if your employer offers a plan, and set one up through them. Your 401(k) is funded by contributions deducted from your paycheck, which can be a great way to automate your retirement savings. 

#2: You’ll Want to “Roll Over” your 401(k) If You Change Jobs 

Because your 401(k) is connected to your employer, you’ll want to roll your 401(k) over when you change jobs. Usually, you have a few options for how you want to use your old 401(k) when making this transition:

  1. You can leave your 401(k) alone, stop contributing, and let the funds continue to grow tax-deferred. 
  2. You can “roll” your 401(k) to your new employer’s 401(k) plan and continue to contribute there.
  3. You can “roll” your 401(k) to a Traditional or Roth IRA. If you choose to roll it to a Roth IRA, you will have to pay income tax on the funds that you roll over. This will give you greater flexibility around your investment options.

#3: There are Contribution Limits

In 2020, you can contribute up to $19,500 to your 401(k). If you’re 50 or older, you can increase that to an annual total of $26,000 by leveraging the “catch up” contribution limit. Usually, you contribute to your workplace 401(k) by allocating a percentage of your paycheck. 

If you want to max out contributions this year, make sure you have your percentage contribution dialed in so that you don’t go over the limit. If you do, you’ll be subject to a 6% excise tax. 

#4: Anyone Can Participate

There is no income minimum for opening and contributing to a 401(k) through your employer. Some employers even offer their 401(k) to part-time employees. In other words, it doesn’t matter if you’re a brand new employee or if you’ve been there for 10+ years – you’ll be able to leverage your 401(k) to save for retirement no matter what! 

There’s also no income maximum for contributing to a traditional 401(k). Unlike similar Roth accounts, your income has no bearing on how much you’re allowed to contribute according to the IRS.

#5: You Have to Start Withdrawals at Age 72

Although the funds in your 401(k) are yours to use as you please once you hit retirement, you can’t just let them sit in your account forever. There are specific withdrawal requirements you have to meet as you age.

According to the new SECURE Act, retirees must start taking Required Minimum Distributions (RMDs) from their 401(k) by age 72, which is up from the original age limit of 70½. This new withdrawal requirement gives retirees more flexibility when creating a retirement income strategy. It’s especially useful as more and more pre-retirees are choosing to work well into their 60s or 70s (and want to continue contributing to their 401(k)s, not withdrawing from them).

#6: You Can’t Withdraw (Without Penalties) Until Age 59½ 

Just like there are specific rules about when you have to start withdrawing from your 401(k), there are also specific rules around what age you’re allowed to start taking withdrawals. If you take a withdrawal from your 401(k) before age 59½, you’re subject to regular income tax on the funds you withdraw and a 10% penalty – ouch. 

Of course, there are a few exceptions to this rule. If your 401(k) is set up through the employer you’re retiring from, you may be able to start taking withdrawals at age 55. There are also rules in place that allow you to leverage your 401(k) for disability and specific medical expenses. These special circumstances are referred to as “hardship withdrawals” and they help you sidestep the 10% early withdrawal penalty if you use them for:

  1. Medical expenses exceeding 7.5% of your annual gross income.
  2. Permanent disability.
  3. Substantial equal periodic payments.
  4. Separation of service. 


Some plans also allow you to take out a loan against your 401(k). You pay the loan back through additional payroll deductions. However, as appealing as this may sound, you need to think carefully before pursuing a 401(k) loan. If you’re unable to pay the loan back before you change jobs, or before age 59½, you’ll likely owe income taxes and the 10% early withdrawal penalty on the funds. 

Additionally, 401(k) loans essentially “rob” your retirement to help you achieve a short-term financial goal. The money you take out of your 401(k) now loses any potential capital gains or growth that could be achieved through investing. 

#7: You Can Contribute to a Roth or a Traditional 401(k)

There are two different types of 401(k)s – Traditional and Roth. Usually, employees choose to contribute to a traditional 401(k) through their employer. However, many employers offer a Roth 401(k), as well. This type of account is funded with contributions that have already been taxed. 

As a result, the funds grow tax-free until you retire, at which time you can take withdrawals without paying income taxes. It’s often wise to diversify the type of taxable (or non-taxable) accounts you have to pull a retirement income from, so if a Roth 401(k) is available through your employer, you may want to start contributing there, as well. 

#8: There Are Fees Associated With Your 401(k)

As is the case with many investment accounts, your 401(k) will be subject to a set of fees for maintaining the account. Your 401(k) fees will cover the setup of your account and ongoing management. Fund fees, on the other hand, are fees directly related to the investments within your account. 

The company that holds your plan charges these to run your account on an ongoing basis. It’s important to familiarize yourself with the fees you’ll be paying because they can add up depending on the investments in your portfolio! 

#9: Your Employer May Have a Matching Policy

Many employers have a standard contribution matching policy for their employees who fund a company 401(k). This type of incentive helps you to grow your retirement nest egg on your employer’s dime! Contribution matching may range anywhere from 3-6% of your salary. 

If you aren’t currently contributing up to your employer’s match, you should adjust accordingly to take advantage of this perk. If you don’t, you’re essentially leaving free money on the table – which is never a wise financial move. 

#10: You Get to Select Your Own Investments

In most 401(k) plans, you have the flexibility to select your investments. Some plans have more availability than others, but you should be able to (at a minimum) select a risk tolerance level based on your retirement horizon and set your plan up accordingly. When you are a long way from retirement, your risk tolerance will be higher than when you are a few years out. 

That’s because the more time you have before retirement, the more time you have to recover from any dips in your portfolio that happen as a result of higher-risk funds. However, you also have more time to take advantage of potentially higher returns from those same higher-risk investments. As you get closer to retirement, you want to minimize your risk to maintain and protect your nest egg. 

Have Questions?

Have questions about your 401(k)? Contact us today! We’re here to help you organize a retirement savings strategy that matches your unique goals.

How to Become a Millionaire

How to Become a Millionaire

Do you dream of being a millionaire?

Many entrepreneurs and hard-working career professionals have big money goals for themselves. The idea of becoming a millionaire is appealing – but the steps you need to take to get there can be less than clear.

Some people might assume that becoming a millionaire isn’t possible without a hefty inheritance or a 6-figure salary. The truth is, with time and a strategy, anyone can increase their wealth to millionaire status.

Set Smart (and Specific) Goals

Setting money goals is a big part of growing your wealth, but it’s not good enough to set a general goal and hope that you achieve it in the long-run. For example, if your goal is to be a millionaire, you’re thinking too broadly about your money. Setting more specific goals that break “millionaire status” into smaller, actionable steps are key. These might be:

1. Paying down your debt – and staying debt free.
2. Maxing out your 401(k) and HSA.
3. Leveraging a Roth IRA (or backdoor Roth IRA) to grow your savings tax-free.
4. Reducing taxable income with saving-specific strategies.
5. Increasing your salary by gaining experience, searching for better-paying jobs, and advocating for regular raises or pay increases.
6. Increasing your income by starting a side-hustle, growing your own business, or finding alternative revenue streams.
7. Setting and sticking to a budget each year.

These goals are specific, and still put you on the path to reach your bigger goal – becoming a millionaire. It can also be helpful to set goals that are rooted in “why.”

What does becoming a millionaire mean to you?

Having a million dollars in the bank provides an appealing level of financial freedom and security, but I’m willing to bet you have other reasons for wanting to grow your wealth. Maybe you want to provide a college education to your kids. Maybe you want to quit your job and start a business or retire early to travel the world. To stay on track, set financial goals that are rooted in these motivational “why’s”.

Increase Your Human Capital

The best way to increase your salary and cash flow is to grow your human capital. Wondering what that means? Take a look at the business owners, CEOs, and other professionals you admire. What do they all have in common? Each of them is taking the time to grow and improve. This might mean that you continue your education. It may mean that you ask for more responsibilities in your current job or role so that you can learn and grow. Setting personal and professional growth goals for yourself increases your value in the workplace and beyond – which can help you to achieve your dream of being a millionaire someday!

Avoid Lifestyle Inflation

Millionaires often don’t live like millionaires. Even as you see your wealth grow, that doesn’t mean you have to start living like Elon Musk. Lifestyle inflation strikes when people start to make more money than they have in the past, and they want to live in a way that “proves” they have the money to spend. While it can be rewarding to spend your hard-earned wealth in a way that brings you joy and fulfillment, it’s still important to keep yourself in check. Buying the biggest house in an expensive neighborhood just because you can may not be the best idea.

In fact, if you’re working to become a millionaire, you should probably work to keep your expenses low and create a budget that fulfills you emotionally to avoid overspending in other areas of your life. Avoiding lifestyle inflation means you have to prioritize your expenses. For example, you may want to opt in for a more-expensive gym membership that comes with perks like an on-site daycare, or different fitness class options.

To do this, you might have to give up another expense – like spending $100 every Friday on an upscale date night with your spouse. When you’re pursuing a goal that’s as big as being a millionaire, you’re going to have to make some sacrifices. That’s not to say that you have to give up everything and live on a shoestring budget, but there are going to be times where you need to pick and choose.

Diversify Your Income

Millionaires don’t have just one income stream. That’s because it’s tough to save enough money on just a salary. Finding ways to diversify your income is key! There are several different types of income streams you can look to build out:

1. Your traditional salary. Don’t forget to advocate for regular pay increases or bonuses for a job well done!
2. “Passive” income. Many people look at creating passive income through buying a rental property. Although this type of income isn’t truly passive (being a homeowner is tough work – even if you’re not living on the property!), it can help to boost your net worth over time.
3. Interest and dividends. Investing, or being a part-owner in a business, can provide an additional stream of income beyond your traditional salary.
4. Active income. This might be a side hustle, or an entrepreneurial venture that you pursue alongside your full-time job.

Leveraging as many of these as possible helps you to grow your wealth quickly, and it compounds in growth over time.

Max Out Retirement Savings

Being a millionaire is a goal that many people will likely achieve as they retire. Retirement savings vehicles can help you to grow your wealth through smart investing strategies while also reducing your taxable income right now. A few good places to start focusing your retirement savings might be:

1. A 401(k). The maximum allowable contribution to this account is $19,000 in 2019, with an extra $6,000 if you’re 50 or older.
2. A Traditional IRA. Contributions to a Traditional IRA are pre-tax, and they lower your current taxable income. In 2019, you can contribute up to $6,000 to your Traditional IRA, or $7,000 if you’re 50+.
3. A Roth IRA. Roth IRAs are funded with after-tax money. You can contribute up to $6,000 under age 50 through a Roth IRA, plus a $1,000 “catch up” contribution if you’re over age 50. So, while they don’t reduce your taxable income right now, they do help you save on taxes in retirement when (theoretically) your income will be higher than it is now, and you’d owe more in taxes on the gains your IRA funds have earned.

Create a Financial Plan

Finally, if your goal is to become a millionaire, you need a financial plan in place that’s revisited and adjusted regularly. Becoming a millionaire is a big goal to set for yourself, and a plan can help you to outline the clear steps you and your family need to be taking to get there.

Speaking with a financial planner who can walk you through every element of your financial life, and how it impacts your long-term wealth goals can be a huge help in both keeping organized and looking at all of the options you have available to you. Interested in learning more? Get started by scheduling a call today.

5 Smart Questions to Ask About Your Retirement Accounts

5 Smart Questions to Ask About Your Retirement Accounts

The wide world of retirement investing can seem a little overwhelming and can get overly complicated way too quickly. For those not prone to pore over spreadsheets, the abundance of data can lead to paralysis – but it doesn’t have to. Thankfully, planning for your retirement isn’t an all-or-nothing endeavor. Educating yourself about your accounts – even in small increments – goes a long way. If you’re looking to get a better grasp on how your retirement is shaping up, here are five questions you should be asking.

What Fees are You Paying?

A silent killer to many nest eggs, high fees can decimate even the highest-yielding retirement account. Low fees let you keep more of your investment while allowing you to withdraw a higher rate from your nest egg during retirement. You can use this calculator from Vanguard to compare funds and their fees to see how much you stand to lose. Keep an eye on account fees, transaction fees, fund fees and investment management fees. You may be paying one or all of these depending on your situation. Hint: Aim for funds with fees of 1% or less – anything more and you’re likely throwing money away.

What’s the Average Return?

The average return on your funds shows what your fund has earned in the past. While past performance is never an indicator of future results, it can give you a decent sense of what to expect. Make sure to check the return as far back as the fund shows. Many funds show high five-year averages since the Great Recession, due to the economy’s slow but steady recovery. That trajectory isn’t sustainable, so try to get a sense of the bigger picture before you extrapolate from the data.

What Company Matching Do You Have?

Nowadays, many employers offer a matching program within their 401(k) – but not all matching programs are created equal. Some offer a dollar-for-dollar match, while others only put in 50% of what you contribute up to a certain percentage. Make sure to understand your company’s matching program completely, and try to contribute enough to get the match. You never want to pass up the opportunity to earn free money.

What’s Your 401(k) Vesting Schedule?

In the midst of questions about fees and returns, one aspect of 401(k) accounts often gets lost in the shuffle: the vesting schedule. The vesting schedule determines when you’ll be eligible for any funds your company contributes to your retirement account. Many companies work on a graded vesting schedule. In this system, every year you work makes you eligible for a greater percentage of the employer’s contributions. For example, a five-year equal graded vesting schedule means you’ll only be eligible for 20% of your company’s contributions after one year. Some have a cliff-vesting schedule, which require you work a certain amount of years to be eligible for 100% of what your job has put in. If you work less than that amount of time, you won’t be able to take any contributions your employer has made. It’s important to know your vesting schedule, because it can drastically change how much you’ve actually contributed to your retirement account, especially if you’re expecting to job hop your way up the career ladder.

Should You Choose a Roth or Traditional Account?

When you choose a retirement account, you can decide between a Roth or Traditional account. A traditional account allows you to deduct contributions on your taxes today, but requires you to pay taxes on your withdrawals during retirement. A Roth account does not allow you to deduct anything on your current taxes, but lets you withdraw your money tax-free after you turn 59.5. A Roth is often recommended for young people, who have yet to hit their highest income potential. A traditional account is best for those currently in a high income tax bracket.

One of the best things you can do is to examine your retirement account carefully and ask questions on whatever doesn’t make sense. There’s a slew of free resources available online that can also help you decipher your retirement account and learn more about investing.