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Yahoo
16-07-2025
- Business
- Yahoo
This 1 Change Could Increase Your 401(k) Balance by Thousands Over Time
There are plenty of good ideas to boost your 401(k) account over time. Probably the best idea, though, is to maximize your 401(k) employer match. Roughly one in four American workers doesn't fully take advantage of their employer's 401(k) matches. The $23,760 Social Security bonus most retirees completely overlook › Americans have multiple tools at their disposal to save for retirement. 401(k) accounts could be the best of the bunch. These accounts allow both employees and employers to contribute. If managed well, 401(k) accounts can be an important source of retirement income. What exactly is involved with managing a 401(k) account well? Several factors come into play. But there's one change, in particular, that could increase your 401(k) balance by thousands of dollars over time. Before we get to that major 401(k) change, let's look at other good ideas to grow your 401(k) account. Contributing early is one of the most important things you can do. The sooner you begin saving, the more time your money has to grow. Another smart step is to contribute regularly by automatically withdrawing money from each paycheck. If you have to think about adding money to your 401(k) account each time, you might not take action. Contributing more money will help, too. Even a relatively small incremental amount invested from every paycheck could add significantly to how much you have in your 401(k) account when you retire. Don't be overly cautious with your investments, especially when you're younger. Some might be so afraid of losing money that they forego higher long-term returns. Stocks tend to outperform other assets over multiple decades, so it makes sense to have a higher weighting in stocks earlier in your career. Using target-date funds that automatically adjust your asset allocation over time can be a good move for many individuals. Also, avoid early withdrawals if at all possible. Some 401(k) plans allow you to borrow money and repay it. Roth 401(k) plans allow you to withdraw the principal you've contributed without any penalties. The problem with this, though, is that money that isn't in your retirement account can't grow. While all of these are great steps to take, another change could make the biggest difference in growing your 401(k) account balance over time. It just might be the closest thing to a free lunch you'll see in investing: Maximize your 401(k) employer match. According to a study conducted by the Plan Sponsor Council of America, a whopping 98% of employers offer 401(k) matching contributions. With these matches, employers contribute to an employee's 401(k) plan, up to a specified amount. The amount of the match varies, but many employers contribute between 4% and 6% of the employee's salary. Let's assume you make $50,000 per year and your employer has a 5% match. If you contribute 4% of your salary to your 401(k) account, you'll save $2,000 per year. At a 10% rate of return, that could turn into nearly $974,000 over a 40-year career -- and that's assuming your salary doesn't change. Now, though, suppose you bump your contribution up to 5%. Instead of saving $2,000 per year, you'll save $2,500. However, your employer will also match your contribution and kick in another $2,500. Over 40 years at the same 10% rate of return, the combination of your and your employer's contributions could grow to more than $2.4 million. You'd think that everyone with a 401(k) plan would take full advantage of an employer match, considering how much additional money they could save for retirement. Unfortunately, that isn't the case. Empower found that 25% of employees aren't contributing enough to their 401(k) accounts to maximize their employer matches. Many Americans are literally leaving money on the table -- potentially thousands (and maybe even hundreds of thousands) of dollars over time. As mentioned, a 401(k) account is arguably the best retirement tool around. Maximizing your employer match will help ensure you use your 401(k) tool in a smart way that makes you more money. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. This 1 Change Could Increase Your 401(k) Balance by Thousands Over Time was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
13-06-2025
- Business
- Yahoo
Private equity wants in on your 401(k). What you need to know before investing
Chances are very good that your 401(k) does not currently offer you access to private equity investments, which, as the name implies, are investments in companies that are not publicly traded. The question is, will that change in the next few years? And, if it does, is it worth it for you to invest? Large company pension plans and university endowments — both of which have very long time horizons — have invested for years in private equity and private debt funds. But 401(k)s typically haven't offered those options to plan participants. In November 2024, only 2.4% of 401(k) sponsors said they added a private equity investment option to their plan, according to a weekly poll question from the Plan Sponsor Council of America. That may be because employers are afraid of potential lawsuits if they include those options, which typically charge investors more than investment funds in public companies. And under the Employment Retirement Security Act (ERISA), employers have a fiduciary duty to ensure that investment options in your 401(k) are prudent and have reasonable fees, said Jerry Schlichter, founding partner of Schlichter Bogard, who pioneered lawsuits against plan sponsors for charging excess 401(k) fees. It also may be because private assets are riskier to invest in and information about them is opaque, since they're private. So there is less of a requirement to be transparent with investors about how a fund is doing on a regular basis. In addition, private capital options are considered illiquid investments because you can't take your money out whenever you want. And that may prove too constraining for retirement plan participants, who may need access to their 401(k) money for any number of reasons — including changing or losing a job, Schlichter said. There has been an increasing push to provide more private capital investment opportunities for retail investors and participants in workplace retirement plans like 401(k)s and 403(b)s. On the regulatory front, according to Jaret Seiberg, a financial services policy analyst at TD Cowen Washington Research Group, the Trump administration is likely to make it easier to access so-called alternative investments, which include private equity, private real estate and hedge funds. That could result in an executive order from the president requiring government agencies to expand access to such investments as well as rulemaking or guidance from the Department of Labor — which enforces ERISA — 'to expand the ability of individuals to invest in 401(k) and IRA accounts in alternative investments,' Seiberg said in a daily research note. There are far fewer public companies today than there were 30 years ago, as more companies remain private. For that reason, some say, if investors want to own the whole market and have a truly diversified portfolio, where some asset classes move up when others move down, they should have access both to public and private companies. In a recent conversation with Morningstar, BlackRock chief operating officer Robert Goldstein noted that the performances of publicly traded stocks and bonds have become more correlated than they used to be, and 'many of the less correlated assets are only accessible through the private markets.' That may be. Or not. For average retail investors, it could be hard to tell because there currently isn't a centralized way to track the performance and underlying investments of private capital funds and directly compare them to that of the stock and bond funds and indexes they're used to. That's just one reason why other market watchers and investor advocates worry about expanding access to private capital for average retirement savers. Among those squarely in the camp of those who say employee and retiree nest eggs won't be helped — and could be harmed — by having exposure to private capital is Benjamin Schiffrin, director of securities policy at Better Markets, a nonprofit seeking to promote the public interest in financial markets. 'Why is there a push to open up the private markets to 401(k)s now? It's not because workers want less liquid and harder-to-value assets in their 401(k)s. And it's not motivated by plan sponsors, who have long worried that exposing 401(k) plan participants to private market assets would violate their fiduciary duty to act in the best interest of the investors,' Schiffrin said in a statement. 'It's because private market firms are finding it harder now to raise money. Their traditional sources of funding — institutional investors such as pensions and endowments — have evaporated.' Indeed, for plan sponsors, including private equity among their plan's investment options will require a lot more due diligence from them in terms of investigating the underlying investments in a given fund and examining the fee structure, Schlichter said. 'This is fraught with danger. A company that puts private equity in its 401(k) is undertaking a serious risk of breaching its fiduciary duty.' Credit ratings agency Moody's this week put out an analysis, first reported by the Wall Street Journal, which cautioned that the accelerated push to give private capital firms access to the multitrillion-dollar retirement investment industry holds risk for everyone. 'Competition for retail investor capital within private markets will intensify as alternative asset managers roll out new partnerships and special funds to address this potentially vast, still largely untapped market,' the analysts wrote. 'But rapid growth within this still relatively opaque market also carries systemic implications.' One example, they cited, is the potential for a liquidity crisis. 'Unlike institutional investors, retail investors expect ready access to their cash. To help, managers are launching products with periodic windows of liquidity. But in volatile markets, retail investors may run for the exits, which would exacerbate liquidity needs and the risk of potential mismatches between a product's available liquidity and what investors are expecting.' The promise of investing in private equity is that the additional expense and risk assumed by investors can be rewarded with potentially strong returns over time. While it's hard to easily and quickly track private equity performance on your own, there have been academic and industry studies on it, and the results have been mixed, said Jason Kephart, senior principal for multi-asset strategy ratings at Morningstar. So, while you will likely pay more and have less transparency into what you're investing in, having a stake in private capital is no guarantee that you will enjoy meaningfully better returns in your portfolio. As for the diversification argument, Kephart said, it's worth remembering that just as with public companies, private companies' performance will be affected by external forces such as economic downturns, interest rates, geopolitical concerns, tariffs and supply chain issues. 'Being private doesn't shield you from the world,' he noted. And, Kephart added, 'It's not like the public markets are broken. Public stocks and bonds have paid off pretty well for those who've stayed invested.' Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Business Mayor
03-05-2025
- Business
- Business Mayor
IRS unveils new HSA limits for 2026. Here's what investors need to know
Maskot | Maskot | Getty Images The IRS on Thursday unveiled 2026 contribution limits for health savings accounts, or HSAs, which offer triple-tax benefits for medical expenses. Starting in 2026, the new HSA contribution limit will be $4,400 for self-only health coverage, the IRS announced Thursday. That's up from $4,300 in 2025, based on inflation adjustments. Meanwhile, the new limit for savers with family coverage will jump to $8,750, up from $8,550 in 2025, according to the update. More from Personal Finance: There's a new 'super funding' limit for some 401(k) savers in 2025 This 401(k) feature can kick-start tax-free retirement savings Gold ETF investors may be surprised by their tax bill on profits To make HSA contributions in 2026, you must have an eligible high-deductible health insurance plan. For 2026, the IRS defines a high deductible as at least $1,700 for self-only coverage or $3,400 for family plans. Plus, the plan's cap on yearly out-of-pocket expenses — deductibles, co-payments and other amounts — can't exceed $8,500 for individual plans or $17,000 for family coverage. Investors have until the tax deadline to make HSA contributions for the previous year. That means the last chance for 2026 deposits is April 2027. HSAs have triple-tax benefits There's typically an upfront deduction for contributions, your balance grows tax-free and you can withdraw the money any time tax-free for qualified medical expenses. Unlike flexible spending accounts, or FSAs, investors can roll HSA balances over from year to year. The account is also portable between jobs, meaning you can keep the money when leaving an employer. That makes your HSA 'very powerful' for future retirement savings, Galli said. Healthcare expenses in retirement can be significant. A single 65-year-old retiring in 2024 could expect to spend an average of $165,000 on medical expenses through their golden years, according to Fidelity data. This doesn't include the cost of long-term care. Most HSAs used for current expenses In 2024, two-thirds of companies offered investment options for HSA contributions, according to a survey released in November by the Plan Sponsor Council of America, which polled more than 500 employers in the summer of 2024. But only 18% of participants were investing their HSA balance, down slightly from the previous year, the survey found. 'Ultimately, most participants still are using that HSA for current health-care expenses,' Hattie Greenan, director of research and communications for the Plan Sponsor Council of America, previously told CNBC. READ SOURCE
CNBC
02-05-2025
- Business
- CNBC
IRS unveils new HSA limits for 2026. Here's what investors need to know
The IRS on Thursday unveiled 2026 contribution limits for health savings accounts, or HSAs, which offer triple-tax benefits for medical expenses. Starting in 2026, the new HSA contribution limit will be $4,400 for self-only health coverage, the IRS announced Thursday. That's up from $4,300 in 2025, based on inflation adjustments. Meanwhile, the new limit for savers with family coverage will jump to $8,750, up from $8,550 in 2025, according to the update. More from Personal Finance:There's a new 'super funding' limit for some 401(k) savers in 2025This 401(k) feature can kick-start tax-free retirement savingsGold ETF investors may be surprised by their tax bill on profits To make HSA contributions in 2026, you must have an eligible high-deductible health insurance plan. For 2026, the IRS defines a high deductible as at least $1,700 for self-only coverage or $3,400 for family plans. Plus, the plan's cap on yearly out-of-pocket expenses — deductibles, co-payments and other amounts — can't exceed $8,500 for individual plans or $17,000 for family coverage. Investors have until the tax deadline to make HSA contributions for the previous year. That means the last chance for 2026 deposits is April 2027. If you're eligible to make HSA contributions, financial advisors recommend investing the balance for the long-term rather than spending the funds on current-year medical expenses, cash flow permitting. The reason: "Your health savings account has three tax benefits," said certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts. There's typically an upfront deduction for contributions, your balance grows tax-free and you can withdraw the money any time tax-free for qualified medical expenses. Unlike flexible spending accounts, or FSAs, investors can roll HSA balances over from year to year. The account is also portable between jobs, meaning you can keep the money when leaving an employer. That makes your HSA "very powerful" for future retirement savings, Galli said. Healthcare expenses in retirement can be significant. A single 65-year-old retiring in 2024 could expect to spend an average of $165,000 on medical expenses through their golden years, according to Fidelity data. This doesn't include the cost of long-term care. In 2024, two-thirds of companies offered investment options for HSA contributions, according to a survey released in November by the Plan Sponsor Council of America, which polled more than 500 employers in the summer of 2024. But only 18% of participants were investing their HSA balance, down slightly from the previous year, the survey found. "Ultimately, most participants still are using that HSA for current health-care expenses," Hattie Greenan, director of research and communications for the Plan Sponsor Council of America, previously told CNBC.
Yahoo
06-04-2025
- Business
- Yahoo
Wondering if you should convert your tax-deferred retirement savings to a Roth? Here's what to consider
Having financial flexibility in retirement — especially in being able to maximize your spending while minimizing your taxes — is an optimal situation. And it's one you can arrange by keeping at least some of your retirement savings in a tax-free account. 'You're giving yourself more options in the future,' said Brian Kearns, an Illinois-based certified public accountant and certified financial planner. One way to do that is to convert at least some of your tax-deferred savings in your 401(k) or traditional IRA into a Roth account. Money rolled into Roth 401(k)s and Roth IRAs grow tax free and may be withdrawn tax-free so long as you leave it in the account for at least five years after the rollover. Unlike creating a Roth IRA and making new contributions to it every year, there is no income limit on who may convert their savings into a Roth (or who may contribute to a Roth 401(k) on an ongoing basis, either). Another advantage: In retirement, you get to decide how much and when you make withdrawals from your Roth savings, whereas with tax-deferred savings in traditional IRAs or 401(k)s, you must start taking required minimum distributions at age 73. That said, Roth conversions aren't the right answer for everyone. Here is a look at what to consider before making a move. The vast majority of 401(k) plans (93%) let participants create a Roth 401(k) account within the plan; and 60% of those allow for so-called 'in-plan Roth conversions,' according to the Plan Sponsor Council of America. An in-plan conversion means you can choose to convert some or all of your accumulated tax-deferred savings into after-tax Roth savings. The catch: You will have to pay the income tax owed on any money you convert the year you make the conversion. That's why for a lot of people the decision of how much to convert at any one time comes down to whether they have money available to pay that tax bill, said Tara Popernik, the head of wealth strategies at Bernstein Private Wealth Management. Say you convert $100,000 this year. That amount is added to your gross income and may end up pushing you into a higher tax bracket. So, say you're normally in the 22% federal bracket, it could push you into the 24% bracket. And that means on top of the taxes you owe on your annual income, you might owe an additional $24,000 (24% x $100,000) plus any applicable state income tax. If ever there was a time to consult a CPA, or a certified financial planner with tax experience who has helped many clients weigh Roth options, this is it. (They also can help you assess whether a conversion will make sense should lawmakers later this year choose to extend some or all of the expiring 2017 tax provisions.) But, generally speaking, here are some questions to consider when deciding whether a conversion would be a good move: 1. Do you expect your income to grow between now and retirement? If you're in the first half of your career, chances are your earnings will grow between now and when you call it quits. And that means you're likely to move into a higher tax bracket in the coming years. So it might be more advantageous to do a conversion sooner rather than later because your tax bill will be lower and your tax-free savings will have longer to grow. 2. Can you afford the immediate tax bill? Ideally, you should have enough cash on hand to pay that one-time tax bill — cash you will not need for current living expenses, upcoming debt payments or emergencies. If you have to raise the cash, Popernik said, try to avoid selling anything that would incur a capital gains tax, because that would reduce the advantage of converting. So, too, in most instances, would tapping your tax-deferred retirement savings just to pay the conversion bill — especially if you're under 59-1/2, since you will be subject to a 10% early withdrawal penalty on top of the income taxes you'd owe. Again, lean on your tax adviser to help you figure out which, if any, cash-raising strategy makes sense. If it turns out paying the tax bill on a lump-sum conversion would be too burdensome, and you have the option of contributing to a Roth 401(k), you can start making taxable contributions to it on a go-forward basis. Or, if your income is low enough, you can start your own Roth IRA. 3. Will your taxes go up in retirement? Trick question. The only truly correct answer is 'Who knows?' But, based on the tax system we have today, you can roughly gauge where things might go if the world — and the US tax code — don't do a complete 180. Generally speaking, if you anticipate your income taxes will be higher in retirement than now, converting tax-deferred savings to a Roth is likely advantageous. And by making a conversion sooner, you're likely to get the most value from it. 'The longer the money stays invested in the Roth, the bigger the benefit,' Popernik said. 4. When is the best time to convert, markets-wise? A recent analysis from Bernstein Private Wealth Management suggests the ideal time to convert your tax-deferred money to a Roth would be when markets are down. If you do, you'll get the most bang for your tax buck. By investing in assets through a Roth when they are at their lows, 'the subsequent gains when the recovery takes hold can be sheltered in a tax-free environment,' the report noted. That said, it's impossible to time market lows and highs. And the Bernstein analysis found that even converting when asset prices are at a peak may still confer long-term tax-free gains that might make a conversion worth it. 5. What income sources will you draw on when you retire? One way to guesstimate your tax obligations in retirement vs. now is to consider a) how much income you'll need to live on; and b) what your income sources will be, keeping in mind that not all sources of income are taxed alike. So, for instance: Will you have income from a pension on top of your Social Security benefits? Will you receive rental income from a property? Will you be drawing on taxable income like interest and dividends? Or on tax-free interest from municipal bonds? Having both taxable and tax-free savings to draw on can help you optimize your withdrawal strategies. For example, Kearns said, for the years when your taxable income will be lower than other years in retirement, you might pull from your traditional tax-deferred accounts for any money you need on top of your Social Security, because you will be in a lower tax bracket. Whereas in years when your taxable income might be higher — say, when you have to start taking required minimum distributions from an IRA or you're selling a taxable asset — you might tap your tax-free savings to supplement the money you need for living expenses. 6. Do you want to leave a legacy? Roth accounts have advantages over tax-deferred accounts when bequeathing money to non-spousal heirs. No matter which type of account they inherit, your heirs must take all the money from them within 10 years. But with traditional tax-deferred 401(k)s and IRAs, they must take distributions every year and pay the tax on them. That may have the effect of pushing them into a higher tax bracket, Kearns said. 'They will have a tax bill they might not having been planning on.' But with the Roth, not only do they get the money tax free, they don't have to take regular distributions during the 10-year window, and instead may take it out all at once in the 10th year, Popernik said. That gives them another decade of tax-free growth on their inheritance. Sign in to access your portfolio
