Should I Contribute To A Roth 401(k)?

Should I Contribute To A Roth 401(k)?

Employee Benefits

Roth 401(k)s have become an increasingly popular alternative to traditional 401(k)s, allowing you to make after-tax salary deferrals to your employer plan. You may have the opportunity to contribute to a designated Roth account in your 401(k), but are uncertain about the best savings strategy for your personal circumstance.

This flowchart helps guide you through a series of considerations that will help in your decision on whether to contribute to a Roth 401(k), and covers:

  • Future tax rate expectations
  • Roth IRA eligibility
  • Employer matching considerations
  • RMDs and future rollover options
  • Additional savings opportunities through backdoor Roth contributions
(Click to expand)

What Issues Should I Consider Before The End Of The Year (2020)

What Issues Should I Consider Before The End Of The Year (2020)

General

The end of the year provides a number of planning opportunities and issues. Year-end topics can include tax planning, investment and retirement accounts, charitable giving, cash flow and savings, insurance and estate planning.

In this checklist, we cover a number of planning issues that you need to consider prior to year-end to ensure you stay on track, including:

  • Various issues surrounding investment and retirement accounts including matching capital gains against any investment losses in taxable investment accounts and confirming that all RMDs are taken.
  • Tax planning issues including strategies dependent upon your prospects for higher or lower income in the future. You will also want to review where you sit relative to your tax bracket as this is a good time to make moves to fill out brackets for the current year that also might prove beneficial down the road.
  • For those who are charitably inclined, there are several strategies that will also help reduce your tax liability that can be considered based upon your situation.
  • For those who own a business, tax reform has created some opportunities surrounding pass-through income from your business to your personal return. Accelerating or deferring business expenses presents another solid planning opportunity.
  • It’s wise to review your cash flow situation as you near year-end to see if you can fund a 529 plan for children or grandchildren or to see if you can save more in an employer-sponsored retirement plan like a 401(k).

This is a comprehensive checklist of the types of year-end planning issues that should be considered to ensure you take advantage of opportunities in the current year and beyond.


The Debts We Knowingly Accept

The Debts We Knowingly Accept

General

“0% APR for XX months!!!”

“Pay only $XXX for 72 months!!!”

“Open a store credit card and get XX% off every purchase!!!”

It’s so freaking tempting! We can have our cake today but pay for it tomorrow when we can really afford it.

Most of us are aware of the tradeoffs of taking on financial debt. Using tomorrow’s dollars to pay for today’s enjoyment requires a potentially dangerous assumption though…that tomorrow will play out exactly as we expect it to today. That our jobs are secure…that our incomes will remain stable or even increase…that other expenses will decrease as we expect them to…that we stay healthy in the future. But what if we don’t…

Tomorrow is by no means guaranteed and neither are the plans that we build for it in our minds. Debt requires a balance with the uncertainties of tomorrow.

Why? Debt has a negative compounding effect. For one, interest is being paid to someone else over time. So that $20,000 car purchase that we agreed upon actually becomes a $23,000 purchase after it’s all said and done. Secondly, few people want to or choose to carry a balance on their credit cards when they first start out, but one small debt stacks on top of another small debt which again stacks on top of another until the point that we can no longer afford to pay them off each month. Forcing us to carry a balance one month to the next, and slowly and unknowingly the balance begins to grow to unmanageable levels. Putting strains on our monthly cashflows and, even, our personal relationships. It’s a slippery slope…and the uncertainties of tomorrow only serve to accelerate that potential slide.

Clearly, you know my general feelings towards debt at this point…but it’s not all bad. It can and does occasionally serve a good purpose, but only when it’s used carefully and strategically, for instance, to buy a home for our families…or to pay for an education that will increase our future earnings potential…or to start or buy a business. All of these debts have a common theme though, they’re used to “buy” something that will hopefully hold or increase in value themselves or increase our ability to earn more in the future, which helps provide a balance to the potential dangers that the uncertainties of tomorrow could bring.

Debt can be a springboard to a better future if used cautiously…or it can be a roadblock to it if used unmindfully.

Patience and Perspective

Patience and Perspective

General

“Markets take the stairs up and the elevator down” is one of the first lessons learned in the self-study course that is Behavioral Finance 101.

Progress and the climb up tends to feel slow and hardly noticeable, while drops tend to happen more quickly inducing feelings of uncertainty, fear, panic, and a race to the emergency exit.

Patience and perspective are crucial to successful investing, though. Take the graphs above, for example.

Graph #1 (above, top) shows the return of the US stock market (S&P 500 Index) over the last 12 months. If you watched the markets or listened to the news at all over the last 12 months, there were plenty of reasons to feel uncertain or fearful or even panicked to the point of racing for the exit. Truth is these past 12 months have been a pretty typical representation of the “normal” market journey. Up, down, up, down some more, then a slow steady climb back up. It can feel like a roller coaster if you watch it every day.

However, if you change your perspective and zoom out a little, a much different picture is painted. Graph #2 (above, bottom) shows the return of the US stock market (S&P 500 Index) over the last 10 years. The roller coaster ride becomes much more steady and much more palatable.

Markets will go down. EVERY investor will feel the urge to want to head for the exit, but markets are resilient in the long run. The markets reward the patient investor who can look past the choppy waters beneath them and keep their eyes focused on the horizon.

The Peace of Mind Premium

The Peace of Mind Premium

General

Have you ever felt so clueless about a decision or purchase that you have to do a Google search just to figure out what questions you need to be asking or considering?

And, then, after armed with the best questions that Google can supply, you realize that even if you get the answers to your “7 Best Questions to Ask a Fencing Contractor”, you still don’t know what the answer means or why you should be asking it.

I know nothing about fences. I know that I’d like a fence to keep my kids safe from the unattended pools of my neighbors. I know that I’d like to keep my dog from occasionally wandering off our property. I know that I don’t want the fence to look cheap.

So, I did what Google said. I interviewed two contractors. I went in cluelessly prepared with the “7 Best Questions to Ask a Fencing Contractor”. As a result, we surprisingly picked the one that cost 20% more…and it was the right decision.

Fencing Contractor #1: “300 linear feet at $9 per foot…it’ll run about $3,100. Call us when you’re ready.”

Fencing Contractor #2: “The area measures 300 linear feet. It’ll run about $3,700. We’re going to cost more than most because we set every post in concrete where most others drive them in…this will prevent the posts from leaning and needing to be reset 4-5 years from now, and we add a tension wire at the bottom of the fence that makes it easier to trim the grass under the fence. Another thing we need to consider is the positioning of the gates…”

I asked questions not even knowing what answers I needed or wanted to hear, but it was how my questions were answered and the answers to questions not asked that made the choice clear.

Did I make the best financial decision? Maybe, maybe not…it depends on your priorities, but I’m good with it. I feel confident that the questions and concerns that I still don’t know to ask have already been answered and accounted for, and I’m less concerned about the future issues that may pop up and the additional costs to fix them.

Sometimes the price isn’t the real cost. Sometimes it’s worth paying more now to avoid paying more later. Sometimes it’s worth paying for quality and paying the “peace of mind” premium.


Here are the stories that caught my eye this week:

MONEY: Wealth Is The Stuff You Can’t See (A Wealth of Common Sense)
“It may not feel like it to everyone, but the developed world now has more money to spend but less time to do it. The problem is these numbers are averages which helps explain why so many people have a hard time ever saving money. Trying to keep up with people that make more money than you is a never-ending game because there will always be people willing to outspend you.”

LIFE: At 98, D-Day Veteran Medic Returns To Normandy To Remember A Generation’s Sacrifice(NPR)
“For much of his life, Ray Lambert wouldn’t talk about World War II. But then the 98-year-old veteran army medic began returning to Normandy, where, on June 6, 1944, he led a unit of medics as a 24-year-old staff sergeant in the Allied invasion of western Europe.”

The Best Laid Plans…

The Best Laid Plans…

General

“The best laid plans of mice and men often go awry.”

– “To A Mouse” by Robert Burns

Full disclosure…this post is lengthier and more somber than typical. It has little to do about money or finances, but more to do about my experience with sudden and unexpected change, grief, and personal growth. If this isn’t your cup of tea, I completely understand, but if you’re willing to oblige me with your audience for a few minutes, I would like to share my story with you in hopes of opening a channel of dialogue for others who want it or need it.

I believe there’s a value to be gained in the sharing of experiences, in good ones and bad, both for the sharer and the willing listener. What that value is, exactly, differs from person to person, and evolves and changes with each sharing.

This week marks an ominous anniversary for me and my family. Five years ago, my reality and my family’s reality was flipped on its head. Five years ago, my future and my family’s future was permanently altered. Five years ago, my mentor, my friend, my dad ended his life.

Disbelief. Confusion. Anger. Denial. Anger again. Thoughts of “Why didn’t I” or “If I had only”. More disbelief. Anger again…at him…at me…at everyone. And then more “What Ifs”. Then hopelessness. Then the apathy. And then the g-d fog takes over…and it stays.

The fog is heavy and feels like it will never lift…in the beginning. But it does…and it did. But buckle up because the cycle repeats…over and over and over, year after year. The emotional roller coaster never really gets easier, but it does get shorter. What was once months at a time is now only days or sometimes even hours.

Early on, I tried to forcibly will my way through the grief. No joke, I remember literally googling the five stages of grief and measuring my progress along the path trying to figure how it would last and how to get to the last stage of Acceptance, so that the nightmare would be over and life could be normal again. Funny thing, though, you can try to speed up the grieving process, but what nobody tells you is that it’s not a convenient ladder to be climbed step-by-step. It’s a maze…and you’re blindfolded…and there are surprise trap doors that send you back to the beginning just when you least expect it.

Grief is weird. We will all deal with it at some point, but the circumstances that cause grief and the different ways that we grieve are infinite. Your experience will no doubt be different than mine. Growing up, there’s no handbook or coursework to prepare you for handling it…and there’s little guidance on how to help others cope with it. So many go it alone and grieve in silence.

Thankfully, over the years, I’ve found healthy ways to cope with my grief. Running, woodworking, writing, helpful strangers, shared memories with good friends and a loving family. I’m still working my way through the grief though. Someday…one day…eventually…if I’m lucky…I will get to that fifth stage. But until then, I can only be patient and take it one moment at a time.

I’m sharing this with you for two reasons: one, for my own therapeutic relief; and, two, because I’m not isolated in my grief and my struggles. I see it and hear it every week, both spoken and unspoken, in my conversations with my clients, my colleagues, my family, and my friends. It’s not always about grief from death, sometimes it’s about struggles with a career, sometimes it’s about the end of a career, sometimes it’s about the kids, sometimes it’s about the parents, sometimes it’s the changing of the family dynamic, sometimes it’s the loss of a dream, and sometimes it’s the struggles in pursuit of a dream.

We live in a world where the best versions of our lives and our neighbors’ lives are proudly and continuously displayed all over Facebook, Twitter, and Instagram. Rarely do we share the struggles, though, but the grief and struggles are there, often unspoken, and the burden carried alone out of fear of judgment or isolation because “we’re the only one”. Sometimes the struggles are short-lived and we find a way through, but sometimes they’re deeper, more pervasive, and more permanent.

My hope is that, by sharing my experience, it may provide some value or validation for you, but if not to you, then someone you know. Share your struggle…recognize the struggle in others…talk about the struggles…write about them…with a spouse, with a friend, or with a stranger.

“There is no grief like the grief that does not speak.” -Henry Wadsworth Longfellow