When You May Have To Fire Your 401k Advisor
For most 401k plan sponsors, it’s the financial advisor that serves as their ombudsman. When things aren’t going so well it is often the result of the financial advisor not doing their job competently. This article is about situations where, as a plan sponsor, you may have to fire your financial advisor.
Choose The Right Fund
Employers are also able to choose the funds available in a 401k plan. Hopefully, your employer has chosen low cost index funds or target date funds.
If you dont have a great fund selection, its possible to talk to your plan administrator to add good funds to your plan. You can also choose the less expensive options within the 401k if you have retirement accounts elsewhere. Youll use the rest of your accounts to create your ideal asset allocation.
What Are The Rules For 401 Withdrawals And 401 Loans
When life happens, its easy to turn to the savings stashed in your 401. The money is just sitting there, right? Turns out, withdrawing money from your 401 early is more complicated than that.
According to the IRS, you cant withdraw money out of your 401 before you reach the age of 59 1/2 without paying income taxes and a 10% early withdrawal penalty.5
But there is a loophole: 401 loans allow you to use your retirement savings without paying penalties or taxes as long as you pay the money back. Of course, doing this comes with a bunch of rules and things can go wrong really fast.
Heres why 401 loans are a really bad idea:
- You have to pay back the amount you withdraw with interest.
- Your investments into your workplace 401 account are pre-tax, but youll pay back the loan with after-tax dollars. That means it will take longer to build up the same amount.
- Youll have to pay additional taxes and penalties if you dont pay back the loan in a certain time frame.
- If you leave your job for whatever reason and still have an outstanding 401 loan balance, you have to pay it back in full by the tax filing deadline of the following year, including extensions .6 Under previous law, you had 60 to 90 days to pay off your balance completely.
Thats a lot of good reasons to keep your hands off your 401 until you reach retirement age.
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Tech Features To Look For In Your 401k Provider
- 5:00 am, September 16, 2020
If youve been exploring the possibility of working with a different 401 provider, youll want to focus your attention on tech-centric partners. Providers offering tech features are more likely to appeal to the majority of your employees, especially Millennial and Generation Z workers. Plus, high-tech portals tend to take a lot of the managerial burden off your shoulders.
What tech traits matter most when it comes to providers and administrators of small business 401 plans? Below are seven key attributes that will help you encourage more participation from team members while limiting your involvement in handling the 401 onboarding and administrative details.
Grab All The Free Cash From Your Companys Match
To get started on a tangible level, take a look at your companys 401 options, says Driscoll. Many companies offer an incentive match, encouraging you to invest part of your paycheck into a retirement fund. Whatever they match, put that percentage into your retirement fund its free money.
The incentive match is one of the best parts, maybe the single best, of the 401 plan. And the employer match is the easiest, safest money you could ever make, offering you an immediate return for doing what you need to do anyway.
Many employers will match 50 percent of your contribution and sometimes as much as 100 percent up to a certain amount. A few employers do even better than that, although many employers do not offer a match at all.
Ensure you have contributed enough to get the full company match, says Kirk Kinder, certified financial planner at Picket Fence Financial in Bel Air, Maryland. There isnt any legit reason not to get the full match.
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Cost And Value Of Retirement Communities
The second-most important factor in evaluating a retirement community is not only cost, but what you get for the cost. Ask the community team members for a summary of what services are included each month. Do they include:
- Utilities, telephone and cable
- 24-hour security and emergency call services
- Laundry services
- Social and cultural events, activities and programs
- Health and wellness centers and programs
Do a side-by-side comparison of your cost of living in your current home versus the cost to live in a retirement community, and if you own your home, dont forget to adjust for the costs of homeowners insurance, mortgage interest and property taxes. You pay none of that when you live in a Senior Lifestyle retirement community.
Low Employee Contributions Minimum For Employer Match
In 2016, the average value of employee contributions to maximize employer match was 6.9% of pay, according to Vanguard data. Heres a breakdown of how much plans require employees to contribute to maximize the match :
Employer Contribution for Maximum Match
In summary, look for immediate eligibility to receive employer matching contributions, use of a sensible matching formula, and minimum wait time for vesting.
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Breaking It Down: Where Do You Fit In
There are many reasons you might think this chart seems totally reasonable, or, conversely, totally unreasonable. And thats understandable. Life presents us all with different challenges. We have unexpected medical expenses, decide to go back to school, or have kids and want to pay their college tuitions. These are all perfectly valid excuses as to why you might be falling behind where this chart says you should, or could, be.
Based on this chart, you would think that most Americans should be retiring as multi-millionaires at age 65. This probably seems way off-base, and in reality, it is most people retire with very little in the way of savings and investments. The point is that this chart shows what is possible if you are disciplined and strategic about your 401k savings.
If you are on the younger end of the ages shown on the chart, you may be daunted at the prospect of contributing $8,000 per year to your 401k, not to mention $19,500. Where you live, what your first-year salary is, or what loans you may be paying can make it difficult for this contribution to seem realistic. Its crucial, however, to recognize the importance of saving as much as you can for retirement as early as you can.
So, lets determine, based on the two scenarios in the potential savings chart, whether these figures would be sufficient to support your lifestyle for the rest of your retirement.The average life expectancy for men is around 84 years old, and 86.5 years old for women.
How Well Does The Residence Meet Your Specific Needs
In addition to having a clear idea of the things you’d like to do, you also need to compare more specific details of retirement residences, such as whether or not you’d have to move if you needed more care, whether the kitchen could provide meals to suit your dietary needs, or whether your doctor could treat you on site or if you’d have to travel to his or her office.
When you think of issues such as these it can make the process of choosing a retirement community seem much more complicated and time consuming. But you’ll need to keep all of these things in mind in order to find a retirement residence you’ll want to call home and one you’ll continue to enjoy for years to come.
To simplify things, you’ll need a list of the key aspects of retirement homes and the questions to ask about each of them. Once you’ve done that, you’ll be able to line up the facts, compare each community on its merits and make your decision.
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Can It Reduce Administrative Time And Cost
One of the main reasons that employers don’t sponsor a retirement plan is due to the misconception that it’s too costly and complicated to set up and administer. The reality is that there are retirement service providers that offer affordable plans and management fees, a variety of plan design and investment options, and exceptional service to ensure your plan runs smoothly. Additionally, if you’re establishing a 401 plan for the first time, your business may be eligible to receive an annual tax credit of up to $5000 for each of the first three years of the plan. Plan expenses and employer contributions are tax-deductible as well.
Get A Better 401 Return With The Right Asset Allocation
Your plan may offer a vast investment menu with plenty of funds to choose from. But no matter how you build your 401 portfolio, you should make sure its asset allocation aligns with your risk tolerance. It should also reflect your time horizon. This represents how much time you have between now and your expected retirement date.
Some financial planners believe those with long time horizons have time to weather market volatility. They could thus concentrate more on growth-focused, albeit volatile, investments like equities. On the other hand, those closer to their golden years may want to protect the savings they already have. They also would want to take on less risk. Therefore, they tend to put more of their money in securities like debt and fixed-income.
This is the general idea that drives the structure of target-date funds . These are common among 401 plan menus and often the default option for participants who are automatically enrolled into their companies plans. In this case, your employer would put you in a fund named after your expected retirement year based on age. These funds automatically shift their asset allocation to seek less risk as you move closer to your expected retirement date.
Of course, TDFs can vary greatly across different fund managers. Theyre also not the best options for everyone.
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Benefits Of Employee Retirement Plans
There are many major benefits in offering retirement benefits to your employees, from increasing productivity to attracting new talent. An employee retirement plan can be the backbone of your benefits package and an essential ingredient of a positive company culture that increases employees’ general well-being.
To break down the importance of employee retirement plans, we’ll address possible benefits from two different viewpoints: employees and employers.
You Take On Too Much Fiduciary Responsibility
Does your current 401 provider offer services to help with the fiduciary responsibility for your plan? You may hear terms like “DOL fiduciary rule,” “3,” or “3” all of which are tied to ensuring that investment decisions are made with the best interests of the participants in mind. Many providers offer fiduciary support services to help you and reduce your liability, either through their own advisors or through a third party. If your provider doesn’t, you may want to consider switching 401 providers.
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Specialist Advisers Say Cybersecurity Practices A Top Factor In Recordkeeper Selection
Nearly one-third of retirement plan recordkeepers expect to increase their cybersecurity staff, according to a Cerulli report. Industry stakeholders suggest the threat of retirement account fraud has increased in recent years, particularly during the remote work environment, Cerulli Associates says. And, even though the majority of recordkeepers act in a non-fiduciary capacity, Cerulli points out that courts have suggested that cybersecurity is a shared responsibility.
Financial Services For Retirement Living
Look for a retirement community that puts your best interests first. They should have an advisor on staff or in partnership, who can help you understandfinancial resources to help with senior living.
For example, our advisors at Senior Lifestyle have helped families understand how life insurance policies may be leveraged to help pay for the cost of care. Other options to ask about are bridge loans, VA benefits, and reverse mortgages.
You should also ask your financial advisor or accountant about tax deductibility of certain fees or portions of fees associated with CCRCs. Some of these fees are considered medical expenses and may be deductible.
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Remember That You Are Actually Only As Old As You Feel
Your age is only a number. It should not define what you do in retirement. Dont believe me? Look at these amazing accomplishments by 70, 80 and 90 year olds and more amazing accomplishments that prove that growing old is truly optional!
Furthermore, consider that Pablo Picasso was still producing art in his 90s. Thomas Edison invented the telephone at age 84. Laura Ingalls Wilder published her first book when she was 64.
Answering A Key Question In A Request For Proposal
One question that a plan sponsor always asks respondents to an RFP for investment management services is to describe their investment philosophy. Plan sponsor going to the trouble and expense of issuing an RFP deserves an answer to this question from a respondent that is forthright, commonsensical, and well thought-out. A fiduciary should be the leader of the pack in its relationship with a plan sponsor, especially in cases where an RFP calls for the services of a discretionary fiduciary, such as an ERISA section 3 investment manager.
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What Is A Defined Contribution Plan
A defined contribution plan is any retirement plan to which an employee or employer regularly contributes some amount. Often, the employee chooses to send a fixed percentage of monthly income to the account, and these contributions are automatically withdrawn, directly from her paycheck – no effort required. The money that doesn’t go to the employee’s take-home pay gradually accumulates, the balance earns interest from investments, and by the time retirement rolls around, its grown into a substantial nest egg for the retiree. Thats the idea.
In a defined contribution plan , there are no guarantees about the income youll receive in retirement. That doesnt mean such plans cant be just as effective, however, and employers often sweeten the deal by making contributions of their own, straight into your account.
Attend Your 35th 40th Or Any High School Reunion
There is nothing like a high school or college reunion to get you thinking about what you have accomplished and where you might be going.
Taking stock of our lives and setting new goals is exactly what we need to do as we consider retirement.
A reunion can be an excellent way to connect with old friends and maybe be reminded of what we are passionate about which can help remind us of how we might want to spend part of retirement.
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Telling Employees About The 401 Provider Switch
When switching 401 providers, it’s important to communicate with employees throughout the process. Employees must be given time to prepare for the switch and educate themselves on new investment options. Your current and new service providers should be familiar with the transition process and be able to provide the necessary communications and a suggested timeline. Consider including the following in your communication plan:
- In-person meetings or livestream education sessions where employees are given an overview of the switch and an opportunity to ask questions.
- Mandatory notices announcing the switch and deadlines for employee changes.
- Emailed updates throughout the process.
- A list of frequently asked questions on the 401 plan website or HR dashboard.
- A slide presentation furnished by the new service provider discussing the new plan and how they will assist with transferring assets.
Evaluate your plan’s fee structure and the amount of support you’re receiving from your current provider. With the evolution of new 401 features and updated technologies, you may conclude that you’ve simply outgrown your current plan. If you decide to make a switch, it doesn’t have to be a challenging experience. Ask the right questions, do thorough research on your options, and evaluate how implementing a new plan can ultimately help your employees and the business.
Understand What A 401 Is
While you sign up for your 401 through the company you work for, it is typically managed by a separate financial firm, such as Vanguard, Fidelity, Principal, Schwab, etc. This is the company you will receive important information and disclosures from about your account and investments.
If you leave your employer, in most cases your account will remain at the financial firm that originally managed it, unless you roll it over to a new company .
You can begin withdrawing money penalty-free at 59 ½ in most cases. If you withdraw money before that age, you will be hit with a 10% early withdrawal penalty and pay income taxes on the distributions. You can also take a 401 loan, which needs to be repaid, including interest. Learn more about that here.
Not every employer offers employees a 401. If that’s the case, you can open an IRA, which also offers tax advantages for those investing for retirement, on your own through a brokerage firm.
Tpa Due Diligence Requires Weighing More Than Fees
Engaging a TPA for plan document design, compliance and government reporting services should include more due diligence. If a TPA makes an error, it can be very expensive for the plan sponsor and investment advisor. Another way of stating this issue: If price is the only criteria for investment advisors and plan sponsors, what else do they have on their due diligence files?