March Newsletter on company retirement plans and systematic investing
Welcome to March! I’d like to focus in on two concepts this month- systematic investing and company retirement plans. These are topics that affect all of us and our futures. If you have further questions at the end which pertain to your individual situation, please e-mail me. I understand tax season may present some questions as well.
My first recommendation is that each person set up an account with “systematic withdrawal” options for themselves. This is similar to a phone or electric bill which may debit itself automatically each month from your checking account. You’ve probably noticed systematic withdrawals are an easy way to remember to pay annoying creditors. The same principal can help you pay yourself. If you don’t save on a monthly basis, you probably aren’t hitting your savings targets. The reason for this is saving in small increments tends to be easier and more successful than saving in lump sums. The same logic explains why a person may not hesitate to buy coffee and a newspaper each day, but would likely hesitate to pay up front for an annual subscription even if it saves money.
My next slice of advice applies to retirement plans two types of retirement plans, the 401(k) and 403(b). Most people (with the possible exception of self-employed individuals) probably have at some point had the opportunity to contribute money (usually through a salary deferral) to these qualified retirement plans. They allow you to contribute money on a pre-tax basis and have the money grow tax-deferred until retirement. I do a lot of work advising individuals and businesses on how to maximize the opportunities presented by these plans.
If you have a 401(k) plan at work you should review:
• Am I contributing enough to get the matching contribution? Some companies don’t offer this option in which case don’t worry about it.
• Have I recently gone over my asset allocation? You should be sure not to invest in “tax-free” investments in these plans b/c they offer tax-free growth on all investments. Save tax-free bonds and other tax friendly investments for your individual, non-IRA accounts.
• Am I contributing as much as possible to my 401k or 403b before placing other investments? You should maximize your contributions into tax-deferred accounts such as the 401k and other IRA’s before setting up taxable investment accounts.
If you have a 403(b) plan you should be asking the following question:
• Which 403(b) plans are offered by my institution? Are they all “tax-sheltered annuity plans,” or do they offer a mutual-fund platform? Mutual fund platforms are currently less popular (because they joined on to the tax code later) but offer (in my opinion) a better product. If you or your relative works for a school system, university, hospital, or non-profit, have them research what 403(b) plans are available to them. I can’t begin to tell you the money our clients have saved by tweaking their retirement plan options.
Thanks, and please e-mail with any questions.
Russell Bailyn
(212) 752-4343 *31
rbailyn@gmail.com
