IRA and 401K limits increase for 2019

[Ouchie-Z-Clown]

There's a company in San Francisco called Zen Benefits that's trying to do just that. The CEO is Jay Fulcher, i went to HS with him he was a senior when I was a freshman we both played basketball. I don't think I've seen him since I was 16 years old so over 30 years.

If you read about him he's saying the exact same stuff, companies need to invest in their employees's health both medical health and financial health. The cost of constantly replacing unhappy employees far exceeds what they think they are saving by NOT doing it.

https://en.wikipedia.org/wiki/Zenefits

Yes financial wellness is one of the latest buzzwords in the industry. I say that because all employers are interested in providing these services to their employees, but not interested in paying for it. So they learn about it and rarely move forward with providing it. This despite the increasingly growing need for it in a largely financially illiterate workforce.

And there’s another side to the equation too . . . employees not retiring and working later into their lives. They tend to have higher salaries than younger replacements and their impact to companies health insurance plans increases exponentially. Most companies are short-sighted when it comes to the impact (positive) that retirement can have in their bottom line.

 

[Russ Smith]

I'm actually still debating whether or not to enroll in my 401K at my new company. They do matching up to 3% so my philosophy has always been free money go for it, but it takes a year to vest the company contributions and with the current state of the market(volatile as hell) and Trump being as he is, I'm almost wondering if I'm not better off putting that money into a money market or CD at a fixed rate. The advantages of tax free and reducing my taxable income say do the 401K, my interest in expanding my "liquid" money and avoiding what could be a very volatile 2019 in the markets has me not sure.

I'll probably end up doing 5%, I always have before, but I see the current situation with Trump as making the markets so much tougher to forecast, we literally don't know what's going to happen wtih the Mueller investigation and that could cause so much turmoil.

 

[Ouchie-Z-Clown]

I'm actually still debating whether or not to enroll in my 401K at my new company. They do matching up to 3% so my philosophy has always been free money go for it, but it takes a year to vest the company contributions and with the current state of the market(volatile as hell) and Trump being as he is, I'm almost wondering if I'm not better off putting that money into a money market or CD at a fixed rate. The advantages of tax free and reducing my taxable income say do the 401K, my interest in expanding my "liquid" money and avoiding what could be a very volatile 2019 in the markets has me not sure.

I'll probably end up doing 5%, I always have before, but I see the current situation with Trump as making the markets so much tougher to forecast, we literally don't know what's going to happen wtih the Mueller investigation and that could cause so much turmoil.

Russ I’m not sure how you could consider sacrificing what amounts to an “automatic” 100% return on 3% of your salary (if the match is 100% up to 3%) unless you believe there’s a chance you might not still be employed there the year for vesting (but even in that case you don’t lose anything but the match). I’m sure your company’s plan has some cash equivalent (like a money market, a stable value, or a GIC) which will allow you sit in “virtual” cash and not experience the turmoil you fear from the markets (and maybe even some slight upside if a stable value or GIC as they tend to offer a low stated rate of return - right now anywhere from .5% to 1.5%). What other reason would make you forfeit the “free” money if the company match?

 

[Russ Smith]

Russ I’m not sure how you could consider sacrificing what amounts to an “automatic” 100% return on 3% of your salary (if the match is 100% up to 3%) unless you believe there’s a chance you might not still be employed there the year for vesting (but even in that case you don’t lose anything but the match). I’m sure your company’s plan has some cash equivalent (like a money market, a stable value, or a GIC) which will allow you sit in “virtual” cash and not experience the turmoil you fear from the markets (and maybe even some slight upside if a stable value or GIC as they tend to offer a low stated rate of return - right now anywhere from .5% to 1.5%). What other reason would make you forfeit the “free” money if the company match?

Stupidity mainly. But the idea also that I'm getting 2% right now in a money market and I'm guessing it might go up to 2.5 by mid 2019. My company is going to give me 3% matching so pretty close. If I go into a 401k, I'm likely going to be in the markets, as you say the "safe" funds in 401K's usually are below what you can get out on the open market.

I'm still probably ahead that way and it reduces taxable income too.

I think the main idea is I feel fairly confident I have enough in my IRA's that over time will keep growing, I'm less confident about my liquid savings.

But you're probably right.

 

[AZCB34]

Stupidity mainly.

You could have just stopped here. Take the match.

 

[Ouchie-Z-Clown]

You could have just stopped here. Take the match.

Actually I appreciate the mental fiscal gymnastics Russ undertakes. If it’s a liquidity concern he may not have much wiggle room. But the 2-2.5% money market might pale to the 3% match plus .5-2% stable value investment (so total 3.5-5%) he might earn by going 401(k). It’s not always about straight obvious economics. One has to take into account life necessities as well, and liquidity is a big one.

 

[Russ Smith]

Actually I appreciate the mental fiscal gymnastics Russ undertakes. If it’s a liquidity concern he may not have much wiggle room. But the 2-2.5% money market might pale to the 3% match plus .5-2% stable value investment (so total 3.5-5%) he might earn by going 401(k). It’s not always about straight obvious economics. One has to take into account life necessities as well, and liquidity is a big one.

Roughly 75% of my current savings is in IRA's, the rest in a money market, a CD and a managed brokerage account. That's why I'm thinking about trying to increase the "liquid" savings. But I do agree the obvious answer is put more in the 401K you get tax free, matching, and lower your taxable income.

The other consideration is I have an inherited IRA from my mom where I have to take a RMD every year. What I do is take it, estimate the tax and have that taken out immediately, and then take that money and put into the money market so it makes a little interest. The % I have to take increases every year and until the trade war, the balance was increasing every year too so I was getting money out of that which then got replaced by the increase of the balance. So I'll still get that money to increase my liquid savings.

 

[AZCB34]

Russ, what is your age? The IRA's that house the 75% of your savings...Roth, traditional or both?

 

[puckhead]

Russ, what is your age? The IRA's that house the 75% of your savings...Roth, traditional or both?

The Great Puckdini shall look into his crystal ball and say: 53 years old!

 

[Russ Smith]

Russ, what is your age? The IRA's that house the 75% of your savings...Roth, traditional or both?

Turned 53 yesterday. No Roth's just regular IRA's.

To be clear I know I'm supposed to be INCREASING my IRA and 401K contributions now so that I have more in retirement but I've been doign that for close to 30 years so I'm now starting to look at increasing the amount of readily available liquid cash

 

[AZCB34]

Why do you feel the need to increase liquid cash when it appears as though you already have liquid investments? You mention a money market and even is a pinch that CD is accessible (I am assuming it is a bank CD which would have a penalty) plus you have a managed brokerage account which I am assuming is non retirement which is completely liquid.

 

[Russ Smith]

Why do you feel the need to increase liquid cash when it appears as though you already have liquid investments? You mention a money market and even is a pinch that CD is accessible (I am assuming it is a bank CD which would have a penalty) plus you have a managed brokerage account which I am assuming is non retirement which is completely liquid.

I think the idea is life events in recent years have led me to think i want to retire early, like maybe 55. To do that means relying on some liquid savings for a few years. No idea it's easy to say I'm retiring in 2 years and very hard to do it and it's obviously totally dependent on what the economy is like the next 2 years. I think it's why the Trump tariffs bother me so much, a correction was inevitable but he made it happen faster and much more severely than I think it would have otherwise been because of the tariffs.

The long bull market made it possible for people my age to consider retiring early.

 

[Russ Smith]

I did just sign up for 5% in a targeted retirement fund (2030). Through Transamerica which is affiliated with Trinet. I was going to do more but I decided to do 5% in my ESPP plan when I become eligible, I think the next 6 month period starts in January. Typical plan you can buy the stock at a 15% discount off the lower of either the first or last day of the 6 month period. So you're guaranteed at least 15% profit if you sell the day it locks in.

I was thinking of doing 10 to 12% in the ESPP and using that to fund my liquid savings with the 15% return but with matching etc and lowering of income I just decided to do a 5/5 split on the two. Today was my first full paycheck so first chance to know exactly what my takehome is.

 

[Bada0Bing]

I did just sign up for 5% in a targeted retirement fund (2030). Through Transamerica which is affiliated with Trinet. I was going to do more but I decided to do 5% in my ESPP plan when I become eligible, I think the next 6 month period starts in January. Typical plan you can buy the stock at a 15% discount off the lower of either the first or last day of the 6 month period. So you're guaranteed at least 15% profit if you sell the day it locks in.

I was thinking of doing 10 to 12% in the ESPP and using that to fund my liquid savings with the 15% return but with matching etc and lowering of income I just decided to do a 5/5 split on the two. Today was my first full paycheck so first chance to know exactly what my takehome is.

I'm sure you did, but did you check the fees of the TRF-2030?

 

[Russ Smith]

I'm sure you did, but did you check the fees of the TRF-2030?

Yeah they weren't that good to be honest and I don't really like targeted funds. But it was fairly complicated to get a list of funds that I could choose instead, the default is a targeted fund. I just decided to take the path of least resistance on it with only 5%.

 

[Bada0Bing]

Yeah they weren't that good to be honest and I don't really like targeted funds. But it was fairly complicated to get a list of funds that I could choose instead, the default is a targeted fund. I just decided to take the path of least resistance on it with only 5%.

Yeah I'm in the same boat. I've got a big chunk of my 401k there too.

I'm doing everything I can to retire in my 50s. Hard to do with 2 kids in college and an 11 year-old!

 

[AZCB34]

I'm sure you did, but did you check the fees of the TRF-2030?

Fees always matter but the real reason he was opening this was largely to secure the match. That is an immediate return on investment as long as he makes it through vesting schedule

 

[Bada0Bing]

Fees always matter but the real reason he was opening this was largely to secure the match. That is an immediate return on investment as long as he makes it through vesting schedule

Yeah, generally investing at least the match is a no-brainer. But not in every circumstance.

 

[Russ Smith]

Yeah, generally investing at least the match is a no-brainer. But not in every circumstance.

I'm still not sure of the math. If I'd taken 10-15% in the ESPP and no 401K. I get the guaranteed 15% at least if I sell on the day the 6 months closes. That profit is taxable, and of course it not only doesn't reduce my taxable income it actually increases it, where 401K reduces your taxable income and if it goes up it's tax free until you withdraw it. Add in the matching. I still suspect the ESPP and then put the money in a money market is probably a better move but I decided to cover my bases and go 5% in 401K and when I'm eligible, probably 5-10% in the ESPP. I assume the next 6 months starts Jan 1 but not really sure.

 

[Ouchie-Z-Clown]

Do you guys have high deductible health plans and thus access to HSAs? That’s another savings vehicle you should consider. All of us are going to have medical costs in retirement. Studies show the average American is going to have a minimum of $275,000 in medical costs in retirement. If you pump money into your HSA it goes in pretax and any of it coming out for medical costs, at anytime, comes out totalk tax-free. So it’s triple tax advantage. Pre-tax, tax-drew buildup of earnings, tax-free distribution.

If you’re not aware, I work in the retirement industry. Our ilk essentially maxes out match in a 401(k), then maxes out the HSA (without actually using those funds during the year because its not use it or lose it like FSA), then go back and max out the 402(g) limit in the 401(k).

 

[Linderbee]

Do you guys have high deductible health plans and thus access to HSAs? That’s another savings vehicle you should consider. All of us are going to have medical costs in retirement. Studies show the average American is going to have a minimum of $275,000 in medical costs in retirement. If you pump money into your HSA it goes in pretax and any of it coming out for medical costs, at anytime, comes out totalk tax-free. So it’s triple tax advantage. Pre-tax, tax-drew buildup of earnings, tax-free distribution.

If you’re not aware, I work in the retirement industry. Our ilk essentially maxes out match in a 401(k), then maxes out the HSA (without actually using those funds during the year because its not use it or lose it like FSA), then go back and max out the 402(g) limit in the 401(k).

What's 402(g)? dcr & I both have 401(k)s that we are dumping a ton into, as well as maxing out or HSA (although, with all of our kids we've had to use it)...so curious as to what 402(g) is. Never heard of it.

 

[AZCB34]

What's 402(g)? dcr & I both have 401(k)s that we are dumping a ton into, as well as maxing out or HSA (although, with all of our kids we've had to use it)...so curious as to what 402(g) is. Never heard of it.

Employee deferral amount.

Let's say Ouchie's 401k had 4% match. He puts on the 4% to get the match. Next step is he maxes out his HSA. After That, he circles back into the 401k and completes his employee contribution.

Typically, HSA accounts are only available if you participate in a high deductible health plan so if don't I am not sure if you can truly set up an HSA. I am hoping Ouchie may speak to that since
my wife and I don't have a deductible at all.

 

[Russ Smith]

Do you guys have high deductible health plans and thus access to HSAs? That’s another savings vehicle you should consider. All of us are going to have medical costs in retirement. Studies show the average American is going to have a minimum of $275,000 in medical costs in retirement. If you pump money into your HSA it goes in pretax and any of it coming out for medical costs, at anytime, comes out totalk tax-free. So it’s triple tax advantage. Pre-tax, tax-drew buildup of earnings, tax-free distribution.

If you’re not aware, I work in the retirement industry. Our ilk essentially maxes out match in a 401(k), then maxes out the HSA (without actually using those funds during the year because its not use it or lose it like FSA), then go back and max out the 402(g) limit in the 401(k).

I've never actually understood the HSA so I don't think I'm contributing. I actually didn't realize it wasn't the same as FSA (use or lose) so that's actually something I should have been doing and will consider going forward. Do the funds go into an account like an IRA or just in some savings?

 

[Ouchie-Z-Clown]

Employee deferral amount.

Let's say Ouchie's 401k had 4% match. He puts on the 4% to get the match. Next step is he maxes out his HSA. After That, he circles back into the 401k and completes his employee contribution.

Typically, HSA accounts are only available if you participate in a high deductible health plan so if don't I am not sure if you can truly set up an HSA. I am hoping Ouchie may speak to that since
my wife and I don't have a deductible at all.

Yes this is all correct. 402(g) is the Internal Revenue Code section that provides the maximum employee contribution limit for a 401(k) - sorry that just rolls off the tongue too automatically for me. And AZCB34 has the planning strategy down precisely. And is also correct about needing a high deductible plan to gain access to an HSA. However there is bipartisan support to introduce legislation that will do away with that requirement, so pay attention as it may become available to you in the future. Also, HSAs as a savings vehicle is gaining traction which means there’s a greater likelihood that they become populated with better investments in the near future (historically the investment selection has been neglected and thus poor).

 

[Ouchie-Z-Clown]

I've never actually understood the HSA so I don't think I'm contributing. I actually didn't realize it wasn't the same as FSA (use or lose) so that's actually something I should have been doing and will consider going forward. Do the funds go into an account like an IRA or just in some savings?

They go into an account where you should have investment options, but as I said they tend to be more limited and of somewhat lesser quality (unless your employer is paying more attention the HSA than typical employers) than you’d find in a 401(k).