Tag Archives: 401k

Blooom’s Year-End Financial Planning Checklist (Updated For 2019)

The end of the year is a great time to reflect on your financial goals, the progress you’ve made, and plan ahead for the upcoming year. Read our financial planning checklist below for things you may want to consider:

1. Update wills/trusts and beneficiaries.

Get married this year? Have kids? Get divorced? Big life events mean it’s time to make sure legal docs like your will or trust, powers of attorney, life insurance policies, and account beneficiaries are all up-to-date. Forgetting to make these updates can be disastrous for families at some of the worst possible moments in their lives. Get in the habit of reviewing these things annually so nothing is missed.

2. Get a handle on your debt and plan ahead for the next holiday shopping season.

Lay it all out there to get ready to tackle debt in the new year. If you’re like most Americans, you probably racked up some credit card debt you aren’t proud of this holiday season. What can you learn from that going into next year? Figure out how much of a holiday spending budget you need to plan for, divide that by 10 or 11 months and automate your savings into a savings account dedicated to holiday spending.

3. Use any potential raise you may receive (and possibly your bonus) to increase your 401k contributions.

Starting this year, get into the habit of taking a portion of any raise you receive and dedicating it to your 401k. For example, if you get a 5% raise, consider bumping up your contributions by 1% or more. Your paycheck still goes up, but your 401k also gets a boost. This habit can help you work toward maximizing your contributions over time while having no real impact on your cash flow or budget. Also, see if your employer will allow you to contribute all or part of any year-end bonus you may receive, toward your 401k. This can help reduce your taxable income come tax season and it also means you avoid the extra tax withholding on bonuses for that money.

4. If your employer’s health plan is changing in the coming year, evaluate the potential range of costs for each option, before choosing.

Health-related costs are often hard to plan for, but can cause serious unexpected damage to any financial plan that doesn’t adequately account for them. To get an idea of what your total health care costs might be under any specific plan in the coming year, take the monthly insurance premium and multiply it by 12. This will give you your minimum cost of healthcare for the coming year. Next, look up your insurance plan’s out-of-pocket maximum.

This can help indicate the most you can expect to pay, should you or someone in your family face a serious medical expense, or several, in the coming year. Once you understand the potential costs you could face and select the plan you’re most comfortable with, it’s important to then revisit things like HSA (Health Savings Account) contributions (if you have a high-deductible plan) and exactly how much you may want to maintain in the cash portion of your account for easy access, before investing.

5. Don’t forget about RMDs (for those over 70.5)

Required minimum distributions (RMDs) can be a nightmare tax situation for those over age 70, if not planned for and handled appropriately. The key thing to be aware of is that once most individuals reach 70.5 yrs old, there is a specific minimum amount the IRS will require them to withdraw from most retirement accounts, including 401ks and IRAs. Failing to withdraw the required minimum by Dec 31st of each year, may lead to a 50% tax penalty on the amount, which is one of the harshest tax penalties around.

Not even close to 70.5 yrs old just yet? Consider passing this reminder on to any family members that are. They’ll likely thank you later.

6. Set aside time for a year-end financial review

Look back on the year and take note of what you were able to accomplish financially and what setbacks you may have had. Use this past year as an opportunity to continue making smart financial decisions in the new year and learn from any of the times you may have stumbled. If you have a family, talk about upcoming trips, savings goals, and any other things you need to focus on next year. Set goals and even plan to celebrate financial accomplishments as a family throughout the year. Make money fun and before you know it, you’ll feel the freedom that comes along with financial security and eventually, financial independence!

Automate your long-term investments, like your 401k management!

Blooom is here to make your life easier in the coming year. Now that you’ve read our financial planning checklist for 2019, link your account with us today for a free analysis to see just how much you could save in hidden fees with a managed 401k via Blooom. Contact us today for further questions!

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3 Ways to Screw Up Your 401k (And How To Avoid Them)

Your 401(k) offers a pretty effortless way to build up enough money for a comfy retirement at home, out of state, or maybe on a beautiful island somewhere.

The money comes off the top of your paycheck before you even see it, you often get free money from the boss (thanks to an employer match), and there are tax benefits. Taxes are put on hold until you withdraw the money in retirement, when you’ll likely be in a lower bracket.

But retirement accounts aren’t foolproof. It’s easy to get snagged by pitfalls that could wind up costing you thousands of dollars in penalties and lost earnings.

Avoid these common and potentially very costly 401(k) flubs.

1. Not contributing enough

To receive the maximum benefit from your retirement account — the fattest possible nest egg,  grown through investments — you want to put the maximum amount into your account each year.

The 2019 limit on 401(k) contributions is $19,000, or $25,000 if you’re 50 or older. (That additional $6,000 is called a catch-up contribution, designed to help those who missed out on saving more when they were younger.)

At the bare minimum, you should be kicking in as much as it takes to get the full matching amount from your employer. Your company will likely put as much money into your 401(k) as you do, up to a certain percentage of your salary.

It’s not any kind of a requirement, but employers often do it — and not just because it’s good karma. It helps them hire and hold onto talented people (like you!), they have to keep up with competitors who match, and it gets them tax breaks.

On average, companies in 2019 are matching employee contributions to a record 4.7% of salaries, according to Fidelity Investments. Put another way, workers with 401(k)s received an average $1,780 extra from the boss during the first three months of the year — so this is one time that being all matchy-matchy would indeed be considered very fashionable.

2. Contributing too much

Funding your 401(k) is like the bidding on “The Price Is Right”: You want to hit your contribution limit without going over.

If you exceed the threshold, it can be almost as bad as going home from a game show empty-handed — without a new dinette set or billiard table.

IRS rules state that if your contributions go beyond the limit in any year, you have to remove the excess amount from your account by April 15 of the following year. The overage becomes part of your taxable income for the year when you went breezing past the boundary. Any investment earnings on that money become part of your taxable income for the year when you make the withdrawal.

But at least you won’t get dinged with the usual stiff penalty for withdrawing money from your 401(k) too early. More on that in a moment.

If you don’t pull the offending amount out of your account by the April 15 deadline, that money will be subject to double taxation — which is just as ugly as it sounds. The excess is considered part of your taxable income at the time the contribution was made, and then again whenever you eventually do make that withdrawal. Ouch, and ouch.

So, know the limit, and be careful that you don’t break through it.

 

3. Touching the money too early

This is one that snags far too many retirement savers. Raiding your 401(k) too soon gets very expensive, because you can owe federal and state taxes on the withdrawal plus a 10% IRS early withdrawal penalty.

What do they mean by “early”? You’ll get slapped if you touch the money before you turn age 59 ½. (How’s that for an odd birthday?)

Research shows that a third of account holders do cash out early, and that includes most younger workers between ages 18 and 34. People often do it when they change jobs, find themselves out of work, or are suddenly facing a huge car repair bill or other financial emergency.

This is why it’s so important to have emergency savings (enough to cover three to six months of living expenses), in addition to retirement savings. It’s tough, but it’s just part of the whole “adulting” thing.

Note that there are several exceptions to the 401(k) early withdrawal penalty. You might not have to pay it if:

  • You’re disabled.
  • You have high out-of-pocket medical expenses.
  • You lose or leave your job when you’re 55 or older.
  • You want to use the money for higher education.
  • You’re buying your first home.

But, in other cases, think very, very carefully about whether it would be worth it to tap your 401(k), no matter how badly you think you need the money. The consequences can be costly.

 

About the Author

Doug Whiteman is the editor-in-chief and analyst for Wise Publishing, Inc., and its flagship personal finance website MoneyWise.com. Previously, he was an analyst and editor covering mortgages, insurance and related topics for Bankrate.com, and was the consumer news reporter for Associated Press Radio. He has been quoted by The Wall Street Journal, USA Today and CNBC.com, and has appeared on ABC Radio, Fox Business and the syndicated TV show “First Business,” among other outlets.

 

Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.

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5 Ways to Save for Retirement When You Have Student Loan Debt

Graduation caps have landed, tassels have been switched to the other side, and mom has all the pictures she could ever want. Graduation day is one of the most memorable occasions in a person’s lifetime, but as seventy percent of new grads know, it also starts the countdown to one of life’s most-dreaded evils: paying back student loans. Recent research suggests millennials are now spending one fifth of their annual salaries on student loans alone, and now expect to be making payments well into their forties. At the same time, most millennials know they need to start saving for retirement in their twenties – from their first day at their first job if possible – but when Sallie Mae comes knocking it can seem impossible to both pay back debt and save for retirement on an entry level salary.

 

So how can you manage your student loan debt and also make sure you have enough to retire comfortably?

 

Here are a few tips to get started:

1. Create a budget

Your first step should be to come up with a plan outlining your long-term financial priorities, including everything from paying off student loans and contributing to retirement to having immediate funds for an emergency. You can’t focus on realizing long term goals when you’re trapped lurching from one immediate crisis to the next. Take some time to breathe and focus on the future.

 

2. Manage your payment plans

While getting out of debt can seem like a more urgent priority, make sure you are on track to meet your retirement goals before accelerating your student loan debt payoff date. According to a Morningstar report, every dollar of student loan debt creates a 35 cent decrease in retirement savings. Try to put at least 10-20 percent of your income throughout your working years aside for retirement. This enables you to take advantage of compounding interest and the time value of money, so you’ll actually end up with more money by the time you retire. Automation makes managing this process easier, so you don’t need to think twice about it!

 

3. Take advantage of employer matching policies

Does your employer match contributions or participate in a pre-tax retirement saving plan? You could be earning a higher rate of return by making sure you’re participating in and capitalizing on those policies. New company, new plan? No problem! Look into rolling over your 401(k) to maximize your benefits. Sometimes money does grow on trees.

 

4. Refinance your existing debt

If you have good to excellent credit and a steady cash flow you’re a prime candidate for loan refinancing. Look for a new loan with a lower interest rate, and make sure you use all the money from the new loan to pay off the old one. Some banks and loan providers also offer loyalty and automation discounts, so you should also make sure you’re familiar with all the options available to you before you sign on the dotted line.

 

5. Keep an eye on pesky fees

Three in four Americans have no idea what they’re paying in 401(k) fees, and nearly 40 percent believe they’re not paying any fees at all. When’s the last time you checked what you’re paying in fees? It’s not enough to just save money if you end up losing thousands of dollars in fees you don’t even know you’re paying. Signing up for Blooom’s 401(k) robo-advisor to manage your 401(k) and minimize those pesky fees costs a flat fee of $10 per month, no matter how much you have saved. No small print, no tricks.

 

Still feel like you’re drowning in debt? Check out blooom’s free 401(k) checkup tool to see how you’re doing with your retirement savings plan.

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Tangled up in cords.

5 Tips for Organizing Your Digital Life

It’s easy to let your digital life get out of control. Files pile up, you constantly install new apps, and it’s a hassle to keep track of all those account logins. We know organizing is a daunting task, but you don’t have to do it all at once. Why not check off one thing a day in the list below? Your digital life will be in great shape after only a week!

Benefits of Organizing

  • Saves you time and possibly money
  • Increases online security
  • Gives you peace of mind

 

Here are some ideas for how to get started.

1. Delete Unused Apps

If you have apps you only used once, or lost interest in, take a few minutes to delete them. It will free up space on your device and possibly even make it faster. More importantly, once you uninstall an app, it no longer gathers your data. Therefore, you reduce the risk of a data breach affecting you.

Alternatively, if you don’t wish to get rid of apps, group them in folders for easy access.

Don’t forget to do this on your Mac or PC, as well. (If you need instructions for this, look to techlicious.)

Benefits: Speeds up your device, increases security, minimizes distractions.

2. Put Your Finances in one Place

You probably have more than bank account or credit card. Rather than going to their individual websites to see your account, why not see them all at once, with a service like Mint.com? You can sort and filter your transactions to your heart’s content, create budgets, and track your spending and credit score.

Benefits: Quick overview, notifications, time savings.

3. Clean Your Computer and Browser

Does your browser take a long time to start up? It might be slow because using the internet accumulates files, and there might be browser extensions you forgot about. You could clean your cache and download folders manually, or just use a free program like CCleaner to tidy up your system. It removes extraneous software and browser data, which in turn reduces your online vulnerability. If you’re also worried about malware, check out the free tools recommended by the National Cyber Security Alliance.

Benefits: Speeds up your device, increases security.

4. Consolidate Passwords

You’ve probably heard that you’re not supposed to use the same password for different accounts, because it makes you an easy target for hackers. On the other hand, nobody can seriously be expected to remember a different login for every site they use. What’s worse, letting your browser save passwords is a security risk, too. LastPass to the rescue! It’s a password manager (and one browser extension we do recommend you keep 😉) where you only have to remember one master password. Nice!

Benefits: Increased security, less frustration.

5. Organize Your Retirement

Managing a retirement account is a lot of work. You can have professionals do it for you at blooom, for only $10/month! See all your retirement accounts in once place, and let the pros worry about rebalancing and trying to get you a great expense ratio. Additionally, every blooom member has unlimited access to Financial Advisors – in case you need help organizing more than just your 401k.

Benefits: Time savings, easy overview, professional advice.

Join blooom

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What Kind of 401k Lover Are You?

Valentine’s Day puts a lot of focus on being in a relationship. If you’re reading this blog it probably means that you ARE in a relationship with your 401k, which is great! But just because you’re in a relationship doesn’t mean everything is perfect.

Odds are you fall into one of these six kinds of relationships with your 401k. Let’s put them under the microscope and see what’s going well and what flaws might exist.


The Giver

You are constantly contributing to your 401k. 10%, 15%, or 20%―it doesn’t matter. Anything to keep your 401k by your side all the way to retirement. You don’t care what funds you’re in or whether you get an employer match.

Pros: Contributing is numero uno when it comes to a happy relationship with your 401k, and giving all you’ve got to your 401k can cure a lot of ills.

Cons: The $$$ you put in your 401k should be working for you and not the other way around. Throwing your hard earned cash into a money market account or a high fee investment that doesn’t do anything for you can lead to heartbreak.

Things you might say to your 401k: Oh, you only had a 2% rate of return this year? It’s not your fault. Let me just up my contribution level to make you feel better.


The Taker

You set up your 401k… isn’t that enough? Why do you need to check in on it? It should just be grateful that you contribute a few bucks every paycheck.

Pros: Not looking at your 401k and over thinking it can be a virtue.

Cons: If the foundation of the relationship isn’t there, or if you’re not properly invested, this relationship could be going nowhere.

Things you might say to your 401k: Stop complaining, I could be spending my money elsewhere.


The Controller

One look at you and anyone can tell you care about your 401k. You are very attentive, but somewhere in all that effort you’re putting towards your 401k, you may start to suffocate it with your demands and restrictions.

Pros: You care, you really REALLY do. Attention is important after all, it’s your retirement we’re talking about.

Cons: Too much attention can lead to irrational reactions.

Things you might say to your 401k: What do you mean, your balance is less this statement than last statement? This relationship is OVER!


The Enthusiast/Thrill Seeker

You are always looking for something new. Investing in the same funds just doesn’t do it for you. You’re willing to be a little reckless if it means your portfolio is different from others.

Pros: You live on the edge and are likely to take on more risk in your investments, which can net out.

Cons: 401ks are a long term deal, so changing it up constantly and seeking out the new can lead to betting it all on a potentially bad choice – see bitcoin.

Things you might say to your 401k: Bonds? What are those? Hey baby, let’s time the market.


The Overlooker

You know your relationship with your 401k has problems. Maybe you’re under-diversified or have a high expense ratio, but it’s not “that bad”.

Pros: You’re aware. As they say: knowledge is half the battle.

Cons: Close only counts in hand grenades and horseshoes. This is your retirement and every dollar counts. Every opportunity you miss to fix what you know is wrong is money left on the table.

Things you might say to your 401k: I’ve been with my financial advisor for years. Who cares if he charges me too much to rebalance you?


The Jealous One

You are constantly looking at other people’s 401ks and seeing what they have that you don’t – better funds line ups, more money, rate of return, etc.

Pros: You want your 401k to be the best. That’s why you’re always looking around.

Cons: Not all 401ks are the same and neither are individual financial situations. Measuring your 401k against someone else’s is a fool’s errand and can get you off track or distracted.

Things you might say to your 401k: Bob’s 401k grew 15% this year. Why did you only grow 12%?


Want to take your 401k relationship to the next level? Start with a free analysis with the experts at blooom.

 

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