401-K Year End Sale! : ThyBlackMan

Sunday, December 16, 2018


401-K Year End Sale!

December 8, 2018 by  
Filed under Business, Money, Opinion, Weekly Columns

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(ThyBlackMan.com) We all love “BUY ONE GET ONE FREE” sales.  Right?  What if you got the same offer for cash?  Deposit $100; receive $100 – FREE MONEY.  I’m guessing majority, no make that ALL of you would be making that exchange 24/7.

But on average 24% of you are turning down FREE MONEY!   Approximately 24% of employees fail to contribute enough to their 401-K plans to receive the matching dollars – FREE MONEY.    I remember as a kid, I would hear people discuss if they would stop to pick up a penny.  My response was – Who does not take FREE money?

LETS GET SOME FREE MONEY!

Many company’s 401-K plans match their employees contributions three percent or more.  Example – When you contribute PRE TAX dollars totaling three percentage of your salary, your company matches your three percent.  Sound like a good deal?  If you happen to be in that 24%, we still have time to get more free money!

MAKING UP 401-K PLANS CONTRIBUTIONS

It is not to late to play catch up on your 401 contributions.   Lets look at some real numbers.

Example 1- Herbert Walker Grant’s 401K Plan

  • Herbert’s annual 2018 compensation is $60,000 or $5,000 monthly
  • His company contributes 4% if Herbert contributes 4% or more.
  • For 2018 Herbert designated his 401-K contribution withdrawals at two percent. Herbert’s Total 2018 Contribution is: $5,000 x .02 x 11 = $1100 and his company matched his 2% or $1100.
  • But his company is willing to match 4% of $60,000 or $2,400. It is NOT too late to claim that ($2,400-$1,100) = $1,300 of FREE MONEY.
  • For the month of December Herbert increases his contribution withdrawal to 26% for December wages, which will equal to $1300, and collects $1300 matching funds-FREE DOLLARS.
  • WARNING – Remember to lower this percentage at end of December or early January.

SECOND OPPORTUNITY FOR FREE MONEY

Vanguard estimates ONLY ~12% of 401-K plan participants contribute the maximum amount they are allowed to contribute.  The remaining 88% are declining an opportunity to save on taxes (FREE MONEY) and more importantly an opportunity to save for a 20-40 year retirement.  Ask yourself if you are saving enough to last 20-40 years!

The maximum salary deferral amount that you can contribute in 2018 to your 401(k) is 100% of pay or $18,500 or $24,500 for those 50 and over.  That’s right technically you can allocate your 401-K plan to collect 100% of your salary.  Remember you pay ZERO taxes on the eligible dollars you contribute to your 401-K plan.  And I GUARANTEE you will appreciate these extra dollars when you are finally able and ready to retire.

YOUR ASSIGNMNET SHOULD YOU ACCEPT

For those who have not contributed the maximum deferral amount, take some time and increase your December salary deferral to as high as you can stand it.  Then add more!  Just make sure if any taxes (Federal, State, Medicare, Social Security, etc.) are due, you leave sufficient money in your check to pay those taxes.

CONLUSION

First step determine if you did not contribute enough to get the company match and attempt to makeup that shortfall.  NEVER EVER GIVE AWAY FREE MONEY!

As long as you do not exceed the limits, you can pump 100% of your December payments into your 401-K.  Now I very much doubt you want to go that high, so consider doubling or tripling your contribution to get you closer to that $18,500 or $24,500 limit.  Just remember to convert your contribution back to a reasonable percentage before your January paycheck.

Remember, the money you contribute to your 401(k) goes in on a pre-tax basis. If you typically put in $500 a month, but manage to contribute $1,000 in December, you will save an extra $100 on your 2018 taxes if your effective tax rate is 20%.  No matter what tactics you employ to come up with some extra cash for your 401(k), be sure to act now.

As we approach end of 2018, lets also review how well you have invested your money.  Some people contribute significant dollars into their 401-K plans and leave the money in cash.  They are losing out on good returns by NOT investing this money into equities.  The money you put into your 401(k) MUST NOT sit there gathering dust.

Also pay attention to the fees you are paying for active management funds versus ETF Index Funds.  Review your selection and look for low fee cost alternatives.

Check up on your investments’ performance and make sure you are seeing the returns you want. If not, then you may want to shift some investments, whether moving to more aggressive funds, or doing the exact opposite.

Finally, make sure you have a decent range of investments in your 401(k). Putting all of your retirement savings into bonds probably is NOT a great investment idea. See below October 4th Blog: “DO YOU WANT TO CRUSH THE MIDDLING 401-K INVESTORS? THREE FUNDS THAT’S ALL WE NEED!”

DO YOU WANT TO CRUSH THE MIDDLING 401-K INVESTORS? THREE FUNDS THAT’S ALL WE NEED!

Wrap up 2018 by reviewing your 401(k) and squeezing out a little extra in contributions. If you give your account the attention it deserves now, you will be happier for it in 2019 and 2049.

DISCLAIMER

Thank you to all my readers for reading this week’s blog and other blog articles.

I am a proud nerd (my beautiful wife and daughter told me so) investment and finance blogger, with a Rutgers, MBA and Harvard, Advanced Management.  I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you.  I am NOT however, a licensed financial advisor.  Please do not construe my suggestions on this blog, as recommendations for your personal situation.  For individual finance advice please seek your own licensed CPA or financial advisors.

Staff Writer; Styron Powers

One may visit this brother over at; Powers Investments Management and also connect via LinkedIn; S. Powers.


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