September 5, 2025 • 27 mins
Maximize Your Match: Celebrating National 401(K) Day
In this episode of Something More, Chris Boyd sits down with Jeff Perry and Russ Ball
to celebrate National 401(K) Day and unpack the true power of your workplace
retirement plan. You will learn why pre-tax contributions reduce your taxable income
now, how Roth options let your savings grow tax-free, and exactly why missing out on an
employer match is like leaving cash on the table. We will also cover contribution limits,
catch-up provisions for those over fifty, and strategies for combining traditional and Roth
accounts to optimize your tax liability in retirement. Whether you are just starting your
first job or looking to turbocharge your savings before year-end, this episode delivers the
insights you need to make every dollar work harder for your future.
#National401KDay #RetirementPlanning #EmployerMatch #TaxStrategy
#RothVsTraditional #FinancialWellness #CompoundGrowth #FinancialPlanning
Click the link below to register for our upcoming webinar, “Don’t leave a digital mess.”
https://register.gotowebinar.com/register/6040334700710880088
For more information or to reach TEAM AMR, click the following link:
https://www.wealthenhancement.com/s/advisor-teams/amr
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president and financial advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome to Something More with Chris Boyd.
I'm Chris Boyd, and I'm here with Jeff
Perry and Russ Bahl, all of us of
the AMR team, and glad to have you
(00:42):
joining us.
If you're not a regular listener, you can
find us wherever you like to listen to
podcasts or by YouTube or going to our
webpage at somethingmorewithchrisboyd.com.
So today we are talking about National 401K
Day.
Who knew that there was a day to
celebrate 401Ks?
But it turns out, what, Jeff, it's the
(01:03):
same day every year, huh?
Same thing.
Yes.
Since 1996, when the planned sponsor, Council of
America, created this Awareness Day, and it's the
first, it's the Friday after the Monday, Labor
Day holiday.
All right.
And that this year is the 5th and
(01:24):
today, Friday.
And so we thought it'd be worth talking
a little bit about some of the things
to review when it comes to what should
we know about 401Ks and 401K Day.
So for those who aren't familiar with what
is a 401K, or some, it's a form
(01:46):
of employer retirement plan for savings toward your
retirement.
Money goes in, it comes out of your
paycheck, essentially.
It is pre-tax, so it avoids income
tax.
It diminishes your income in effect.
(02:06):
So it helps you with your this year's
tax bill.
Money grows tax deferred in there.
And when you take it out is when
you pay income taxes on it.
People often think they'll be in a lower
tax bracket when they retire.
And so they like the idea of pushing
off, deferring that income and having less tax
(02:27):
later on.
There are other benefits as well, right?
And that is the likelihood that your employer
may very well offer to give you some
incentive to participate in your retirement plan by
offering a match of some of your benefits.
So this can vary from employer to employer,
(02:49):
how much, how readily.
It's common for people to have some sort
of initially maybe 100% match let's say
an example might be 2%.
Your first 2% of salary that you
withhold to put toward your 401K, your employer
will give you the same amount.
You just made 100% rate of return
(03:10):
on that money.
Free money.
Free money.
It's like part of your salary you didn't
know you were going to get.
And if you don't participate, you miss out
on.
So you definitely need that.
Now, sometimes an employer will say, and then
after that we'll match half for the next
2%.
So I get 3% if I'm doing
4% or something along those lines, you
(03:31):
get the gist, hopefully.
So in any case, 401Ks have a great
opportunity to help you make savings easy, retirement
savings easy.
And now there's not only the opportunity to
traditional contributions, money going pre-tax to save
(03:55):
and defer, and then eventually taxed on the
way out.
But you can also choose to do Roth
in many 401Ks, depends on the plan.
Not every employer has adopted this, but most
plans today have the opportunity where you can
choose if you want to pay the taxes
upfront included in your income this year, but
whatever that money grows into when you take
(04:19):
it out is free from tax.
So that's pretty appealing as well.
All right.
Anything to start off?
Who wants to jump in where I was
throwing all that around?
No, it's all very accurate.
And I think most people have a common
understanding of it.
I was looking, I was wondering, what's the
average 401K balance for someone?
(04:41):
And of course, then you go down to,
well, it depends how old they are, right?
So Fidelity has some information on their website
and they break it down by generations.
And so the average Gen Z, which is
the youngest generation that they have data for,
has an average balance of $13,500.
(05:01):
They're young, they're just starting out.
That's not bad.
That's not bad.
And maybe we'll talk about this, but the
importance of starting young is so powerful in
the retirement setting.
Next up are millennials.
I hear a lot about millennials.
Their average 401K balance is $67,300.
(05:24):
So climbing up there.
Gen X, the average 401K balance is $192
,300.
And for the baby boomers, the average 401K
balance is $249,300.
So that seems smaller than I would expect.
(05:49):
Only because they're so close to retirement.
And you need more.
I agree.
And when I saw the, especially the baby
boomers number, I said, that can't be right.
And then I started thinking about it.
So this is the average 401K balance.
(06:11):
So maybe I had a job from 25
to 45 and I had a 401K and
I left and I rolled it over into
an IRA.
Right.
So you're no longer in a 401K.
Right.
And maybe I have a half a million
dollars in that one for those 20 years.
Right.
And now I have this other job.
Oh, that's a good point.
Okay.
(06:31):
I was thinking a little differently, but that's
an excellent point.
So I have a balance at this employer's
401K and then I leave it there while
I go off to my next employer and
build a new balance in that 401K.
Right.
So that decreases the average balance.
(06:52):
I was thinking your point was, oh, well,
baby boomers are getting into the retirement years
and therefore they're rolling over their large balances
when they retire into their own IRA.
So the average 401K balance is only those
people who are working with ages, dates of
birth between 1964, I think it is, and
(07:16):
older, that kind of thing.
So I don't know.
Anyway, but the point about, hey, people have
more than one employer and often don't consolidate
their plans at their new employer, that kind
of makes more sense to me.
Yeah, I think so.
Well, in any case, it's probably not quite
(07:37):
sufficient to have 236 or whatever it was,
$250,000.
If you're close to retirement, you really want
to be thinking about more.
There was something you said, maybe there's something
we want to come back to.
What was that?
Let's come back to it.
You have to tell me what it was.
I don't remember.
(07:58):
I don't remember now what it was, but
it was something worth coming back to.
Well, it'll come to us later.
Before we started, I was sharing with you,
according to the plan council of America-
Oh, you were talking about compounding, the power
of compounding.
Oh, yes, I was.
I was talking about it.
It's so important.
There you go.
You get the first job and a lot
(08:20):
of, just out of college perhaps, or maybe
a little bit after that.
And you get that first real job, a
job that has benefits and such.
And somebody tells you to go to HR
and fill out some forms.
And you may not have really thought much
about a 401k or any of this.
You may have never been exposed to it
if your parents or grandparents didn't talk to
(08:41):
you about it.
And you might choose, I'll do that later.
I'm not ready for that.
Or I don't know, and you take the
paper or call and you never do it.
But the importance of your long-term financial
accumulation and success is so much more benefited
by making those decisions early to sign up,
(09:01):
put a contribution in that at least matches,
at least is equal to what you get
for the match.
You gave the example of 2%.
At least do, take the free money, right?
Absolutely.
I mean, you're walking away, you're choosing to
be paid less for your employment if you
don't participate in the employer match at 100%,
(09:25):
whatever that amount is.
So in my example, you had to participate
with 4% salary deferral in order to
get 3% from the employer.
The numbers may differ from one place to
the next, but the point is if you
don't fully participate to get all of the
match, you are choosing to be compensated for
(09:47):
less than you're eligible for.
It's like saying, no, I don't need this
month's paycheck.
Thanks anyway.
Why would you do that?
You're entitled to that.
That's what the employer is saying.
Your value to them is they want you
to be fully compensated and they want you
to be well-prepared for your retirement when
(10:09):
the time comes.
They're trying to incentivize you to be saving
for retirement and take advantage of every aspect
of that, just like you wouldn't turn away
some benefit that an employer is providing.
Why would you, right?
So in any case, let's talk about just
for a minute, the amounts you can contribute
(10:30):
into this.
So the first thing we're talking about there
is the match, which is the free money
part of it, but you have the opportunity
to contribute amounts.
There are limits though, as to how much
one can put into their retirement plan.
So it's worth reviewing that.
Russ, you got a few things there.
(10:51):
You want to go over some of that?
Yeah.
So for employees under age 50, the contribution
limit is 23,500 for 2025.
That's per person.
So pretty high limit there.
You can hit that number, especially earlier on
in your career, you're doing pretty well.
(11:11):
Yeah.
That's almost 2,000 a month, right?
That's a lot of money.
So that'd be great.
A lot of colleagues I've had getting jobs
out of school and that sort of thing,
they think about their Roth IRA.
I don't know, for whatever reason in my
generation, it is a popular investment option.
(11:33):
We'll touch on that in a minute.
I think that's a smart thing.
So we can come back to that.
Yeah, definitely.
But I recently had a conversation with my
brother and he was saying, I plan to
contribute to my Roth IRA.
I'm like, well, what about your 401k?
He's like, oh, I thought it was one
or the other.
I didn't know it was all...
So that could kind of come up too.
(11:54):
There's separate retirement accounts that you can contribute
to and each one has a different limit.
Yeah, that's a good point.
And when you have a available to you
at work, that can affect the amount you're
eligible to participate in for your IRA or
whether or not you're eligible to participate in
(12:16):
it.
And a Roth in that case.
And income limits as well for a Roth
IRA.
Yes.
Essentially, if you're doing a Roth IRA, once
you exceed a certain level of income, I
want to say it's around 146,000.
Do you remember what the number is?
(12:37):
150, I believe.
For a Roth.
So for a Roth.
Okay.
Yeah.
This is for a single person.
Once you get to 150,000 and then
you start to have a declining eligibility to
do the full contribution because you make too
much, air quotes.
(12:58):
And then at 165, you're fully phased out
from being able to contribute anything to a
Roth because you have your other work plan
available to you.
But keep in mind in that instance too,
your brother, I think you said, may have
the opportunity for a Roth contribution at the
(13:19):
work plan.
So the IRA only allows you in that
case to under 50 to do $7,000,
but you could be doing 23,000 into
the Roth.
That's what he really wants to do if
he has the availability of a Roth plan
for the 401k plan.
(13:40):
But just quick on this topic of Roth
traditional, maybe we can give some brief guidance
as to who should consider which and when.
Do you want to weigh in on that
or either of you want to weigh in
on that?
Go ahead, Russ.
Well, I think for, especially for high earners,
(14:02):
there is a appeal to the tax treatment
of a traditional 401k where the money is
going in pre-tax and you just less
income that you have to pay on.
So especially during their earning years, the traditional
401k has a lot of appeal.
I would think when income is lower, maybe
(14:25):
earlier on in your career, a Roth 401k
could be a better option.
Yeah, I totally agree.
So early in your career when you're probably
not making your peak earning income is a
great time to think about this.
Additionally, I would argue that people who are
in the highest income tax brackets, why not?
(14:47):
They're already in the high income bracket.
They're probably not going to see a reduction
in income tax bracket when they're retired, just
because they're likely to be having a high
income even in retirement.
And then you could argue that tax rates
are relatively low and maybe it's a good
(15:10):
time to be choosing to pay that tax
if you have a higher propensity for substantial
income later in life as well.
So yeah, you get that dichotomy on the
low end of income, on the high end
of income, probably good times.
Why argue?
Do both.
You can do both in a 401k in
many instances.
(15:31):
You can allocate funds to the traditional and
to the Roth.
And ideally when you reach retirement and you're
in that decumulation phase, it's great to have
both types of accounts so you can better
manage your taxes.
You can decide what accounts you're taking from,
you can decide which accounts are better to
leave to heirs.
(15:53):
So I like both.
No, I, yeah, I agree.
That's a good, good call.
When it comes to the contribution limits, going
back to that.
So we have the opportunity to do $23
,000 in 2025.
So there's still time if you haven't been
planning to max out your 401k, if you
(16:16):
have the ability to do that, there's still
time to talk to your HR, get your
payroll structured where so much is going to
your plan.
But if you're over 50, 50 and over,
there's a catch-up provision.
You want to, so 30,500, is that
the number these days?
(16:38):
31,000, I believe.
31,000.
Okay.
Sorry.
So you've got that.
And there are different numbers for different types
of plans, but yeah, 31,000 is the
number for that now.
And then it gets more convoluted if you're
(16:59):
in your 60s.
There's a little window of period of time
where you have some additional amounts that you
can do.
There's a couple of places where there's little
nuances.
So if you are looking for help on
that, that's probably, if you're in that window
(17:20):
of age range, it's probably worth talking to
someone to get the particular details because it's
changing at different stages of your, in your
60s when you can and can't do more
than these numbers.
In any case, try to max it out
is the point.
(17:41):
And you're, by the way, your employer, your
HR department, your 401k team, wherever they do
the 401k, they will also be able to
give you details of what's my number at
my age.
Okay.
So if you need help, that's another possibility.
(18:02):
When it comes to 401k, there's a lot
of reasons people choose to do the 401k.
One is the simplicity of it through payroll
deduction.
The other, and it's somewhat out of sight,
out of mind, it helps.
The other is usually the employer is, as
a fiduciary is expected to be vetting for
(18:25):
some decent investment options and they should give
you a range of offerings.
Today, it's very common for employers to be
opting for these target date approaches.
It's somewhat becoming less frequent where you have
the opportunity to sort of do your own
selection of funds.
(18:46):
It's not to say that it's not available,
but it's becoming less frequent.
It's much more common for plans to be
really focusing on a target retirement date structure
where it's intended to be an asset allocation
design that is available to you.
Some of these are better than others and
(19:07):
you don't have as much control of these.
This is probably a topic for another show,
the life cycle funds and target date funds
and some of the strengths and weaknesses that
these offerings have.
For most people, there's usually a little more
international than they might typically select themselves.
(19:28):
There are some that are just index-based.
There are some that are more manager-based,
some that will do a composite of multiple
managers.
So it can really vary in the way
these are structured.
The biggest problem, quote unquote, that I see
with people that we speak with and such
(19:48):
is that they don't know how they're invested.
They go that first day as I described
and go in and they fill out their
forms and there's really no personal advice.
They might be given a paper with choices
or a website to visit, but there's no
due diligence done on behalf of the employee
(20:09):
and saying, how does this fit into my
financial plan?
Do I have other things?
Is it consistent with my own risk tolerance?
What's my time horizon?
And so forth.
And sometimes, they make good decisions or they
make simple decisions or they don't make bad
decisions, maybe the best way to say it.
And sometimes they do.
(20:29):
We've seen people come in with 401ks that
people have been contributing to for long periods
of time and they're in a very conservative
type cash preservation setting and they missed the
opportunity for some growth that they would have
had if they had sought some counsel.
And you can see the other end of
the spectrum, with people who have kept all
(20:52):
in these high risk and now they're getting
close to retirement and saying, is this a
good idea?
And they're maybe taking an abundance of risks
that might be right.
Questionable as well.
So that's a great point.
This is the kind of thing that's best
done with a little bit of guidance and
(21:12):
counsel and conversation, context of your overall plan
and not to just ignore it, which I
think is often the case.
And as we talked about earlier, it's very
common for people to have an employer plan
that they have at one place and then
just move on to the next one and
not really give much attention to the one
that they had a decade ago or whatever
(21:34):
it might be.
And it needs some consideration and review and
revision from time to time.
And it could be, let's say you didn't
do a target date fund in that original
401k when you first started working.
That might be at a very different allocation
than you would want 10, 15 years later
(21:56):
at this new job.
And you kind of forget about it and
it's all equity.
It's all tech stocks or whatever it might
be.
So yeah, it's easy to kind of forget
these little nuances with 401ks especially.
Well, right on topic with one of the
things that 401k day is about and one
of the things that they're suggesting that people
(22:16):
do is to consider consolidating the old accounts,
if you will, into whether it's an IRA
or another 401k and do some homework about
what their asset allocation should be in that
consolidated account.
So we're right on target with one of
the reasons that we're having.
It's a great reason to have it and
(22:37):
to think about it is to maybe give
some attention to those old accounts and whether
to keep them where they are or to
make a change of some kind, whether it's
into your IRA or into your 401k.
This is again where the context can matter.
What's going on with the rest of the
plan might help you identify what's the right
(22:59):
answer for that question.
How soon will you be retiring?
How soon will you need the money?
We have clients sometimes who say, I think
I'm thinking of making a loan against my
401k.
Is that a good idea?
Are there other alternatives as to where to
do that?
Pros and cons, things to be discussed, but
(23:23):
sometimes you have that availability of borrowing from
your 401k.
However, it does diminish your earning capacity, the
performance expectation.
People often think, well, I'm just paying myself
back and that has appeal, but it also
does impact your compounding and your rate of
(23:44):
return from that experience.
There's trade-offs that need to be considered
and then what are the alternatives?
Absolutely.
One of my favorite things that I like
to talk about with people is to increase
your contributions on some period.
(24:05):
We talked about when you're young, get started,
at least do the match.
Get involved, do the match, start your process.
This applies to everyone, but when you get
a raise annually, you get a review, you
change jobs, whatever it is, whenever something happens
positively, bump that up 1%.
(24:26):
Just keep increasing your annual contribution.
Easy way to do it.
You get a 3% raise, 1%
goes to your retirement plan, 2% goes
to your cost of living.
Absolutely.
The truth is none of us miss that
1%.
No matter how tight your budget is, it's
(24:49):
typically that you don't even miss it.
That's a great way to keep increasing that
benefit, that little bit.
Each time you get a bump in pay,
just allocate a portion of it to the
savings.
Oftentimes, when you're setting up the 401k in
the first place, they have an option.
It says, do you want to increase this
by 1% each year?
It's an easy way when you start to
(25:12):
just have that go on without really thinking
about it.
Big picture, 401k or 403b or simple IRA,
whatever retirement plan you have at work is
a great resource to take advantage of.
It's going to help you to be better
prepared for retirement and to do that savings
you need to do.
(25:33):
When it comes to as the amounts grow,
as you go through the period of years,
it's time to get some counsel in the
process periodically.
You may want to talk to your financial
advisor, your financial planner.
It's certainly something we talk to clients about
routinely in the context of what else is
(25:55):
going on in their financial plan.
If you need any help, don't hesitate to
reach out to us.
Hopefully, we can be a resource to you.
Thanks for being with us.
Until next time, keep striving for something more.
(26:37):
Transcribed
by https://otter.ai
(26:59):
Readers should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president and financial advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome to Something More with Chris Boyd.
I'm Chris Boyd, and I'm here with Jeff
Perry and Russ Bahl, all of us of
the AMR team, and glad to have you
(00:42):
joining us.
If you're not a regular listener, you can
find us wherever you like to listen to
podcasts or by YouTube or going to our
webpage at somethingmorewithchrisboyd.com.
So today we are talking about National 401K
Day.
Who knew that there was a day to
celebrate 401Ks?
But it turns out, what, Jeff, it's the
(01:03):
same day every year, huh?
Same thing.
Yes.
Since 1996, when the planned sponsor, Council of
America, created this Awareness Day, and it's the
first, it's the Friday after the Monday, Labor
Day holiday.
All right.
And that this year is the 5th and
(01:24):
today, Friday.
And so we thought it'd be worth talking
a little bit about some of the things
to review when it comes to what should
we know about 401Ks and 401K Day.
So for those who aren't familiar with what
is a 401K, or some, it's a form
(01:46):
of employer retirement plan for savings toward your
retirement.
Money goes in, it comes out of your
paycheck, essentially.
It is pre-tax, so it avoids income
tax.
It diminishes your income in effect.
(02:06):
So it helps you with your this year's
tax bill.
Money grows tax deferred in there.
And when you take it out is when
you pay income taxes on it.
People often think they'll be in a lower
tax bracket when they retire.
And so they like the idea of pushing
off, deferring that income and having less tax
(02:27):
later on.
There are other benefits as well, right?
And that is the likelihood that your employer
may very well offer to give you some
incentive to participate in your retirement plan by
offering a match of some of your benefits.
So this can vary from employer to employer,
(02:49):
how much, how readily.
It's common for people to have some sort
of initially maybe 100% match let's say
an example might be 2%.
Your first 2% of salary that you
withhold to put toward your 401K, your employer
will give you the same amount.
You just made 100% rate of return
(03:10):
on that money.
Free money.
Free money.
It's like part of your salary you didn't
know you were going to get.
And if you don't participate, you miss out
on.
So you definitely need that.
Now, sometimes an employer will say, and then
after that we'll match half for the next
2%.
So I get 3% if I'm doing
4% or something along those lines, you
(03:31):
get the gist, hopefully.
So in any case, 401Ks have a great
opportunity to help you make savings easy, retirement
savings easy.
And now there's not only the opportunity to
traditional contributions, money going pre-tax to save
(03:55):
and defer, and then eventually taxed on the
way out.
But you can also choose to do Roth
in many 401Ks, depends on the plan.
Not every employer has adopted this, but most
plans today have the opportunity where you can
choose if you want to pay the taxes
upfront included in your income this year, but
whatever that money grows into when you take
(04:19):
it out is free from tax.
So that's pretty appealing as well.
All right.
Anything to start off?
Who wants to jump in where I was
throwing all that around?
No, it's all very accurate.
And I think most people have a common
understanding of it.
I was looking, I was wondering, what's the
average 401K balance for someone?
(04:41):
And of course, then you go down to,
well, it depends how old they are, right?
So Fidelity has some information on their website
and they break it down by generations.
And so the average Gen Z, which is
the youngest generation that they have data for,
has an average balance of $13,500.
(05:01):
They're young, they're just starting out.
That's not bad.
That's not bad.
And maybe we'll talk about this, but the
importance of starting young is so powerful in
the retirement setting.
Next up are millennials.
I hear a lot about millennials.
Their average 401K balance is $67,300.
(05:24):
So climbing up there.
Gen X, the average 401K balance is $192
,300.
And for the baby boomers, the average 401K
balance is $249,300.
So that seems smaller than I would expect.
(05:49):
Only because they're so close to retirement.
And you need more.
I agree.
And when I saw the, especially the baby
boomers number, I said, that can't be right.
And then I started thinking about it.
So this is the average 401K balance.
(06:11):
So maybe I had a job from 25
to 45 and I had a 401K and
I left and I rolled it over into
an IRA.
Right.
So you're no longer in a 401K.
Right.
And maybe I have a half a million
dollars in that one for those 20 years.
Right.
And now I have this other job.
Oh, that's a good point.
Okay.
(06:31):
I was thinking a little differently, but that's
an excellent point.
So I have a balance at this employer's
401K and then I leave it there while
I go off to my next employer and
build a new balance in that 401K.
Right.
So that decreases the average balance.
(06:52):
I was thinking your point was, oh, well,
baby boomers are getting into the retirement years
and therefore they're rolling over their large balances
when they retire into their own IRA.
So the average 401K balance is only those
people who are working with ages, dates of
birth between 1964, I think it is, and
(07:16):
older, that kind of thing.
So I don't know.
Anyway, but the point about, hey, people have
more than one employer and often don't consolidate
their plans at their new employer, that kind
of makes more sense to me.
Yeah, I think so.
Well, in any case, it's probably not quite
(07:37):
sufficient to have 236 or whatever it was,
$250,000.
If you're close to retirement, you really want
to be thinking about more.
There was something you said, maybe there's something
we want to come back to.
What was that?
Let's come back to it.
You have to tell me what it was.
I don't remember.
(07:58):
I don't remember now what it was, but
it was something worth coming back to.
Well, it'll come to us later.
Before we started, I was sharing with you,
according to the plan council of America-
Oh, you were talking about compounding, the power
of compounding.
Oh, yes, I was.
I was talking about it.
It's so important.
There you go.
You get the first job and a lot
(08:20):
of, just out of college perhaps, or maybe
a little bit after that.
And you get that first real job, a
job that has benefits and such.
And somebody tells you to go to HR
and fill out some forms.
And you may not have really thought much
about a 401k or any of this.
You may have never been exposed to it
if your parents or grandparents didn't talk to
(08:41):
you about it.
And you might choose, I'll do that later.
I'm not ready for that.
Or I don't know, and you take the
paper or call and you never do it.
But the importance of your long-term financial
accumulation and success is so much more benefited
by making those decisions early to sign up,
(09:01):
put a contribution in that at least matches,
at least is equal to what you get
for the match.
You gave the example of 2%.
At least do, take the free money, right?
Absolutely.
I mean, you're walking away, you're choosing to
be paid less for your employment if you
don't participate in the employer match at 100%,
(09:25):
whatever that amount is.
So in my example, you had to participate
with 4% salary deferral in order to
get 3% from the employer.
The numbers may differ from one place to
the next, but the point is if you
don't fully participate to get all of the
match, you are choosing to be compensated for
(09:47):
less than you're eligible for.
It's like saying, no, I don't need this
month's paycheck.
Thanks anyway.
Why would you do that?
You're entitled to that.
That's what the employer is saying.
Your value to them is they want you
to be fully compensated and they want you
to be well-prepared for your retirement when
(10:09):
the time comes.
They're trying to incentivize you to be saving
for retirement and take advantage of every aspect
of that, just like you wouldn't turn away
some benefit that an employer is providing.
Why would you, right?
So in any case, let's talk about just
for a minute, the amounts you can contribute
(10:30):
into this.
So the first thing we're talking about there
is the match, which is the free money
part of it, but you have the opportunity
to contribute amounts.
There are limits though, as to how much
one can put into their retirement plan.
So it's worth reviewing that.
Russ, you got a few things there.
(10:51):
You want to go over some of that?
Yeah.
So for employees under age 50, the contribution
limit is 23,500 for 2025.
That's per person.
So pretty high limit there.
You can hit that number, especially earlier on
in your career, you're doing pretty well.
(11:11):
Yeah.
That's almost 2,000 a month, right?
That's a lot of money.
So that'd be great.
A lot of colleagues I've had getting jobs
out of school and that sort of thing,
they think about their Roth IRA.
I don't know, for whatever reason in my
generation, it is a popular investment option.
(11:33):
We'll touch on that in a minute.
I think that's a smart thing.
So we can come back to that.
Yeah, definitely.
But I recently had a conversation with my
brother and he was saying, I plan to
contribute to my Roth IRA.
I'm like, well, what about your 401k?
He's like, oh, I thought it was one
or the other.
I didn't know it was all...
So that could kind of come up too.
(11:54):
There's separate retirement accounts that you can contribute
to and each one has a different limit.
Yeah, that's a good point.
And when you have a available to you
at work, that can affect the amount you're
eligible to participate in for your IRA or
whether or not you're eligible to participate in
(12:16):
it.
And a Roth in that case.
And income limits as well for a Roth
IRA.
Yes.
Essentially, if you're doing a Roth IRA, once
you exceed a certain level of income, I
want to say it's around 146,000.
Do you remember what the number is?
(12:37):
150, I believe.
For a Roth.
So for a Roth.
Okay.
Yeah.
This is for a single person.
Once you get to 150,000 and then
you start to have a declining eligibility to
do the full contribution because you make too
much, air quotes.
(12:58):
And then at 165, you're fully phased out
from being able to contribute anything to a
Roth because you have your other work plan
available to you.
But keep in mind in that instance too,
your brother, I think you said, may have
the opportunity for a Roth contribution at the
(13:19):
work plan.
So the IRA only allows you in that
case to under 50 to do $7,000,
but you could be doing 23,000 into
the Roth.
That's what he really wants to do if
he has the availability of a Roth plan
for the 401k plan.
(13:40):
But just quick on this topic of Roth
traditional, maybe we can give some brief guidance
as to who should consider which and when.
Do you want to weigh in on that
or either of you want to weigh in
on that?
Go ahead, Russ.
Well, I think for, especially for high earners,
(14:02):
there is a appeal to the tax treatment
of a traditional 401k where the money is
going in pre-tax and you just less
income that you have to pay on.
So especially during their earning years, the traditional
401k has a lot of appeal.
I would think when income is lower, maybe
(14:25):
earlier on in your career, a Roth 401k
could be a better option.
Yeah, I totally agree.
So early in your career when you're probably
not making your peak earning income is a
great time to think about this.
Additionally, I would argue that people who are
in the highest income tax brackets, why not?
(14:47):
They're already in the high income bracket.
They're probably not going to see a reduction
in income tax bracket when they're retired, just
because they're likely to be having a high
income even in retirement.
And then you could argue that tax rates
are relatively low and maybe it's a good
(15:10):
time to be choosing to pay that tax
if you have a higher propensity for substantial
income later in life as well.
So yeah, you get that dichotomy on the
low end of income, on the high end
of income, probably good times.
Why argue?
Do both.
You can do both in a 401k in
many instances.
(15:31):
You can allocate funds to the traditional and
to the Roth.
And ideally when you reach retirement and you're
in that decumulation phase, it's great to have
both types of accounts so you can better
manage your taxes.
You can decide what accounts you're taking from,
you can decide which accounts are better to
leave to heirs.
(15:53):
So I like both.
No, I, yeah, I agree.
That's a good, good call.
When it comes to the contribution limits, going
back to that.
So we have the opportunity to do $23
,000 in 2025.
So there's still time if you haven't been
planning to max out your 401k, if you
(16:16):
have the ability to do that, there's still
time to talk to your HR, get your
payroll structured where so much is going to
your plan.
But if you're over 50, 50 and over,
there's a catch-up provision.
You want to, so 30,500, is that
the number these days?
(16:38):
31,000, I believe.
31,000.
Okay.
Sorry.
So you've got that.
And there are different numbers for different types
of plans, but yeah, 31,000 is the
number for that now.
And then it gets more convoluted if you're
(16:59):
in your 60s.
There's a little window of period of time
where you have some additional amounts that you
can do.
There's a couple of places where there's little
nuances.
So if you are looking for help on
that, that's probably, if you're in that window
(17:20):
of age range, it's probably worth talking to
someone to get the particular details because it's
changing at different stages of your, in your
60s when you can and can't do more
than these numbers.
In any case, try to max it out
is the point.
(17:41):
And you're, by the way, your employer, your
HR department, your 401k team, wherever they do
the 401k, they will also be able to
give you details of what's my number at
my age.
Okay.
So if you need help, that's another possibility.
(18:02):
When it comes to 401k, there's a lot
of reasons people choose to do the 401k.
One is the simplicity of it through payroll
deduction.
The other, and it's somewhat out of sight,
out of mind, it helps.
The other is usually the employer is, as
a fiduciary is expected to be vetting for
(18:25):
some decent investment options and they should give
you a range of offerings.
Today, it's very common for employers to be
opting for these target date approaches.
It's somewhat becoming less frequent where you have
the opportunity to sort of do your own
selection of funds.
(18:46):
It's not to say that it's not available,
but it's becoming less frequent.
It's much more common for plans to be
really focusing on a target retirement date structure
where it's intended to be an asset allocation
design that is available to you.
Some of these are better than others and
(19:07):
you don't have as much control of these.
This is probably a topic for another show,
the life cycle funds and target date funds
and some of the strengths and weaknesses that
these offerings have.
For most people, there's usually a little more
international than they might typically select themselves.
(19:28):
There are some that are just index-based.
There are some that are more manager-based,
some that will do a composite of multiple
managers.
So it can really vary in the way
these are structured.
The biggest problem, quote unquote, that I see
with people that we speak with and such
(19:48):
is that they don't know how they're invested.
They go that first day as I described
and go in and they fill out their
forms and there's really no personal advice.
They might be given a paper with choices
or a website to visit, but there's no
due diligence done on behalf of the employee
(20:09):
and saying, how does this fit into my
financial plan?
Do I have other things?
Is it consistent with my own risk tolerance?
What's my time horizon?
And so forth.
And sometimes, they make good decisions or they
make simple decisions or they don't make bad
decisions, maybe the best way to say it.
And sometimes they do.
(20:29):
We've seen people come in with 401ks that
people have been contributing to for long periods
of time and they're in a very conservative
type cash preservation setting and they missed the
opportunity for some growth that they would have
had if they had sought some counsel.
And you can see the other end of
the spectrum, with people who have kept all
(20:52):
in these high risk and now they're getting
close to retirement and saying, is this a
good idea?
And they're maybe taking an abundance of risks
that might be right.
Questionable as well.
So that's a great point.
This is the kind of thing that's best
done with a little bit of guidance and
(21:12):
counsel and conversation, context of your overall plan
and not to just ignore it, which I
think is often the case.
And as we talked about earlier, it's very
common for people to have an employer plan
that they have at one place and then
just move on to the next one and
not really give much attention to the one
that they had a decade ago or whatever
(21:34):
it might be.
And it needs some consideration and review and
revision from time to time.
And it could be, let's say you didn't
do a target date fund in that original
401k when you first started working.
That might be at a very different allocation
than you would want 10, 15 years later
(21:56):
at this new job.
And you kind of forget about it and
it's all equity.
It's all tech stocks or whatever it might
be.
So yeah, it's easy to kind of forget
these little nuances with 401ks especially.
Well, right on topic with one of the
things that 401k day is about and one
of the things that they're suggesting that people
(22:16):
do is to consider consolidating the old accounts,
if you will, into whether it's an IRA
or another 401k and do some homework about
what their asset allocation should be in that
consolidated account.
So we're right on target with one of
the reasons that we're having.
It's a great reason to have it and
(22:37):
to think about it is to maybe give
some attention to those old accounts and whether
to keep them where they are or to
make a change of some kind, whether it's
into your IRA or into your 401k.
This is again where the context can matter.
What's going on with the rest of the
plan might help you identify what's the right
(22:59):
answer for that question.
How soon will you be retiring?
How soon will you need the money?
We have clients sometimes who say, I think
I'm thinking of making a loan against my
401k.
Is that a good idea?
Are there other alternatives as to where to
do that?
Pros and cons, things to be discussed, but
(23:23):
sometimes you have that availability of borrowing from
your 401k.
However, it does diminish your earning capacity, the
performance expectation.
People often think, well, I'm just paying myself
back and that has appeal, but it also
does impact your compounding and your rate of
(23:44):
return from that experience.
There's trade-offs that need to be considered
and then what are the alternatives?
Absolutely.
One of my favorite things that I like
to talk about with people is to increase
your contributions on some period.
(24:05):
We talked about when you're young, get started,
at least do the match.
Get involved, do the match, start your process.
This applies to everyone, but when you get
a raise annually, you get a review, you
change jobs, whatever it is, whenever something happens
positively, bump that up 1%.
(24:26):
Just keep increasing your annual contribution.
Easy way to do it.
You get a 3% raise, 1%
goes to your retirement plan, 2% goes
to your cost of living.
Absolutely.
The truth is none of us miss that
1%.
No matter how tight your budget is, it's
(24:49):
typically that you don't even miss it.
That's a great way to keep increasing that
benefit, that little bit.
Each time you get a bump in pay,
just allocate a portion of it to the
savings.
Oftentimes, when you're setting up the 401k in
the first place, they have an option.
It says, do you want to increase this
by 1% each year?
It's an easy way when you start to
(25:12):
just have that go on without really thinking
about it.
Big picture, 401k or 403b or simple IRA,
whatever retirement plan you have at work is
a great resource to take advantage of.
It's going to help you to be better
prepared for retirement and to do that savings
you need to do.
(25:33):
When it comes to as the amounts grow,
as you go through the period of years,
it's time to get some counsel in the
process periodically.
You may want to talk to your financial
advisor, your financial planner.
It's certainly something we talk to clients about
routinely in the context of what else is
(25:55):
going on in their financial plan.
If you need any help, don't hesitate to
reach out to us.
Hopefully, we can be a resource to you.
Thanks for being with us.
Until next time, keep striving for something more.
(26:37):
Transcribed
by https://otter.ai
(26:59):
Readers should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
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