January 15, 2025 • 30 mins
This episode dives deep into understanding your 401K and retirement options through employers, emphasizing the importance of maximizing contributions, especially around employer matches. Key topics include auto-enrollment processes, investment options, Roth vs. pre-tax contributions, and what to do when changing jobs or needing to access funds.
• Importance of understanding employer matches
• Differences in auto enrollment versus manual enrollment
• Contribution percentages and how to adjust them
• Vesting periods and their impact on your retirement savings
• How to choose investments within your 401k
• Exploration of pre-tax and Roth contributions
• Loan and hardship withdrawal options
• Considerations when leaving an employer and rolling over your 401k
• Guiding principles on retirement planning and strategy
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
A good company match is a game changer.
Speaker 2 (00:04):
That is a huge game changer.
I mean, we have friends thathave matches, company matches,
6%, 7% now.
Speaker 1 (00:10):
Yeah, I saw somebody on Instagram recently another
content person, and they get an8% match.
I was like, holy crap, where doyou work?
I need to work there.
Speaker 2 (00:23):
And so what that means is that for every, if you
have an 8% match at 100%, thatmeans that for every dollar that
you're putting in up to 8% ofyour salary, your employer is
going to contribute that also.
Speaker 1 (00:35):
So you're getting 16% .
Speaker 2 (00:37):
I mean, that's no, it's significant, that's super
significant, I would say that isthe number one benefit of a
401k plan is if your employerprovides a great match, because
it is essentially free money.
Speaker 1 (00:58):
Hey babe, what are we talking about today?
Speaker 2 (01:01):
Today we are talking about everything that you need
to know when it comes to yourretirement plan through your
employer.
So we're talking about 401ks,403bs and all the information
that you should definitely knowto make sure that you're
maximizing that benefit.
Speaker 1 (01:15):
That is excellent, because having a good 401k plan
through your employer can be atotal game changer.
But we want to make sure thatyou optimize the account and
don't just enroll and then neverlook at it again.
Speaker 2 (01:29):
Because, even though I think obviously most people
know what a 401k plan, know whattheir 403b is, I still think
that there's a large number ofpeople who don't fully
understand how it functions andall the different details that
they need to pay attention towithin that plan to make sure
that it's tailored towards whatthey're trying to accomplish and
that, like I said, you'remaximizing the plan itself,
(01:50):
because little newsflash plansdo vary from employer to
employer.
There are some things that are,you know, the same across the
board, but there are definitelyvariances in what your 401k plan
offers you, based upon theemployer that you're at and how
much they want to actually putinto the plan itself.
Speaker 1 (02:06):
All right.
So where do you want to start?
What do people need to knowfirst?
Speaker 2 (02:13):
The first thing that you need to know when you get a
new job is do you have tomanually enroll into your 401k
plan or are you automaticallyenrolled?
Also, with that, is there awaiting period before you can
actually enroll in the plan?
Now, I would say that's notnormally how I see it in regards
to having to wait, but thereare still, you know, jobs out
there that require you to waitmaybe 30, 60, 90 days of being
(02:35):
employed before you can actuallypartake in the 401k plan.
Speaker 1 (02:39):
Okay, what is your experience with people having to
enroll themselves manuallyversus being auto enrolled?
Speaker 2 (02:46):
I would say most people are auto enrolled.
Normally you have to manuallyunenroll but upon you know being
employed and going through thatprocess, they automatically
enroll you into the plan.
Speaker 1 (02:57):
OK, and then, once you're enrolled, what do you
need to know?
Speaker 2 (03:00):
So the first thing is like, once you're enrolled, you
need to normally set up anonline profile so that you can
access the 401k plan throughwhatever provider you have.
And once you set that onlineportal, you do want to go in.
If you are enrolled, the firstthing you want to know is hey,
how much am I contributing?
Because if you're automaticallyenrolled, that means you're
also automatically enrolled in acertain percentage to
(03:21):
contribute.
Speaker 1 (03:22):
Oh, what's?
What do they usually set asyour contribution when you're
auto enrolled?
Speaker 2 (03:28):
I would say that normally, if your employer does
provide a match, I would saythey normally auto enroll you
for the match.
So that might be a little bitmore, it might be a little bit
less than what you want tocontribute, but the idea is that
you want to know what thatnumber is and then make sure
that it aligns with what you arelooking to contribute.
Speaker 1 (03:43):
Number is, and then make sure that it aligns with
what you are looking tocontribute.
Okay, a good company match is agame changer.
Speaker 2 (03:48):
That is a huge game changer.
Speaker 1 (03:51):
I mean, we've had friends that have, some have
matches company matches six 7%now, yeah, I saw somebody on
Instagram recently, anothercontent person and they get an
8% match.
I was like holy crap, where doyou work?
I need to work there.
Speaker 2 (04:07):
And so what that means is that for every, if you
have an 8% match at a hundredpercent, that means that for
every dollar that you're puttingin up to 8% of your salary,
your employer is going tocontribute that also.
Speaker 1 (04:19):
So you're getting 16% .
Speaker 2 (04:22):
I mean, that's no, it's significant, that's super
significant, I would say that isthe number one benefit of a
401k plan is if your employerprovides a great match, because
it's essentially free money.
Speaker 1 (04:34):
Yeah, that's something I've always told
Brandon.
Hey, in my next job and I getfour and a half percent, but in
my next job I'm like man, let meget up to that seven 8% mark,
because that's a game changer.
Speaker 2 (04:46):
And knowing that information can be one of the
things that when you're lookingfor a new career or in a new job
and you're looking, you havemaybe a couple of different
options that you might want tolook at their benefits package
and see what their match is,because that might be the
tipping factor for one employerover another.
Now, since we are talking aboutthe match, we do also want to
(05:06):
talk about knowing what thevesting period is for that match
, because you're not necessarilyentitled to 100% of your
employer's match on day one ofthe matching it.
Yeah, so normally what I'veseen is more like a four-year
vesting schedule and normallythat's a little bit over the
course of that time.
So you have a gradual vestingschedule.
So after you've been there forone year you might be entitled
to 25% of what your employer hascontributed to your plan.
(05:28):
Second year you're entitled to50%, third year, 75% and so on
until you reach 100%.
And then afterwards, once youreach that 100% mark and if you
were to change jobs, then youwould be 100% entitled to that
money that your employer hasmatched.
But if you leave prior to that100%, then you might be entitled
to none or just a certainpercentage based upon the
(05:49):
vesting schedule.
Speaker 1 (05:50):
Right.
So those are things that youwant to look at, especially if
you are getting a high match.
You know, maybe you wait untilyou hit year four to leave that
company.
If you're going to be startingthat job search over so that
you're not close to it.
Yeah, so that you're not missingout on that money.
Right, I mean people call itfree money, but really it should
be considered part of yourtotal compensation package.
(06:11):
But if it's the matter of like,hey, let me leave six months
early or I miss out on you know$60,000, or whatever it might be
, those are things that you needto look into, because you know
again, we never want to leavemoney on the table and the thing
(06:33):
is, too, is that sometimes theemployer match could be a little
bit complicated in regards tohow they word it.
Speaker 2 (06:35):
They could be like you know up to the first, 2%
will match it at 100% the next2% will match at 50%, so it can
be a little bit wordy in regardsto how they actually do it, but
the idea is that you make surethat you understand what your
employer match is and do yourbest to take full advantage of
that.
Speaker 1 (06:56):
Have you been listening to our podcast and
wondering how am I really doingwith my money?
Am I doing the right thingswith my investments?
Am I on track to reach myfinancial goals?
What could I be doing better?
If you answered yes to any ofthese questions, then it's time
for you to reach out to Brandonto schedule your free yes, I
said free 30-minute introductionconversation to see how his
(07:19):
services could help make you themore confident moneymaker we
know you could be.
What are you waiting for?
It's literally free and at thevery least, you'll walk away
feeling more empowered andconfident about your financial
future.
Link is in our show notes.
Go schedule your call today.
Yeah, people talk about targetdate funds and how is the 401k
(07:43):
invested?
Can we talk about that?
Speaker 2 (07:45):
So with how the 401k plan is invested.
Let's just say you're autoenrolled into the plan and
normally what they do is thatthey auto enroll you into a fund
also.
So normally the auto enrollmentfund that they choose is what's
called a target date fund.
Now, what a target date fund isis that it takes the
approximate year in which you'dbecome retirement age, so
approximately the year that youwould turn 60 years old.
(08:07):
All right.
Now, as you are further awayfrom that date, the target day
fund is more aggressive.
Reason being is that you havetime on your side, so you want
to go ahead and take advantageof that time and be more
aggressive in your investment sothat you can actually maximize
your growth.
Now, as you get closer andcloser to that date of
(08:31):
retirement, the target date fundgoes from being more aggressive
to becoming more conservative,because the idea is that you're
getting closer to retirement andyou don't want to take as much
risk because you want to protectthe growth that you had over
that time.
And it's not a terribleinvestment by any means.
You know, it's one of thoseones where you just set it and
leave it and it's not going totreat you terrible because it's
going to do what you, overall,would need to do over the course
(08:53):
of, you know, your work lifewhen it comes to managing that
investment from a assetallocation with the risk
standpoint.
Speaker 1 (09:00):
But can you choose to be more aggressive if you
wanted to be, even if your timehorizon is getting closer to
that retirement age?
Speaker 2 (09:09):
100.
You have full flexibility tochoose from any of the funds
that are offered within your401k plan.
Now, do keep in mind that youdo have limitations in regards
to what you can invest in, onlybased off of what your employer
plan allows you to.
So this is one of the thingsI've seen where there's a
variance.
If you work at an employer thatputs more money into their 401k
(09:29):
plan maybe at a biggercorporation then you may have
more options to invest in ascompared to if you're at a
smaller company.
You might have less options,and the reason being is that
that variance does have a costassociated with it from the
employer standpoint, as far ashow much money they're paying
for the plan.
But you need to also understandwhat are your options, what do
(09:50):
you have available to invest in,and also understanding what the
difference means of all thedifferent investment options
that you have.
One of the things that Inormally do is that you know,
with just this 401k plan, wewent more aggressive than a
target date fund.
Reason being is that thepercentage of allocation that
was towards more aggressive,like equity stocks, in
comparison to what was allocatedtowards more conservative, like
(10:13):
bonds, fixed income.
We want it to be moreaggressive, because I think that
we can be more aggressive withthe time horizon that we have
before we would even access thataccount.
Speaker 1 (10:22):
So what we and it has served me well because when I
log into my 401k I'm always veryimpressed with where it is
based on what I'm actuallycontributing.
And again, I do get a four anda half percent match.
But I'm glad that we wentaggressive.
Speaker 2 (10:38):
Yeah.
So the way that a target day,like kind of the old rule of
thumb in regards to howaggressive you should be versus
how conservative you should be,is that, based upon your age,
give or take a couple numbers,that's how much you should be
conservative.
It's kind of what they wouldsay.
So if you're 30 years old,maybe a 70-30 split.
If you're 40, maybe like a 35,between 35 and 40 being more
(11:00):
conservative and then 60, 65being more aggressive.
But I honestly think that youcan be a hundred percent equity
at the age that we're at.
You know we're 20 years or soaway from retirement age, where
we would access these accounts.
I think that's plenty of timeto be more aggressive and take
advantage of the growth.
The difference is is thatobviously I do this for a living
(11:21):
, so I look at this and I makechanges as needed.
As compared to the averageperson who doesn't have the
knowledge that I have nor thetime to do necessarily all these
things.
A target fund might serve you.
Perfect, because it does allthat.
Speaker 1 (11:34):
You understand these nuances about your account and
what's available to you, beforeyou forget it, after you've set
it.
Speaker 2 (11:50):
And you should be able to find all this
information through your onlineportal for your provider of your
401k plan.
You should be able to find outyou know what the employer
matches.
You should be able to find outwhat um investment options are
available to you also, and theyalso give you information as far
as you can click on thesedifferent options and they give
you a little bit moreinformation about what the fund
(12:12):
does, how it performs, historicperformance, stuff of that
nature, which can be a littledaunting to read through, but I
think it's a good practice to atleast look at it.
And if you have questionsobviously you listen to this
podcast you can reach out to me.
I help people with their 401kplans all the time, but knowing
where the information is andunderstanding that you do have
options is the big thing that Iwant to stress.
Speaker 1 (12:32):
Yeah, what about people talk about pre-tax,
after-tax, roth contributions?
What's all that about?
Speaker 2 (12:39):
All right.
So there are a few differentways that you can contribute
money to your 401k plan.
Now what I mean that is thatthe one way that the only way
you can contribute money isgoing to be coming out of your
paycheck.
But there's different ways thatthe money would go into the
account.
So the one that most people arefamiliar with is the pre-tax
contribution.
So what that means is that themoney going into your 401k plan
or your 403b is taken out ofyour paycheck prior to taxes, so
(13:03):
that money going in has notbeen taxed.
Once it goes into your 401kplan, it's growing and while
it's in there it's called taxdeferred, which means that you
are not paying taxes on it whileit's in the account and growing
.
Now when you do get taxed iswhen you reach retirement age
and you start to withdraw money.
The amount that you withdrawwill be taxed at ordinary income
(13:23):
tax rates.
At that time, whatever the taxrates are All right.
So that's the one that mostpeople are familiar with.
But there are some other waysto contribute to your 401k plan.
Most people nowadays, honestly,may have the option to
contribute Roth contributions totheir 401k plan.
Now, most people are familiarwith some aspect of how a Roth
IRA works.
This is very similar, the numberone difference being is that
(13:45):
with a Roth IRA, in order tocontribute just a traditional
way to a Roth IRA, there areincome limitations and if you
make you know, quote, unquotetoo much money, then you can't
contribute directly to a RothIRA.
I know there's other ways to doit, but that's not what we're
talking about right now.
So the nice thing with a Roth401k plan contribution is that
(14:06):
there are no income limits.
So it doesn't matter how muchyou make, you can contribute
Roth to your 401k plan if thatis an option available to you
through your employer.
And to kind of refresh yourmind on how that works is that
instead of the money coming outof your paycheck pre-tax, it's
going to come out of yourpaycheck after tax.
So you are have already paidtaxes on the contribution going
into your 401k, 403b.
(14:27):
All right, while the money's inthere, it's growing tax
deferred.
And then the nice thing is whenyou pull it out in retirement,
you are not taxed, obviously, onthe amount that you put in,
because you've already paidtaxes on that, but you're not
taxed on the growth of it either.
Speaker 1 (14:40):
And that's a big thing.
So that sounds like a reallygood option, if it is available,
because you're hoping that themoney that you're making now is
less than the money that youwould make, you know for us it
would be, let's say, 20 yearsfrom now, when we are at
retirement age, because ofcourse, you want your salary to
(15:01):
grow Right.
Speaker 2 (15:01):
Well, the thing so here's one of the benefits I
would say from my viewpoint whenit comes to pre-tax savings for
retirement and post and Rothsavings is that I like to
control as many things as I can,and if I can take out an
unknown, then I want to takethat out.
So one of the hard parts for usis that 20, 25 years from now,
I don't know exactly what taxbrackets are going to look like.
(15:24):
I have no idea.
Um, I would honestly say morethan likely they're going to
increase.
The reason being is that if youlook at you know taxes over the
past 800 years, we're almost atlike a historic low when it
comes to taxes.
I know it doesn't feel like itfor most people, but just
strictly from a tax standpoint,income tax standpoint we are at
historic lows yeah, itdefinitely doesn't feel that way
(15:44):
well, that's because thingscost more.
It's not from the tax standpoint, but but taxes themselves, as
far as the percentage thatthey're taking of your income,
is at lows, while we're stillhaving all time national debt
highs and everything like that.
I find it hard to believe thatincome taxes are going to go
lower.
As compared to with our parents.
When they were our age, andeven you know earlier than that,
you know the eighties andnineties they had a higher
(16:06):
marginal tax rate and so they'vekind of won out.
You know they didn't pay taxeson the money back then and now
they're paying taxes on it inretirement in a lower tax
environment.
I don't necessarily thinkthat's going to be the same case
for us.
So, I honestly think it's.
Honestly, though, I think it's.
I think it's great to have bothoptions.
So have some pre-tax money andhave some Roth, because it
provides you flexibility.
(16:26):
And the nice thing is that evenif you're contributing Roth
contributions to your 401k planand you have an employer match,
your employer is going tocontribute pre-tax because
they're taking their taxdeduction.
They're going to make you paytaxes on it.
So even if you're justcontributing Roth, you're going
to have pre-tax money in thereif you have an employer match
okay, so can you do a Like ifyou?
have an option you can dopre-tax and Roth.
Speaker 1 (16:49):
Yeah, it doesn't have to be all or none.
Speaker 2 (16:51):
So like, if you want to contribute, say you want to
contribute 6% you can contribute3% to Roth and 3% to pre-tax.
Speaker 1 (16:57):
Well, yeah, is that something you see often with
your clients, or?
Speaker 2 (17:01):
I mean not really to be honest with you, because it
costs the employer more.
No, no no, you can do it,that's not the problem it's just
a matter of making things assimple as possible for people.
Speaker 1 (17:10):
Oh, and too many choices sometimes.
Speaker 2 (17:12):
Yes, people just overthink things.
Speaker 1 (17:14):
Yeah.
Speaker 2 (17:14):
So like we look at their situation.
Speaker 1 (17:28):
no-transcript when you get into retirement.
Speaker 2 (17:32):
as far as flexibility standpoint, Now there is one
other way that you contribute toa retirement plan, like a 403B
401K, and that's calledafter-tax.
Now I do want to specify thatafter-tax and Roth are not the
same, because I've come acrossnumerous people who thought that
they were contributing Roth andthey were actually contributing
after tax.
Speaker 1 (17:52):
Okay, what's the difference?
Speaker 2 (17:53):
So the main difference is is that the after
tax is mainly for after tax andhonesty is for high income
earners, where they're alreadykind of maxing out their
contributions to their otheraccounts, their 401k plan, and
they want to do above the normallimit.
So the after tax allows you todo that, because it's money
that's already been taxed whenit's going to the account.
Differences is that you willalso be taxed on the growth.
Speaker 1 (18:18):
Oh, okay.
Speaker 2 (18:19):
But it allows you to put money away additionally.
Speaker 1 (18:23):
Okay.
Speaker 2 (18:23):
Above the normal contribution limits to a 401k
plan, a 403b.
Well, like it's also not to gettoo much in the weeds, it's.
Some plans also allow for youto do what's called an in-plan
Roth conversion and sometimesyou use that after tax bucket to
do a Roth conversion.
Speaker 1 (18:42):
Got it.
Speaker 2 (18:42):
But I don't need to go down that path.
That's more of a complicatedone that we can do one on later
on.
This is just to let you knowthat there are different ways
you can contribute to yourretirement accounts.
Speaker 1 (18:51):
Yeah, no, that's good to know.
I don't know that that's acommon thing that people you
know.
One of the things that peoplealways talk about is like do you
get a match?
But I feel like that's reallywhere the conversation stops.
Is there a contribution maxannually for what you can put
into your 401k?
Speaker 2 (19:11):
Yeah, there is a contribution max each year and
for this year, 2024, thecontribution max is 23,000.
If you are under the age of 50,if you are 50 years old or
older, then you are actuallyallowed to contribute an
additional 75.
Oh, nice Cause they want to getyou to that retirement yeah,
just making sure, for example,it's for people like, for
example, if you maybe weren'tmaxing out in previous years or
(19:34):
you just weren't contributing asmuch as you would like to.
This gives you a little bitmore wiggle room to put more
money away so that you're in abetter place for when you retire
how kind, um.
Speaker 1 (19:44):
What about if you don't want to wait or can't wait
until retirement and you needaccess to all that money you've
been hoarding away?
What are our options?
Speaker 2 (19:53):
So there are a few different options that may be
available.
So I'm a first focus on optionsavailable to you know more
focus on people around our age.
So one of the things you mightwant to take a look at is see,
does your 401k plan allow forwhat's called a 401k plan loan?
So what that does is allows youto borrow money from your 401k
plan and then you have to pay itback.
(20:15):
All right, so you're borrowingmoney from yourself.
Correct.
Speaker 1 (20:19):
That's nice.
Speaker 2 (20:20):
It's nice, but it's not one of those things where,
like I would advise people toconstantly use this Because, for
example, say you borrow, borrowten thousand dollars from your
401k plan.
You take a loan out while it'snot in the account, it's not
there to grow right, you'remissing out on the growth
correct yeah, we've done aprevious episode on this yes
taking a loan from your 401k sothe idea is just, once again,
(20:42):
knowing what the features ofyour plan and in case you need
to use it, because there mightbe a scenario where you just
have to use this loan and it'snice to know if it's available
to you.
So you want to know, hey, do Ihave availability of a loan,
what is the amount that I'm ableto take a loan out on?
And then also, how many loansam I able, am I allowed, to have
out at one time, because someplans allow for maybe one loan,
(21:03):
some allow for two and somedon't even have that option.
But the idea is that you justwant to know beforehand, just in
case.
Speaker 1 (21:09):
Yeah, that makes sense.
Speaker 2 (21:11):
Now there are some other ways that you know.
If you are in a bad situationand you need money from your
plan, you can possibly access it.
There is something you knowoften with these plans called a
hardship withdrawal, where youare going through some form of a
qualified hardship, and theynormally have the details of
what qualifies spelled out inthe plan, but it would allow you
to access a certain amount ofmoney within your plan.
(21:32):
The thing is, though, that itis still a withdrawal, so when
you do a withdrawal from your401k plan 403b prior to being 59
and a half years old, most ofthe time you are going to incur
a 10% penalty in addition topaying taxes If that money is
pre-tax.
Speaker 1 (21:48):
Okay, so penalty and taxes yeah.
Speaker 2 (21:50):
And the taxes aren't really the biggest part to focus
on, because you're going to paytax on at some point.
It's an additional 10% penalty,which is huge.
Okay, now, um, you do also arealso sometimes allowed access to
um money within your 401k plan.
If, for example, first timehome purchase, they might allow
you to go ahead and take out awithdrawal for that as well.
There would be no penaltyassociated with that, but you
(22:12):
may have that available to youthrough your plan.
Speaker 1 (22:14):
Only for a first-time home buyer.
Correct Interesting.
Well, that's lovely, very nice.
Okay, what if I leave myemployer?
I know people have said leavingyour 401k with an old employer
is like leaving money with an ex.
Speaker 2 (22:32):
Well, I'm going to simply once again that it
depends, all right.
What it really depends on is howold you are when you leave the
employer and what are your plansfor after you leave the
employer.
So, for example, if you or Ileft our employer, I would
probably recommend rolling itover to an IRA, whether that's a
Roth IRA or a traditional IRA,based upon the type of money
(22:54):
that you contribute to theaccount.
But rolling over to an IRA anindividual retirement account
and the main reason for that isthat one provides you
significantly more options toinvest.
You know you have thatlimitation to.
I think at most I've seen maybein the plan is 20 options to
invest in, and that's a morerobust plan if it has 20 options
as compared to thousands ofoptions that are available to
(23:15):
you in the market.
So you have way more optionsavailable to you.
Also, it's just easier to keeptrack of from a consolidation
standpoint, to roll into an IRA.
If you left one employer rollinto the IRA, you leave your
next employer rolled into thesame IRA.
Makes it easy to keep track of.
Speaker 1 (23:30):
Okay.
Speaker 2 (23:31):
Now, the one caveat I would say is that, depending on
what age you are when you leaveyour employer because, for
example, if you're someonethat's maybe 55 years old when
you leave your employer, youmight want to keep it at that
employer's 401k plan because youmight want to utilize the 55
rule- oh, where you can actuallyaccess it at the age of 55.
Speaker 1 (23:50):
Correct.
Speaker 2 (23:55):
There is a rule that allows you to access money
within your 401k plan withoutincurring that 10% penalty prior
to being 59 and a half yearsold, if you were to leave your
employer in the year you turn 55or after that.
So it might make more sense foryou to leave your money there
if you were looking to startwithdrawing from it and don't
want to have to deal with thosepenalties.
Speaker 1 (24:12):
Interesting, but that then only works if you leave
that employer, not previousemployers.
Speaker 2 (24:18):
Correct, because you have to leave, it has to be an
employer in the year in whichyou left, at 55 years old or
older.
Okay, well, we're not there yet, but but the thing is that you
have to leave it in the 401kplan because if you roll it into
the IRA, that rule does notapply anymore.
Speaker 1 (24:34):
Okay.
Speaker 2 (24:34):
So it's really determining one, like I said,
how, what are you when you'releaving and what is your plan.
Speaker 1 (24:39):
If my money is in an IRA, do I have to wait until I'm
59 and a half to access it, orcan I access it at any time?
Speaker 2 (24:47):
well, one.
It depends in some aspects.
Speaker 1 (24:52):
So we had a dollar for every time.
Brandon said it depends, we'dbe in bora bora recording.
Speaker 2 (24:56):
Well, it depends on what type of ira you have
because, remember I said withthe roth ira, the money that you
contributed to it is after tax.
You've already paid taxes on itso you actually have access to
your principal the difference isthat you don't have access to
the growth on it until 59 and ahalf years old without a penalty
.
Speaker 1 (25:12):
Okay, gotcha, I'm just making sure that it's still
a retirement account where Ihave to wait until retirement.
Speaker 2 (25:19):
What do you mean by that specifically?
Speaker 1 (25:20):
for the IRA.
Speaker 2 (25:21):
Well, like I said, but the IRA like, for example,
if you have a Roth IRA thatyou've been contributing money
to for a while and you have itbuilt up, you have a lot of
money in there that's alreadybeen taxed the principal so you
could access that.
Speaker 1 (25:31):
Okay, got it.
Speaker 2 (25:33):
I know A lot of rules .
Speaker 1 (25:34):
Yes, this is why talking to a professional helps.
Speaker 2 (25:38):
Like I said, unless you're somebody that really
wants to just get in deep withall this information and keep up
with it and keep it, and maybeit's just you enjoy it, great I
think.
I think most people like theydon't enjoy it.
They have a thousand otherthings they'd rather do and
they'll just get confused with,with minor things and you should
be surprised that you somethingyou think is minor cost you a
lot yeah, could cost you I meanthink about someone who retired
(26:02):
at 55 and they rolled the moneyover to an ira.
they could utilize the 55 rule,and now you've got a 10% penalty
for your withdrawals.
Speaker 1 (26:10):
Yeah, I mean it could be a lot of money, it could be
a lot of money for people, itcan definitely be a lot of money
.
Yeah, okay, anything elsepeople need to know about their
401Ks, 403bs, their retirementaccounts.
Speaker 2 (26:23):
Honestly, I would say those are the main things that
you need to understand.
Speaker 1 (26:29):
Okay.
Speaker 2 (26:29):
You know, I would say that's the normal.
Those are some of the detailsthat I think a lot of people
overlook and they don'tnecessarily understand and they
don't take the time to Now.
I'm not saying that you'regoing to understand all these
details right away, but startlooking through your 401k plan,
Like you should at least hop onthe portal and just dig around
in it.
Speaker 1 (26:46):
Yeah, the portal and just dig around in it.
Yeah, so if you, if people arelistening to this on their way
to work today and now they'relike, ooh, I want to go look at
my 401k.
What are the three things youwant them to look at today?
Speaker 2 (26:56):
One you should be able to.
If someone asks you how muchyou're contributing, percentage
wise, to your 401k plan, youshould be able to tell somebody.
Okay, so figure out yourpercentage that you're
contributing and, if there's amatch, yeah so like I don't
necessarily need to know, likethe exact dollar amount, but do
you, are you contributing threepercent of your paycheck, four
percent, five percent?
Speaker 1 (27:12):
yeah, you should know that and you want to get your
match, so you should becontributing up to whatever your
match is the second part.
Speaker 2 (27:18):
You should know what your match is and it's always
also make sure that when youhave your like open enrollment
and because companies could makechanges to their match.
Speaker 1 (27:27):
So make sure you pay attention to that.
Yeah, so pay attention to that.
And then what's the third thing?
Speaker 2 (27:32):
Know what options you have to invest in and also know
how you're contributing.
It's like I said before.
I had someone that I looked attheir 401k plan.
They were 100% certain theywere contributing Roth and I was
like I hate to tell you this,but for the past five years
you've been contributing aftertax.
Speaker 1 (27:45):
And those are not the same.
Not the same at all.
Yeah, so pre-tax, after tax andRoth are the options that
you're looking for.
Speaker 2 (27:53):
And they're clearly labeled.
So if you see three differentoptions, there are three
separate options for a reasonbecause they're not the same.
Speaker 1 (28:02):
Yeah, that's the one nice thing about finance stuff
is, if it's not the same, youwill know because it'll be a
different line item yeah, yeah,okay.
So go look at your 401ks.
Hopefully this was a helpfulepisode to you.
As always, share it with afriend, share it with a family
member, share it with everybodyin your network and don't forget
(28:23):
to leave those reviews.
We can't say it enough.
I mean the amount of messagesthat we get saying this was a
great episode.
Thanks for this information.
I shared it with a friend.
Like we love those messages,put it in a review.
Please hit that five stars onApple and on Spotify and leave a
written review.
It'll take you two minutes.
You can do it while you'resitting on the toilet.
(28:43):
Just get it done.
Thank you.
It means so much to us.
Speaker 2 (28:47):
And if you need any help looking through your 401k
plans for three B's to helpanalyze everything and
understand and also making surethat you're maximizing the
benefits offered to you, pleasedon't hesitate to reach out.
Schedule a time to talk with me.
Speaker 1 (29:00):
Absolutely Brandon's the best.
I'm biased, but he is Talk toyou guys soon.
Thanks for listening.
Don't forget Benjamin Franklinsaid an investment in knowledge
pays the best interest.
You just got paid Until nexttime.
Thanks for listening to today'sepisode.
(29:26):
We are so glad to have you aspart of our Sugar Daddy
community.
If you learned something today,please remember to subscribe,
rate, review and share thisepisode with your friends,
family and extended network.
Don't forget to connect with uson social media at the Sugar
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Also, email us your questionsyou want us to answer for our
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(29:50):
or leave us a voicemail throughour Instagram.
Speaker 2 (29:54):
Our content is intended to be used, and must be
used, for informationalpurposes only.
It is very important to do yourown analysis before making any
investment based upon your ownpersonal circumstances.
No-transcript.
A good company match is a game changer.
Speaker 2 (00:04):
That is a huge game changer.
I mean, we have friends thathave matches, company matches,
6%, 7% now.
Speaker 1 (00:10):
Yeah, I saw somebody on Instagram recently another
content person, and they get an8% match.
I was like, holy crap, where doyou work?
I need to work there.
Speaker 2 (00:23):
And so what that means is that for every, if you
have an 8% match at 100%, thatmeans that for every dollar that
you're putting in up to 8% ofyour salary, your employer is
going to contribute that also.
Speaker 1 (00:35):
So you're getting 16% .
Speaker 2 (00:37):
I mean, that's no, it's significant, that's super
significant, I would say that isthe number one benefit of a
401k plan is if your employerprovides a great match, because
it is essentially free money.
Speaker 1 (00:58):
Hey babe, what are we talking about today?
Speaker 2 (01:01):
Today we are talking about everything that you need
to know when it comes to yourretirement plan through your
employer.
So we're talking about 401ks,403bs and all the information
that you should definitely knowto make sure that you're
maximizing that benefit.
Speaker 1 (01:15):
That is excellent, because having a good 401k plan
through your employer can be atotal game changer.
But we want to make sure thatyou optimize the account and
don't just enroll and then neverlook at it again.
Speaker 2 (01:29):
Because, even though I think obviously most people
know what a 401k plan, know whattheir 403b is, I still think
that there's a large number ofpeople who don't fully
understand how it functions andall the different details that
they need to pay attention towithin that plan to make sure
that it's tailored towards whatthey're trying to accomplish and
that, like I said, you'remaximizing the plan itself,
(01:50):
because little newsflash plansdo vary from employer to
employer.
There are some things that are,you know, the same across the
board, but there are definitelyvariances in what your 401k plan
offers you, based upon theemployer that you're at and how
much they want to actually putinto the plan itself.
Speaker 1 (02:06):
All right.
So where do you want to start?
What do people need to knowfirst?
Speaker 2 (02:13):
The first thing that you need to know when you get a
new job is do you have tomanually enroll into your 401k
plan or are you automaticallyenrolled?
Also, with that, is there awaiting period before you can
actually enroll in the plan?
Now, I would say that's notnormally how I see it in regards
to having to wait, but thereare still, you know, jobs out
there that require you to waitmaybe 30, 60, 90 days of being
(02:35):
employed before you can actuallypartake in the 401k plan.
Speaker 1 (02:39):
Okay, what is your experience with people having to
enroll themselves manuallyversus being auto enrolled?
Speaker 2 (02:46):
I would say most people are auto enrolled.
Normally you have to manuallyunenroll but upon you know being
employed and going through thatprocess, they automatically
enroll you into the plan.
Speaker 1 (02:57):
OK, and then, once you're enrolled, what do you
need to know?
Speaker 2 (03:00):
So the first thing is like, once you're enrolled, you
need to normally set up anonline profile so that you can
access the 401k plan throughwhatever provider you have.
And once you set that onlineportal, you do want to go in.
If you are enrolled, the firstthing you want to know is hey,
how much am I contributing?
Because if you're automaticallyenrolled, that means you're
also automatically enrolled in acertain percentage to
(03:21):
contribute.
Speaker 1 (03:22):
Oh, what's?
What do they usually set asyour contribution when you're
auto enrolled?
Speaker 2 (03:28):
I would say that normally, if your employer does
provide a match, I would saythey normally auto enroll you
for the match.
So that might be a little bitmore, it might be a little bit
less than what you want tocontribute, but the idea is that
you want to know what thatnumber is and then make sure
that it aligns with what you arelooking to contribute.
Speaker 1 (03:43):
Number is, and then make sure that it aligns with
what you are looking tocontribute.
Okay, a good company match is agame changer.
Speaker 2 (03:48):
That is a huge game changer.
Speaker 1 (03:51):
I mean, we've had friends that have, some have
matches company matches six 7%now, yeah, I saw somebody on
Instagram recently, anothercontent person and they get an
8% match.
I was like holy crap, where doyou work?
I need to work there.
Speaker 2 (04:07):
And so what that means is that for every, if you
have an 8% match at a hundredpercent, that means that for
every dollar that you're puttingin up to 8% of your salary,
your employer is going tocontribute that also.
Speaker 1 (04:19):
So you're getting 16% .
Speaker 2 (04:22):
I mean, that's no, it's significant, that's super
significant, I would say that isthe number one benefit of a
401k plan is if your employerprovides a great match, because
it's essentially free money.
Speaker 1 (04:34):
Yeah, that's something I've always told
Brandon.
Hey, in my next job and I getfour and a half percent, but in
my next job I'm like man, let meget up to that seven 8% mark,
because that's a game changer.
Speaker 2 (04:46):
And knowing that information can be one of the
things that when you're lookingfor a new career or in a new job
and you're looking, you havemaybe a couple of different
options that you might want tolook at their benefits package
and see what their match is,because that might be the
tipping factor for one employerover another.
Now, since we are talking aboutthe match, we do also want to
(05:06):
talk about knowing what thevesting period is for that match
, because you're not necessarilyentitled to 100% of your
employer's match on day one ofthe matching it.
Yeah, so normally what I'veseen is more like a four-year
vesting schedule and normallythat's a little bit over the
course of that time.
So you have a gradual vestingschedule.
So after you've been there forone year you might be entitled
to 25% of what your employer hascontributed to your plan.
(05:28):
Second year you're entitled to50%, third year, 75% and so on
until you reach 100%.
And then afterwards, once youreach that 100% mark and if you
were to change jobs, then youwould be 100% entitled to that
money that your employer hasmatched.
But if you leave prior to that100%, then you might be entitled
to none or just a certainpercentage based upon the
(05:49):
vesting schedule.
Speaker 1 (05:50):
Right.
So those are things that youwant to look at, especially if
you are getting a high match.
You know, maybe you wait untilyou hit year four to leave that
company.
If you're going to be startingthat job search over so that
you're not close to it.
Yeah, so that you're not missingout on that money.
Right, I mean people call itfree money, but really it should
be considered part of yourtotal compensation package.
(06:11):
But if it's the matter of like,hey, let me leave six months
early or I miss out on you know$60,000, or whatever it might be
, those are things that you needto look into, because you know
again, we never want to leavemoney on the table and the thing
(06:33):
is, too, is that sometimes theemployer match could be a little
bit complicated in regards tohow they word it.
Speaker 2 (06:35):
They could be like you know up to the first, 2%
will match it at 100% the next2% will match at 50%, so it can
be a little bit wordy in regardsto how they actually do it, but
the idea is that you make surethat you understand what your
employer match is and do yourbest to take full advantage of
that.
Speaker 1 (06:56):
Have you been listening to our podcast and
wondering how am I really doingwith my money?
Am I doing the right thingswith my investments?
Am I on track to reach myfinancial goals?
What could I be doing better?
If you answered yes to any ofthese questions, then it's time
for you to reach out to Brandonto schedule your free yes, I
said free 30-minute introductionconversation to see how his
(07:19):
services could help make you themore confident moneymaker we
know you could be.
What are you waiting for?
It's literally free and at thevery least, you'll walk away
feeling more empowered andconfident about your financial
future.
Link is in our show notes.
Go schedule your call today.
Yeah, people talk about targetdate funds and how is the 401k
(07:43):
invested?
Can we talk about that?
Speaker 2 (07:45):
So with how the 401k plan is invested.
Let's just say you're autoenrolled into the plan and
normally what they do is thatthey auto enroll you into a fund
also.
So normally the auto enrollmentfund that they choose is what's
called a target date fund.
Now, what a target date fund isis that it takes the
approximate year in which you'dbecome retirement age, so
approximately the year that youwould turn 60 years old.
(08:07):
All right.
Now, as you are further awayfrom that date, the target day
fund is more aggressive.
Reason being is that you havetime on your side, so you want
to go ahead and take advantageof that time and be more
aggressive in your investment sothat you can actually maximize
your growth.
Now, as you get closer andcloser to that date of
(08:31):
retirement, the target date fundgoes from being more aggressive
to becoming more conservative,because the idea is that you're
getting closer to retirement andyou don't want to take as much
risk because you want to protectthe growth that you had over
that time.
And it's not a terribleinvestment by any means.
You know, it's one of thoseones where you just set it and
leave it and it's not going totreat you terrible because it's
going to do what you, overall,would need to do over the course
(08:53):
of, you know, your work lifewhen it comes to managing that
investment from a assetallocation with the risk
standpoint.
Speaker 1 (09:00):
But can you choose to be more aggressive if you
wanted to be, even if your timehorizon is getting closer to
that retirement age?
Speaker 2 (09:09):
100.
You have full flexibility tochoose from any of the funds
that are offered within your401k plan.
Now, do keep in mind that youdo have limitations in regards
to what you can invest in, onlybased off of what your employer
plan allows you to.
So this is one of the thingsI've seen where there's a
variance.
If you work at an employer thatputs more money into their 401k
(09:29):
plan maybe at a biggercorporation then you may have
more options to invest in ascompared to if you're at a
smaller company.
You might have less options,and the reason being is that
that variance does have a costassociated with it from the
employer standpoint, as far ashow much money they're paying
for the plan.
But you need to also understandwhat are your options, what do
(09:50):
you have available to invest in,and also understanding what the
difference means of all thedifferent investment options
that you have.
One of the things that Inormally do is that you know,
with just this 401k plan, wewent more aggressive than a
target date fund.
Reason being is that thepercentage of allocation that
was towards more aggressive,like equity stocks, in
comparison to what was allocatedtowards more conservative, like
(10:13):
bonds, fixed income.
We want it to be moreaggressive, because I think that
we can be more aggressive withthe time horizon that we have
before we would even access thataccount.
Speaker 1 (10:22):
So what we and it has served me well because when I
log into my 401k I'm always veryimpressed with where it is
based on what I'm actuallycontributing.
And again, I do get a four anda half percent match.
But I'm glad that we wentaggressive.
Speaker 2 (10:38):
Yeah.
So the way that a target day,like kind of the old rule of
thumb in regards to howaggressive you should be versus
how conservative you should be,is that, based upon your age,
give or take a couple numbers,that's how much you should be
conservative.
It's kind of what they wouldsay.
So if you're 30 years old,maybe a 70-30 split.
If you're 40, maybe like a 35,between 35 and 40 being more
(11:00):
conservative and then 60, 65being more aggressive.
But I honestly think that youcan be a hundred percent equity
at the age that we're at.
You know we're 20 years or soaway from retirement age, where
we would access these accounts.
I think that's plenty of timeto be more aggressive and take
advantage of the growth.
The difference is is thatobviously I do this for a living
(11:21):
, so I look at this and I makechanges as needed.
As compared to the averageperson who doesn't have the
knowledge that I have nor thetime to do necessarily all these
things.
A target fund might serve you.
Perfect, because it does allthat.
Speaker 1 (11:34):
You understand these nuances about your account and
what's available to you, beforeyou forget it, after you've set
it.
Speaker 2 (11:50):
And you should be able to find all this
information through your onlineportal for your provider of your
401k plan.
You should be able to find outyou know what the employer
matches.
You should be able to find outwhat um investment options are
available to you also, and theyalso give you information as far
as you can click on thesedifferent options and they give
you a little bit moreinformation about what the fund
(12:12):
does, how it performs, historicperformance, stuff of that
nature, which can be a littledaunting to read through, but I
think it's a good practice to atleast look at it.
And if you have questionsobviously you listen to this
podcast you can reach out to me.
I help people with their 401kplans all the time, but knowing
where the information is andunderstanding that you do have
options is the big thing that Iwant to stress.
Speaker 1 (12:32):
Yeah, what about people talk about pre-tax,
after-tax, roth contributions?
What's all that about?
Speaker 2 (12:39):
All right.
So there are a few differentways that you can contribute
money to your 401k plan.
Now what I mean that is thatthe one way that the only way
you can contribute money isgoing to be coming out of your
paycheck.
But there's different ways thatthe money would go into the
account.
So the one that most people arefamiliar with is the pre-tax
contribution.
So what that means is that themoney going into your 401k plan
or your 403b is taken out ofyour paycheck prior to taxes, so
(13:03):
that money going in has notbeen taxed.
Once it goes into your 401kplan, it's growing and while
it's in there it's called taxdeferred, which means that you
are not paying taxes on it whileit's in the account and growing
.
Now when you do get taxed iswhen you reach retirement age
and you start to withdraw money.
The amount that you withdrawwill be taxed at ordinary income
(13:23):
tax rates.
At that time, whatever the taxrates are All right.
So that's the one that mostpeople are familiar with.
But there are some other waysto contribute to your 401k plan.
Most people nowadays, honestly,may have the option to
contribute Roth contributions totheir 401k plan.
Now, most people are familiarwith some aspect of how a Roth
IRA works.
This is very similar, the numberone difference being is that
(13:45):
with a Roth IRA, in order tocontribute just a traditional
way to a Roth IRA, there areincome limitations and if you
make you know, quote, unquotetoo much money, then you can't
contribute directly to a RothIRA.
I know there's other ways to doit, but that's not what we're
talking about right now.
So the nice thing with a Roth401k plan contribution is that
(14:06):
there are no income limits.
So it doesn't matter how muchyou make, you can contribute
Roth to your 401k plan if thatis an option available to you
through your employer.
And to kind of refresh yourmind on how that works is that
instead of the money coming outof your paycheck pre-tax, it's
going to come out of yourpaycheck after tax.
So you are have already paidtaxes on the contribution going
into your 401k, 403b.
(14:27):
All right, while the money's inthere, it's growing tax
deferred.
And then the nice thing is whenyou pull it out in retirement,
you are not taxed, obviously, onthe amount that you put in,
because you've already paidtaxes on that, but you're not
taxed on the growth of it either.
Speaker 1 (14:40):
And that's a big thing.
So that sounds like a reallygood option, if it is available,
because you're hoping that themoney that you're making now is
less than the money that youwould make, you know for us it
would be, let's say, 20 yearsfrom now, when we are at
retirement age, because ofcourse, you want your salary to
(15:01):
grow Right.
Speaker 2 (15:01):
Well, the thing so here's one of the benefits I
would say from my viewpoint whenit comes to pre-tax savings for
retirement and post and Rothsavings is that I like to
control as many things as I can,and if I can take out an
unknown, then I want to takethat out.
So one of the hard parts for usis that 20, 25 years from now,
I don't know exactly what taxbrackets are going to look like.
(15:24):
I have no idea.
Um, I would honestly say morethan likely they're going to
increase.
The reason being is that if youlook at you know taxes over the
past 800 years, we're almost atlike a historic low when it
comes to taxes.
I know it doesn't feel like itfor most people, but just
strictly from a tax standpoint,income tax standpoint we are at
historic lows yeah, itdefinitely doesn't feel that way
(15:44):
well, that's because thingscost more.
It's not from the tax standpoint, but but taxes themselves, as
far as the percentage thatthey're taking of your income,
is at lows, while we're stillhaving all time national debt
highs and everything like that.
I find it hard to believe thatincome taxes are going to go
lower.
As compared to with our parents.
When they were our age, andeven you know earlier than that,
you know the eighties andnineties they had a higher
(16:06):
marginal tax rate and so they'vekind of won out.
You know they didn't pay taxeson the money back then and now
they're paying taxes on it inretirement in a lower tax
environment.
I don't necessarily thinkthat's going to be the same case
for us.
So, I honestly think it's.
Honestly, though, I think it's.
I think it's great to have bothoptions.
So have some pre-tax money andhave some Roth, because it
provides you flexibility.
(16:26):
And the nice thing is that evenif you're contributing Roth
contributions to your 401k planand you have an employer match,
your employer is going tocontribute pre-tax because
they're taking their taxdeduction.
They're going to make you paytaxes on it.
So even if you're justcontributing Roth, you're going
to have pre-tax money in thereif you have an employer match
okay, so can you do a Like ifyou?
have an option you can dopre-tax and Roth.
Speaker 1 (16:49):
Yeah, it doesn't have to be all or none.
Speaker 2 (16:51):
So like, if you want to contribute, say you want to
contribute 6% you can contribute3% to Roth and 3% to pre-tax.
Speaker 1 (16:57):
Well, yeah, is that something you see often with
your clients, or?
Speaker 2 (17:01):
I mean not really to be honest with you, because it
costs the employer more.
No, no no, you can do it,that's not the problem it's just
a matter of making things assimple as possible for people.
Speaker 1 (17:10):
Oh, and too many choices sometimes.
Speaker 2 (17:12):
Yes, people just overthink things.
Speaker 1 (17:14):
Yeah.
Speaker 2 (17:14):
So like we look at their situation.
Speaker 1 (17:28):
no-transcript when you get into retirement.
Speaker 2 (17:32):
as far as flexibility standpoint, Now there is one
other way that you contribute toa retirement plan, like a 403B
401K, and that's calledafter-tax.
Now I do want to specify thatafter-tax and Roth are not the
same, because I've come acrossnumerous people who thought that
they were contributing Roth andthey were actually contributing
after tax.
Speaker 1 (17:52):
Okay, what's the difference?
Speaker 2 (17:53):
So the main difference is is that the after
tax is mainly for after tax andhonesty is for high income
earners, where they're alreadykind of maxing out their
contributions to their otheraccounts, their 401k plan, and
they want to do above the normallimit.
So the after tax allows you todo that, because it's money
that's already been taxed whenit's going to the account.
Differences is that you willalso be taxed on the growth.
Speaker 1 (18:18):
Oh, okay.
Speaker 2 (18:19):
But it allows you to put money away additionally.
Speaker 1 (18:23):
Okay.
Speaker 2 (18:23):
Above the normal contribution limits to a 401k
plan, a 403b.
Well, like it's also not to gettoo much in the weeds, it's.
Some plans also allow for youto do what's called an in-plan
Roth conversion and sometimesyou use that after tax bucket to
do a Roth conversion.
Speaker 1 (18:42):
Got it.
Speaker 2 (18:42):
But I don't need to go down that path.
That's more of a complicatedone that we can do one on later
on.
This is just to let you knowthat there are different ways
you can contribute to yourretirement accounts.
Speaker 1 (18:51):
Yeah, no, that's good to know.
I don't know that that's acommon thing that people you
know.
One of the things that peoplealways talk about is like do you
get a match?
But I feel like that's reallywhere the conversation stops.
Is there a contribution maxannually for what you can put
into your 401k?
Speaker 2 (19:11):
Yeah, there is a contribution max each year and
for this year, 2024, thecontribution max is 23,000.
If you are under the age of 50,if you are 50 years old or
older, then you are actuallyallowed to contribute an
additional 75.
Oh, nice Cause they want to getyou to that retirement yeah,
just making sure, for example,it's for people like, for
example, if you maybe weren'tmaxing out in previous years or
(19:34):
you just weren't contributing asmuch as you would like to.
This gives you a little bitmore wiggle room to put more
money away so that you're in abetter place for when you retire
how kind, um.
Speaker 1 (19:44):
What about if you don't want to wait or can't wait
until retirement and you needaccess to all that money you've
been hoarding away?
What are our options?
Speaker 2 (19:53):
So there are a few different options that may be
available.
So I'm a first focus on optionsavailable to you know more
focus on people around our age.
So one of the things you mightwant to take a look at is see,
does your 401k plan allow forwhat's called a 401k plan loan?
So what that does is allows youto borrow money from your 401k
plan and then you have to pay itback.
(20:15):
All right, so you're borrowingmoney from yourself.
Correct.
Speaker 1 (20:19):
That's nice.
Speaker 2 (20:20):
It's nice, but it's not one of those things where,
like I would advise people toconstantly use this Because, for
example, say you borrow, borrowten thousand dollars from your
401k plan.
You take a loan out while it'snot in the account, it's not
there to grow right, you'remissing out on the growth
correct yeah, we've done aprevious episode on this yes
taking a loan from your 401k sothe idea is just, once again,
(20:42):
knowing what the features ofyour plan and in case you need
to use it, because there mightbe a scenario where you just
have to use this loan and it'snice to know if it's available
to you.
So you want to know, hey, do Ihave availability of a loan,
what is the amount that I'm ableto take a loan out on?
And then also, how many loansam I able, am I allowed, to have
out at one time, because someplans allow for maybe one loan,
(21:03):
some allow for two and somedon't even have that option.
But the idea is that you justwant to know beforehand, just in
case.
Speaker 1 (21:09):
Yeah, that makes sense.
Speaker 2 (21:11):
Now there are some other ways that you know.
If you are in a bad situationand you need money from your
plan, you can possibly access it.
There is something you knowoften with these plans called a
hardship withdrawal, where youare going through some form of a
qualified hardship, and theynormally have the details of
what qualifies spelled out inthe plan, but it would allow you
to access a certain amount ofmoney within your plan.
(21:32):
The thing is, though, that itis still a withdrawal, so when
you do a withdrawal from your401k plan 403b prior to being 59
and a half years old, most ofthe time you are going to incur
a 10% penalty in addition topaying taxes If that money is
pre-tax.
Speaker 1 (21:48):
Okay, so penalty and taxes yeah.
Speaker 2 (21:50):
And the taxes aren't really the biggest part to focus
on, because you're going to paytax on at some point.
It's an additional 10% penalty,which is huge.
Okay, now, um, you do also arealso sometimes allowed access to
um money within your 401k plan.
If, for example, first timehome purchase, they might allow
you to go ahead and take out awithdrawal for that as well.
There would be no penaltyassociated with that, but you
(22:12):
may have that available to youthrough your plan.
Speaker 1 (22:14):
Only for a first-time home buyer.
Correct Interesting.
Well, that's lovely, very nice.
Okay, what if I leave myemployer?
I know people have said leavingyour 401k with an old employer
is like leaving money with an ex.
Speaker 2 (22:32):
Well, I'm going to simply once again that it
depends, all right.
What it really depends on is howold you are when you leave the
employer and what are your plansfor after you leave the
employer.
So, for example, if you or Ileft our employer, I would
probably recommend rolling itover to an IRA, whether that's a
Roth IRA or a traditional IRA,based upon the type of money
(22:54):
that you contribute to theaccount.
But rolling over to an IRA anindividual retirement account
and the main reason for that isthat one provides you
significantly more options toinvest.
You know you have thatlimitation to.
I think at most I've seen maybein the plan is 20 options to
invest in, and that's a morerobust plan if it has 20 options
as compared to thousands ofoptions that are available to
(23:15):
you in the market.
So you have way more optionsavailable to you.
Also, it's just easier to keeptrack of from a consolidation
standpoint, to roll into an IRA.
If you left one employer rollinto the IRA, you leave your
next employer rolled into thesame IRA.
Makes it easy to keep track of.
Speaker 1 (23:30):
Okay.
Speaker 2 (23:31):
Now, the one caveat I would say is that, depending on
what age you are when you leaveyour employer because, for
example, if you're someonethat's maybe 55 years old when
you leave your employer, youmight want to keep it at that
employer's 401k plan because youmight want to utilize the 55
rule- oh, where you can actuallyaccess it at the age of 55.
Speaker 1 (23:50):
Correct.
Speaker 2 (23:55):
There is a rule that allows you to access money
within your 401k plan withoutincurring that 10% penalty prior
to being 59 and a half yearsold, if you were to leave your
employer in the year you turn 55or after that.
So it might make more sense foryou to leave your money there
if you were looking to startwithdrawing from it and don't
want to have to deal with thosepenalties.
Speaker 1 (24:12):
Interesting, but that then only works if you leave
that employer, not previousemployers.
Speaker 2 (24:18):
Correct, because you have to leave, it has to be an
employer in the year in whichyou left, at 55 years old or
older.
Okay, well, we're not there yet, but but the thing is that you
have to leave it in the 401kplan because if you roll it into
the IRA, that rule does notapply anymore.
Speaker 1 (24:34):
Okay.
Speaker 2 (24:34):
So it's really determining one, like I said,
how, what are you when you'releaving and what is your plan.
Speaker 1 (24:39):
If my money is in an IRA, do I have to wait until I'm
59 and a half to access it, orcan I access it at any time?
Speaker 2 (24:47):
well, one.
It depends in some aspects.
Speaker 1 (24:52):
So we had a dollar for every time.
Brandon said it depends, we'dbe in bora bora recording.
Speaker 2 (24:56):
Well, it depends on what type of ira you have
because, remember I said withthe roth ira, the money that you
contributed to it is after tax.
You've already paid taxes on itso you actually have access to
your principal the difference isthat you don't have access to
the growth on it until 59 and ahalf years old without a penalty
.
Speaker 1 (25:12):
Okay, gotcha, I'm just making sure that it's still
a retirement account where Ihave to wait until retirement.
Speaker 2 (25:19):
What do you mean by that specifically?
Speaker 1 (25:20):
for the IRA.
Speaker 2 (25:21):
Well, like I said, but the IRA like, for example,
if you have a Roth IRA thatyou've been contributing money
to for a while and you have itbuilt up, you have a lot of
money in there that's alreadybeen taxed the principal so you
could access that.
Speaker 1 (25:31):
Okay, got it.
Speaker 2 (25:33):
I know A lot of rules .
Speaker 1 (25:34):
Yes, this is why talking to a professional helps.
Speaker 2 (25:38):
Like I said, unless you're somebody that really
wants to just get in deep withall this information and keep up
with it and keep it, and maybeit's just you enjoy it, great I
think.
I think most people like theydon't enjoy it.
They have a thousand otherthings they'd rather do and
they'll just get confused with,with minor things and you should
be surprised that you somethingyou think is minor cost you a
lot yeah, could cost you I meanthink about someone who retired
(26:02):
at 55 and they rolled the moneyover to an ira.
they could utilize the 55 rule,and now you've got a 10% penalty
for your withdrawals.
Speaker 1 (26:10):
Yeah, I mean it could be a lot of money, it could be
a lot of money for people, itcan definitely be a lot of money
.
Yeah, okay, anything elsepeople need to know about their
401Ks, 403bs, their retirementaccounts.
Speaker 2 (26:23):
Honestly, I would say those are the main things that
you need to understand.
Speaker 1 (26:29):
Okay.
Speaker 2 (26:29):
You know, I would say that's the normal.
Those are some of the detailsthat I think a lot of people
overlook and they don'tnecessarily understand and they
don't take the time to Now.
I'm not saying that you'regoing to understand all these
details right away, but startlooking through your 401k plan,
Like you should at least hop onthe portal and just dig around
in it.
Speaker 1 (26:46):
Yeah, the portal and just dig around in it.
Yeah, so if you, if people arelistening to this on their way
to work today and now they'relike, ooh, I want to go look at
my 401k.
What are the three things youwant them to look at today?
Speaker 2 (26:56):
One you should be able to.
If someone asks you how muchyou're contributing, percentage
wise, to your 401k plan, youshould be able to tell somebody.
Okay, so figure out yourpercentage that you're
contributing and, if there's amatch, yeah so like I don't
necessarily need to know, likethe exact dollar amount, but do
you, are you contributing threepercent of your paycheck, four
percent, five percent?
Speaker 1 (27:12):
yeah, you should know that and you want to get your
match, so you should becontributing up to whatever your
match is the second part.
Speaker 2 (27:18):
You should know what your match is and it's always
also make sure that when youhave your like open enrollment
and because companies could makechanges to their match.
Speaker 1 (27:27):
So make sure you pay attention to that.
Yeah, so pay attention to that.
And then what's the third thing?
Speaker 2 (27:32):
Know what options you have to invest in and also know
how you're contributing.
It's like I said before.
I had someone that I looked attheir 401k plan.
They were 100% certain theywere contributing Roth and I was
like I hate to tell you this,but for the past five years
you've been contributing aftertax.
Speaker 1 (27:45):
And those are not the same.
Not the same at all.
Yeah, so pre-tax, after tax andRoth are the options that
you're looking for.
Speaker 2 (27:53):
And they're clearly labeled.
So if you see three differentoptions, there are three
separate options for a reasonbecause they're not the same.
Speaker 1 (28:02):
Yeah, that's the one nice thing about finance stuff
is, if it's not the same, youwill know because it'll be a
different line item yeah, yeah,okay.
So go look at your 401ks.
Hopefully this was a helpfulepisode to you.
As always, share it with afriend, share it with a family
member, share it with everybodyin your network and don't forget
(28:23):
to leave those reviews.
We can't say it enough.
I mean the amount of messagesthat we get saying this was a
great episode.
Thanks for this information.
I shared it with a friend.
Like we love those messages,put it in a review.
Please hit that five stars onApple and on Spotify and leave a
written review.
It'll take you two minutes.
You can do it while you'resitting on the toilet.
(28:43):
Just get it done.
Thank you.
It means so much to us.
Speaker 2 (28:47):
And if you need any help looking through your 401k
plans for three B's to helpanalyze everything and
understand and also making surethat you're maximizing the
benefits offered to you, pleasedon't hesitate to reach out.
Schedule a time to talk with me.
Speaker 1 (29:00):
Absolutely Brandon's the best.
I'm biased, but he is Talk toyou guys soon.
Thanks for listening.
Don't forget Benjamin Franklinsaid an investment in knowledge
pays the best interest.
You just got paid Until nexttime.
Thanks for listening to today'sepisode.
(29:26):
We are so glad to have you aspart of our Sugar Daddy
community.
If you learned something today,please remember to subscribe,
rate, review and share thisepisode with your friends,
family and extended network.
Don't forget to connect with uson social media at the Sugar
Daddy Podcast.
Also, email us your questionsyou want us to answer for our
past.
The Sugar segments atthesugardaddypodcast at gmailcom
(29:50):
or leave us a voicemail throughour Instagram.
Speaker 2 (29:54):
Our content is intended to be used, and must be
used, for informationalpurposes only.
It is very important to do yourown analysis before making any
investment based upon your ownpersonal circumstances.
No-transcript.
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