Retirement Plan Best Practices
There are noticeable parallels between the stewardship of one’s physical and financial health. Just as a consistent regimen of nutrition, sunshine, exercise, hydration and sleep tends to sustain a healthy person, the methodical practice of simple financial principles tends to produce financially healthy families. Employer-sponsored retirement plans, such as 401(k)’s, 403(b)’s, Profit-Sharing and SIMPLE Plans are venues well-suited to the practice of such principles, and to general wealth-building due to distinct and beneficial features. “Those who gather (wealth) little by little will increase it (Proverbs 13:11), and these plans are a great way to do it!
Many companies match employee contributions made to these plans (to a certain percentage of annual pay). A 25% match to 3% of income, for example, equates to a guaranteed annual return of 25% on one’s investment before the money even gets invested. Contributing less than 3% of one’s pay in this example is synonymous with special requesting a pay reduction from the boss!
The tax advantages of employer-sponsored retirement plans can exceed other investment options, especially for high income households, due to their high contribution limits*. Have a fiduciary advisor, in an advisory relationship, work with your CPA to find a smart mix of traditional, Roth, and taxable contributions based on your own long-term financial plan.
The structure of employer-sponsored retirement plans lends itself to dollar-cost averaging, which forces participants to purchase more shares of a given fund when the price is low, and fewer shares when the price is high.
Employer-sponsored retirement plans generally offer competitive, low-expense index funds. Every dollar of expense comes straight off an investor’s rate of return, and worse, is compounded indefinitely into the future!
Consider also the following issues regarding your employer-sponsored retirement plan accounts:
Taking a loan on these accounts is generally inadvisable for several reasons. Loan repayments are usually reinvested at a higher price. The rollover option can become jeopardized. A plan termination can force loan repayment, which, if made from the account by a participant under age 59 ½, becomes penalized.
Keep your beneficiaries updated, which avoids the unnecessary delay of probate, dodges threats to the tax advantages available, and allows an immediate, tax-deferred distribution to beneficiaries.
Understand your personal investment objective and risk tolerance, and maintain an asset allocation reflective of these at all times. New regulations allow your fiduciary advisor, in an advisory relationship, to professionally manage your active retirement plan accounts for a modest fee.
These and other features make the employer-sponsored retirement plan a fantastic option for a significant portion of your total retirement savings. Be sure to make the most of it, and may your efforts to be both physically and financially healthy be blessed! Shaun
“It is God who gives you the ability to produce wealth.” ~Deuteronomy 8:18
* Contribution limits vary by plan type. Over-contributions are penalized.
The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.
All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets.
https://www.fivestarprofessional.com/spotlights/90982
Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.