The Herald Bulletin

Morning Update

Columns

February 23, 2013

'Big Joe' Clark: Making the most of your 401(k)

Most individuals tend to fall into one of three categories of financial knowledge. Either they don’t understand it at all (which is absolutely fine as this is a complex financial world we live in) or they understand taxes or they understand investing. Very few people we run across have a good handle on taxation and investing.  Sadly, understanding your 401(k) – the most common employer sponsored retirement plan – really requires a basic understanding of both elements.

The defined-contribution plan or 401(k), according to Section 404 of ERISA, is obliged to have at least three investment options and most plans have many more than that. The investment choices involve risk and you can make or lose money on these investments.  It is your job as your financial decision maker to make the election regarding how to invest your money. Some people hire Registered Investment Advisors to help them manage the money and in exchange take on a fiduciary responsibility to always act in your best interest.

The employer puts the programs together and organizes the menu of choices. Sometimes the employer will even match or flat out contribute to the plan to help encourage individuals to participate in the plan.  All of this is done with the best of intentions, but you should want to save not just for rainy days but for the sunshine filled days in your future. Money gives you choices and for most people if you don’t save you won’t have very many choices during your retirement.

One of the best parts about the 401(k) is the money comes right out of your check. There is no chance to spend it or give it away. This is a great way to put your contributions on auto pilot. So where is the concern? It is in the tax issue.

The early evolvement in retirement plans came when the top tax rate was over 70% and there were many brackets. It was believed that most people would retire in a lower tax bracket. President Regan changed the entire system in 1986 creating three brackets with the top being 31%. The notion of tax deferral already had challenges in my opinion. In 25 years of helping families plan for retirement I have seen very few that have reduced their tax bracket and some have even been forced into higher brackets due to required minimum distributions from their retirement accounts.

Many 401(k) plans have a Roth option.  It still gives you the ability to contribute out of your paycheck but you will pay taxes at your marginal tax rate today rather than at your tax rate when the money comes out of the account. It won’t feel as good at this tax time but you may be happier in the future. However, your employer’s portion still has to go to the tax-deferred portion of the account.

We have seen families put money in 401(k) plans that were effectively in a zero percent tax bracket. Why defer zero taxes? Not all plans have the Roth option but they should! Don’t forget to consult with your tax and investment professional. This is your retirement and it is personal!

Joseph “Big Joe” Clark, whose column is published Sundays, is a certified financial planner. He can be reached at bigjoe@yourlifeafterwork.com or 640-1524.

1
Text Only
Columns
  • Jim Bailey: Figuring out how to have the good in life without the bad Most of us have had those faith-shaking episodes in our lives. The tragic episodes that leave us wondering what life is all about.

    April 24, 2014

  • OPN - Mootry column mug [Duplicate] [Duplicate] Primus Mootry: There is a poet in each of us April is National Poetry Month. Throughout the country, colleges and universities, elementary and secondary schools, libraries and various publications have hosted poetry readings or featured unpublished poets.

    April 23, 2014 1 Photo

  • underwood mug [Duplicate] Scott Underwood: Nightmares from high school proms past I wore a salmon-colored tuxedo with a cummerbund and tails to my senior prom. I was 6-foot-6 and 175 pounds. A beanpole.

    April 21, 2014 1 Photo

  • Hayden, Maureen mug Maureen Hayden: Judge in gay marriage decision no activist

    When U.S. District Judge Richard Young recently ruled in favor of a lesbian couple seeking recognition of their out-of-state marriage, opponents of same-sex unions called him an activist judge who was unilaterally trampling the law. The label didn’t resonate with those who know Young well.

    April 20, 2014 1 Photo

  • Charo Boyd mug [Duplicate] Charo Boyd: Social Security goes green on Earth Day and every day For years, Social Security has been at the forefront of offering convenient, easy-to-use, and secure online services. We, along with those we serve, have saved a lot of paper, shipping costs, and fuel — and cut back on a lot of carbon exhaust and pollution — by going online instead of doing things the old-fashioned, less efficient way.

    April 20, 2014 1 Photo

  • Tim Kean: Can we have a 'A New State of Mind?' I have recently read some great articles about people coming together to make a difference in the lives of children facing food insecurity. The collective effort of a group can provide some much-needed food to kids who may not have a meal when they return home from school or during the weekend.

    April 19, 2014

  • SPL - PT041014 - Ken de la Bastide column - Ken sig Ken de la Bastide: County may eliminate Data Processing Board

    Action two weeks ago by the Madison County commissioners to close Data Processing Board meetings to the public might run afoul of the Indiana Open Door law, and a local resident is considering filing a complaint with the Public Access Counselor’s office for a determination.

    April 19, 2014 1 Photo

  • Timmons, Theresa mug Theresa Timmons: Dinosaurs run amok at mamaw's house I love my new job as a grandparent. It includes playing imaginary tennis with imaginary tennis rackets, making elaborate tents in the living room, and hair-pulling.

    April 19, 2014 1 Photo

  • Stringer, Maleah mug Maleah Stringer: Volunteers needed to spend time with shelter animals Shelters can be extremely stressful places for many animals, particularly those who have been in a loving home. This is why we want people to come into the shelter and spend time with our animals — to help keep them adoptable so that when the right person comes along they are ready.

    April 19, 2014 1 Photo

  • Bailey, Jim mug Jim Bailey: Wages were much less back then, but so were prices If you have any questions about what economists mean by inflation, just look at yesterday’s buying power. Those old western movies talked about wages of $1 a day. That wouldn’t even buy a burger at a fast food joint today by the time sales tax is added in.

    April 19, 2014 1 Photo

Featured Ads
More Resources from The Herald Bulletin
AP Video
SKorea Ferry Toll Hits 156, Search Gets Tougher Video Shows Possible Syrian Gas Attack Cubs Superfans Celebrate Wrigley's 100th Raw: Cattle Truck Overturns in Texas Admirers Flock to Dole During Kansas Homecoming Raw: Erupting Volcanoes in Guatemala and Peru Alibaba IPO Could Be Largest Ever for Tech Firm FBI Joining Probe of Suburban NY 'Swatting' Call U.S. Paratroopers in Poland, Amid Ukraine Crisis US Reviews Clemency for Certain Inmates Raw: Violence Erupts in Rio Near Olympic Venue Raw: Deadly Bombing in Egypt Raw: What's Inside a Commercial Jet Wheel Well Raw: Obama Arrives in Japan for State Visit Raw: Anti-Obama Activists Fight Manila Police Motels Near Disney Fighting Homeless Problem Michigan Man Sees Thanks to 'bionic Eye' S.C. Man Apologizes for Naked Walk in Wal-Mart Chief Mate: Crew Told to Escape After Passengers
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Helium debate
Helium
Front page
Poll

Will you vote in the primary election on May 6?

Yes, on May 6
Yes, will vote early
No
     View Results