All Articles Tagged "401k"
The IRS Says You Can Contribute $500 More to Your 401(K)
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Beginning in 2013, the Internal Revenue Service will allow contributions up to $17,500, a $500 increase from this year. This is the second year in a row that the limit has been increased by that amount. The IRS is raising the limit to keep up with inflation. The additional amount that over-50 contributors can save remains at $5,500.
There have also been changes to other retirement options and plans. Contributions to traditional retirement accounts have been raised to $115,000 from $112,000, for example. For more on that click through to The Wall Street Journal.
Separately, there are also changes coming for Social Security recipients in 2013. Payments are going up 1.7 percent, much less than the 3.6 percent this year. In dollars and cents, this latest increase will amount to $21 on average, lifting checks to about $1,261. For couples that figure goes up to $2,048 on average.
Also, paper checks will come to an end on March 1, which could be a big change for some retirees. At that point, recipients will have to sign up for either direct deposit or have their money loaded onto a Direct Express Debit MasterCard. If you make no choice, the debit card will be chosen for you. New recipients have been signing up for electronic payments since 2011. For more info about all those changes, click here.
It goes without saying that planning for retirement early is important. This is particularly important for minorities, who disproportionately live in poverty during their golden years. The Washington Informer reports: “According to the AARP Public Policy Institute, Social Security keeps about 30 percent of older African Americans and Hispanics from retirement poverty. Yet another 20 percent of these two ethnicities at ages 65 or older, live in poverty at a rate that is double that for whites.”
Part of the problem is African Americans and Hispanics tend to work in jobs that don’t offer retirement plans or pensions more often than other groups. Asians, for instance, are most likely, among minority groups, to receive retirement payments from different sources. More than 25 percent of blacks and Latinos rely on Social Security for 90 percent of their retirement income.
Where you don’t have the option to save through your employer, you must seek out other options. It will make your retirement years much more comfortable.
The Top Three Money Mistakes You Might Be Making And How to Correct Them
The research released this week finding that nearly half of Americans die with less than $10,000 in assets should be enough to scare us all straight. We need to get our personal finances in shape.
So we asked the folks at Mint.com for their help. Mint.com is an online tool that helps you budget and track your personal finances. Below, Janet Al-Saad, editor of the MintLife and Quicken blogs (both Mint and Quicken are Intuit companies that help with financial planning), has outlined three financial issues and their solutions. Are you guilty any of these things?
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Mistake #1: Not taking advantage of an employer-matched 401(K). When money’s tight, a smaller paycheck seems too high a price for investing in a 401(K). But some employees don’t realize that companies often offer a match for a percentage of your 401(K) contribution.
That’s right: Many companies will offer you free money just for doing something you already should — saving for retirement. For example, say you make $50,000 per year and you deposit 10 percent of your pre-tax income — $5,000 — into a 401(K). If your employer matches that by 50 percent, it’s an additional free $2,500 in your pocket. And since it’s a 401(K), this free money comes on top of the tax-advantaged nature of your account, meaning it can grow without paying any taxes until you begin withdrawing. Heck, even if your company didn’t offer a match, a 401(K) is almost always of benefit to your bottom line, since it reduces your taxable income.
The solution: Your HR department is there for good reason. If you’re having trouble figuring out how to sign up for your 401(K) or if you’re unsure about your company’s matching policy, just ask them. The sign-up process is usually less difficult than you’d think. Many experts recommend saving between 10 and 15 percent of your income toward retirement, but if this sounds too big a number, start with a lower percentage, aiming for at least the amount that your company will match. Remember, it’s free money, and saving for retirement isn’t a luxury – it’s a necessity.
Not Good: Unemployed Workers Taking From Their Retirement Funds
Photo: Jakub Krechowicz
This year, one-third of the out-of-work have used money from their retirement funds to pay the bills. And there are many who are defaulting on their 401(K) loans and incurring taxes, penalties, and fees. That amounts to $37 billion in lost retirement savings per year.
And if that’s not enough, many unemployed people are age 50 and over, meaning they’re approaching retirement with little in the bank.
A report from Navigant Economics suggests loan protection insurance is a good way to protect against lost savings. The Los Angeles Times also offers a few tips for managing your 401(K) including:
- Brush up on the rules regarding your 401(K). Many people haven’t even bothered to look at what’s what over the past few years because of the toll The Great Recession has taken. And on July 1, new federal regulations went into effect that require companies to be more transparent about any fees they’re charging.
- Get hip to the different investment options your plan offers to make sure your plan is working hard for you.
- Increase the amount you’re saving from year to year.
Happy saving!
6 Of The Biggest Financial Mistakes to Avoid
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Managing your finances and making smart money decisions can be a challenge and it is inevitable that mistakes will be made. While a minor mistake is just a bump in the road that you can get over quickly, there are some financial decisions that can spell disaster and that can create a money mess that’s hard to fix. Here are six big money mistakes to avoid so you don’t find yourself in a financial hole that you’ll have a hard time getting out of.
How to Manage Your 401K When Changing Jobs
(Black Enterprise) — When you leave your job, whether its voluntary or not, you’ll have to make some important decisions about what to do with your401(k).Should you roll it over? Get an IRA? Leave it alone? Cash it out? Antwone Harris, a certified financial planner with Charles Schwab in Washington, D.C., says there are four options.
Option 1: Roll the money into your new employers plan. If your new employer accepts your previous employer’s 401(k) plan you can simply roll it over. There are no taxes or penalties to do so and the money continues to grow tax deferred.
Myth Buster: Your new employer and previous employer do not have to do business with the same brokerage firm in order to accept the rollover.
Four Money Rules to Break Now
(Smart Money) — Never borrow against a 401(k) . Avoid credit cards. Make a bigger down payment on your home or apartment to avoid paying extra mortgage interest. These are among the tried-and-true financial rules consumers have been told to live by for years. But now – with interest rates still low and credit staging a comeback – might be a good time to break them. This solid financial advice isn’t suddenly all wrong, but many of these axioms no longer result in higher savings or less debt. That’s because the economic recovery has opened up more exceptions and loopholes to standard advice, says David Peterson, president of Peak Capital Investment Services, a financial planning firm. Advisers, for example, typically discouraged clients from taking a loan from their 401(k) – but this is now the cheapest way to borrow money, with the average rate at 4.25%, lower than most personal loans, to pay back debt they racked up during the recession. But as some parts of the economy have improved — equities are once again outperforming fixed income, banks are slowly returning to lending, and consumers are spending more — the rules for making and saving money are changing, at least temporarily. Here are four traditional money rules you can break—at least for now.
10 Things 401(k) Providers Won’t Tell You
(Smart Money) — 1. “We’re making money on your 401(k) — even if you’re not.” With a growing awareness of the importance of preparing for retirement, the number of 401(k) investors has soared in recent years, peaking at 60.6 million in 2007, according to Cerulli Associates, an asset management research firm. But that torrid growth also left millions of investors in the lurch when the market crashed in 2008 and the value of their plans sank, in some cases dramatically. In fact, following the market downturn, the number of 401(k) investors dropped, settling at an estimated 50.5 million this year.
5 Tips to Avoid Recession Woes If They Recur
Main piece of advice: Get a firm mattress — to store money in! End of story.
Just kidding. Saving for rainy days is a great rule of thumb. Think long-term. For example, before you buy that house or lease that car, think about where you will be in five years. Leasing a car means you will still have to pay it off before it’s yours. If you choose to buy, the cost may have been more comparable if you had just purchased the car originally. Having a house means insurance, property tax, repairs and more. But renting doesn’t invest your money into anyone’s pocket besides your landlords. There are many large and small decisions to consider in the scheme of the future.
Is The 401(k) Dead?
(CNN Money) — Question: I’m 23 and contribute to my 401(k) plan. My employer also invests 4% of my salary in matching funds. But after reading a 2009 TIME Magazine story titled “Why It’s Time to Retire the 401(k)” and seeing my parents lose significant amounts of their retirement savings after 9/11 and again in 2008, I’m wondering whether I should stop contributing to my 401(k). I’m confused. What is the best way to save long-term for retirement? –Andrew H.
Rethink — and Restore — Your Retirement Dreams
(Time.com) — Your retirement plan probably looks different than it did a few years ago. Yet things aren’t as awful as you might imagine. We’ve turned the corner on some key financial fronts, and it’s both safe and smart to start thinking about your golden years again. For one thing, the recession almost certainly ended months ago. The recovery has been shaky, but make no mistake: it has begun. Meanwhile, 4 in 5 companies that scaled back their 401(k) plans during the downturn say they will restore benefits this year, Hewitt Associates reports.
