A married couple would not be in the 22% tax bracket for the whole 40k withdrawn from their 401K. $80,000 minus std deduction of $25,900 leaves 54,100 taxable income maybe less if they have pretax money taken out. The first $10,275 would be taxed at 10%, from $10,276 to $41,775 would be taxed at 12% and only the remainder of $12,325 would be taxed at 22%. The $8,800 tax on the 40k withdraw is not correct.
Quick note about the tax example in this video. This example is deliberately kept *extremely* simple for purposes of succinctness for the video. A single income earner - who *first* earns $40,000 taxed as ordinary income, and then withdrawals $40,000 from his traditional 401k for a total income of $80,000. No consideration is made for ANY deductions. Nor were there considerations of any other income types that would affect the tax rates. So in simplest form for this example, $11,000 taxed at 10%, $11,001-$44,725 taxed at 12%, & $44,726-$80,000 taxed at 22%.
We experienced the peak of our era, and now it is gone. Recession is tanking everything including 401K. My retirement equities portfolio of $750K is in the reds. I keep losing because of inflation. This world will fall to the corrupt rulers in the same way that Rome did. I'm sorry if you're thinking about retiring and you're worried that your pension won't be enough to meet the rising cost of living. Horrible foreign policies everywhere, bad regulatory policy, bad fiscal policy, and bad energy policy.
Rising prices have affected my intention of retiring at 62, working part-time, and building my savings. I'm worried about whether individuals who weathered the 2008 financial crisis found it less challenging than my current situation. The stock market's volatility, coupled with a reduced income, is making me anxious about having enough for retirement.
This is precisely why I like having a portfolio coach guide my day-to-day market decisions: with their extensive knowledge of going long and short at the same time, using risk for its asymmetrical upside and laying it off as a hedge against the inevitable downward turns, their skillset makes it nearly impossible for them to underperform. I've been utilizing a portfolio coach for more than two years, and I've made over $800,000.
Carol Vivian Constable is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
Biggest financial mistake I ever made was with my 401k. My company had a Roth 401k when my kids were in college, but I didn't actually start contributing until year 3 of the 6 years I had kids in college. Because I was helping them with expenses, I was entitled to the tax credits, so my effective tax rate was extremely low. That is the time you NEED to be in a roth!
Why would you start investing into a 401 at the age of when kids are in college? What about the previous 20 years rather than just the first 3 years at this job? I dont even know any employers that do not offer 401k's since pensions are essnetially wiped from the face of the earth. "Mostly".
@@WheresWaldo05 I was contributing, but to a traditional 401k. The mistake was not contributing to the roth when my kids first entered college, as the tax credits I was getting lowered my effective rate to about 5%. Nowhere in my post did I say I wasn't contributing to a 401k!
Tax credits have nothing to do with it unless you’re talking about the tuition deduction (not the credit), which reduces your AGI. You should focus on the Roth when your *marginal* tax rate is low.
@@stormcrowssb6412 That is what TAX CREDITS do! If I have $100,000 in income, and owe $10,000 in taxes, my marginal rate is 10%. However, if I have two kids in college, and I get $5,000 in TAX CREDITS, I only owe $5,000 in taxes, bringing my marginal rate to 5%!
I wish Erin was able to publish this about 25 years ago. I estimate I have lost out on 300k-500k in growth because no one explained what and how a 401k worked, and I didn’t know what questions to ask. As a youngster I only knew you really should have one, so that’s what I did. I’ve done well making up for lost time and lack of knowledge, through self-education and increased risk, but it’s frustrating to know I could have been early retired right around now. Thanks Erin for all your thoughtfully produced topics!
@curtisfranks1093 Traditional IRA are taxed. Roth IRA are tax-exempt. There are rules you need to be aware of before opening a Roth IRA. Step one do DD research, with a simple Google search will get you on the way to a better investor.
That graph that explains the raminfications of just a 1% fee was an eye opener for me. I was always skeptical of cost ratio's but have to admit i didn't know long term consequences. i feel blessed to be invested only in the Thrift Savings Plan (TSP) and Vanguard index funds. Thanks Erin!
Thanks Erin, I teach a benefits class at my work. This video makes me realize that I may need to add in a few elements that I just assumed everyone already knew. This is very helpful.
I would say this is probably one of the most important videos you have done for the average person in the time I’ve been following you. I only started to understand some of these things in the last few years and while I’ve been in target date funds and have done just fine, I might have done thjngs differently knowing what I know now. I’m actually in the process of converting everything out of target date funds so I can better control my asset allocation.
I think so often it’s just assumed when we talk about something, everyone just already understands the details. And that’s certainly not the case - so much of it comes down to the fact that there really is a lack of education around financial matters. I’m so happy to hear that you are taking control of your finances and setting yourself up for the future! 😊
What I love about the Roth 401(k) is that it can help you save on taxes in retirement. Not only are withdrawals tax-free at 59 1/2 , it won't impact the taxation of your Social Security benefit and Medicare premiums.This is an important aspect of a Roth account that most people are not aware of. yes right now I prefer the Roth 401k! Because I am paying 19% in taxes on my Roth contributions. That is for state and federal combined.
Great content as always, Erin! However, I just want to point out the 401k tax example isn't correct. While the marginal tax rate is 22%, the effective tax rate is more like 7.6% (progressive tax system).
my companies plan offers a self directed or actively managed 401k, so obviously i took the self directed. If you take out the target date funds, there is really only 12 available funds to choose from, and 3 are bond funds. So i just have to pay the expense ratio of the funds i choose, which are all vanguard and pretty cheap. I also do half traditional and half roth. Great video!
It's interesting to see how many people (like me) say they wished they would have learned these things earlier. I find it a real shame that our high schools don't have mandatory classes about money (budgeting, retirement, debt, investing, etc). Erin is fantastic with her educational content, but there are a LOT of misleading videos that don't educate... and for people looking to learn, those are traps. So Thank You, Erin!
The 22% tax rate specified at an income of 80K is not real in this presentation. That assumes that there was no personal standard deductions. If they were married it subtracts $27,700 from the gross income plus deduction for health care premiums. So almost 35 to 40K will be deducted from that $80K income. So the taxable amount(federally) would be about 11% not 22%.
Erin very nice job on the 1% fee calculation as that was very insightful. FYI the tax calculation on the 40k of income was incorrect. That income would’ve still fallen under the 12% rate but for sake of discussion the tax system is progressive so you only would tax the amount excess of about 45k at the 22%, the prior 44k would’ve been taxed at 12%. Nice video and have a good weekend!
Came here to say this ... working off the video's statement that it'd be $8,800 on $40,000, then we must conclude the assumption is that the $40,000 represents full taxable income. But based on those assumptions and the marginal tax rates for 2023, I figure that the tax owed would actually be only $2,921 for a single filer. For a joint return, by the way, that'd fall to only $1,233, by my calculation.
I get the attraction to target date funds, but the way they are put together defeats much of the purpose. Plus, you pay more in fees for the management without getting all the real benefit. Specifically, as you get closer to retirement, there is a reason you don't want all your money in stocks. If the market tanks, you don't want the value of what you will soon be withdrawing tanking. That would force you to take withdrawals while the fund is down. The real purpose is to have separate buckets. When the market tanks, you can withdraw possibly from your cash portion so that you don't cash in your funds at a low point. Conversely, when the market is up, you can take some of those gains. Target funds don't allow that. When you withdraw, you take from all investments proportionately. You will be forced to sell some of those down stocks at a low point. My point? You should not use a target date fund to diversify for your age appropriate investments. You should have physically separated "buckets" and keep those investments independent.
I assumed my company paid the admin fee for the plan, but now I am not sure. I cannot find anything on the site saying if the plan has a fee or not. Googling it, it appears it can be added to each fund's admin fee, so that seems impossible to figure out.
Ask your HR benefits department. The administration fee might be company paid in full, part or not at all. It is probably document in all the plan docs, but the HR rep should know off hand, or at least where to look. My company switched custodians in fall of 2020, prior to which the fees were just added to fund expenses. Now the administration fee is listed as a line item on the quarterly statement. I (and other employees) advocated for this practice. I don't know how things would have been if we hadn't.
Erin, I am a 73 year old and watch your videos all the time. Most of your topics are pretty basic to me and my wife of 51 years as we both have done our own investing for about 40 years now. I have been retired since February 2009 and we live off our portfolio and sell covered calls. We have done a lot of different methods of investing over the years, but what seems to work for us is primarily dividend growth stocks and we do sell covered calls. I have always felt if you listen to anyone you just might learn something as I do watching your video. With all that said I like to forward your videos to my grandchildren because you have such a way of explaining "investing" that is much better than me or my wife explaining the same things. I would hope with a little of your explaining on different topics they might get started on the correct path with investing. Being 73 and having worked for 50 years give or take I can tell you horror stories about people who worked at companies with matching 401's and did not participate. Sad to me because I did and now my wife and I a Rollover IRA from the 401 and we also have sizable Roth IRAs under each of our SSN. Best of all we have choices and are very comfortable.
I’m so glad you watch!! I am always reading and watching other finance people as well….I have the same attitude as well, if I just learn ONE THING, it all worth it! And thanks you for sharing the videos with your grandkids, I hope they get started investing early 😊 you and your wife enjoy a wonderfully saved for retirement!
Sir, I applaud you working and saving so long and retiring comfortably. I want to learn about the "sell covered call". I heard it few times from people who have successfully managed their retirement portfolio. Can you suggest any reading and/or youtube videos explaining what it is and how it's done?
I guess I have not really answered your question, "Can you suggest any reading and/or youtube videos explaining what it is and how it's done?" because I really didn't get anything from any of the many I watched. They tend to get into long term strategies that was more than what I wanted. So start slow and learn from doing. Last week for instance I sold a CC on MDT, I own 500 shares, sold a CC on Thursday for $0.19 per share for $95.00 less the Commission of 3.25 and fee of $0.15 for a net to me of $91.60. I sold the call 1 day out with a strike of $89.00 which was at the time 1.6% above the strike at the time I sold it, but I felt based on what the market was doing for that particular stock would not hit the strike. I usually go to Yahoo Finance and look up the history on a stock and use the last 4 months to see what the trends have been and use that information as my guidance sort of. Stocks like SOUN and AI can have 16% days up and down so that is where experience comes in. I would never sell a call on one of those two at 1.6% from the strike. I use Fidelity and I am used to their format, but I am sure all the others have something akin. Try a few slowly and gain your experience. Slowly.
I personally contribute to my Roth 401K over traditional. Im 33 and currently in that iffy 22% tax bracket. Im more of a facts person though. Because we don’t know what will become of taxes in the next 30 years, I choose to take the guaranteed tax rate I know that I have now and pay at the front end. That could possibly bite me in the end, but at least I know I don’t have to worry about it later on.
@@ErinTalksMoneyI never understand why advisors say if you think you’re going to be in a higher tax bracket when you retire use a Roth. Who is in a higher tax bracket after they retire??? I’d rather pay the taxes now regardless of tax rates later. That’s why I do Roth in both 401 and IRA forms.
@@Wbrundog A LOT of people! If you save for 30 - 40 years, you could have a pretty hefty account, which would be taxable. There are other things to think about. If you plan on Obamacare, it's based on income. Roth does not count, so it doesn't impact your subsidy. Roth does not count as income which determines how much of your SS is taxed. However, the biggest concern with taxes is the "widow tax trap." You may be in a low tax bracket as a retired married couple, drawing on a 401k, but when one spouse dies, you could jump to a higher bracket.
I've been contributing to a 401K for over a decade and had no idea what the fee was. I guess I just assumed it was maybe half a percent... didn't realize it could be relatively high
You know you can find out right? Log into your account and look at transactions history. Your plan administrator is probably taking a few bucks per month. Then go into your actual fund holdings and look at their prospectus. This should state the expense ratio and any other fees you pay. It's up to you to understand what you're spending your money on. None of this is hidden.
Totally unrelated, but this morning, the market cap of Ferrari (RACE) passed that of GM (GM) and Ford (F). Ferrari makes fewer than 15K cars per year. (I'm not an investor in any of these companies.)
Ferrari is up 256% since IPO with operating margin greater than 23% compared to GM's over 7% and F over 5%. Heck, Tesla is only above 13%. Also note that Ferrari's generates about half its revenues from non-auto sales, too. People buying ferrari's also aren't impacted by economic down turns. Now would Italy ever bailout Ferrarri like the US did for GM?🤣 Given that Ferrari bonds are considered safer than the Italian Government bonds, I doubt it would ever need to.🤣
@@hanwagu9967 Actually, Ferrari is up at least 480% since IPO. The IPO was oversubscribed at $52.00, but RACE closed at $56.00 on the first day of public trading. RACE closed on June 30, 2023 at $325.21. At this year's BRK annual meeting, Warren Buffett said he liked Ferrari as a company.
Most people will be in a lower tax bracket when they retire, so having a pre0tax account is still a good idea. Prior to retirement, you just look at your current tax bracket to determine which account to fund. One trick is to have an HSA fund, and fund it fully. That contribution lowers your AGI income, so it won't push you into a higher tax bracket. Also if you are married, with say an 80K retirement income, you can take about 25K off the top for the standard deduction. So now your taxable income is only 55K, and you are well within the 12% tax bracket.
Your 401k tax calculation is slightly off. Those taxable income tables are AFTER the standard deduction ($13,850 for single in 2023). So part of his withdrawal would fall in the lower bracket. His taxable income could be even lower if he itemizes deductions.
I've been fortunate with multiple employers throughout my career to have great 401k plan options primarily with Vanguard and now with Fidelity with reasonably low fee's! In my opinion target date funds still hold too much Bond exposure for the younger folks just starting to invest, they should be 100% stocks and then maybe start adding bonds the last decade before retirement, I'm still 97% stocks 3% bonds and hold 5-7 years of cash products and 3 years away from retirement
Spoken like a man who has ridden the longest bull market in U.S history (2009-present). You might feel a little differently if the bottom falls out with that allocation. Or should I say, when the bottom falls out.
Love your vids. The tax example given however, wasnt quite right. It taxed the whole $40K @ 22% when, really $4725 would be taxed @ 12%, $13,850 would be taxed at 0% (standard deduction) and the remainder ($21425) @22% for ~ $5280 due in tax. Still something to be aware of, for sure, but a little less dire.
@@sergiosantana4658 assumed income in the example is $80,000 - not simply the $40,000 401k withdrawal. Example assumes that the entire $80K is subject to income tax
It seems unlikely that tax rates will stay the same or go down in the future with all the baby boomers leaving the workforce. The line of thought that tax rates will go up in the future (as they already likely will when the TCJA expires in a few years) is why I'm leaning more into Roth 401k vs traditional.
So something that is slightly incorrect is if you make 80k a year you are taxed at 22%. Only a portion of the 80k is taxed at 22%. The way tax brackets actually work out when it comes to your income is the first x amount of money you make is taxed at 12%, if you make above that dollar amount and move into the tax bracket anything after that cap of 12% is capped in that tax bracket. Example: let’s say Anyone that makes under 12k is taxed at 12% and 22% is anyone from 12,001-22,000. 24% 22,001-32,000. So if you make let’s say 40k the first 12k is taxed at 12% the next 10k would be taxed at 22% then the next 10k would be taxed at 24%. The remaining 8000 you make that year would be taxed in the next bracket and in the US that would be 32%. This is come from a CPA. Common misconception Americans make is the entire income they make that year is taxed in the new tax bracket based on crossing he threshold into that bracket. However it’s only the amount that moves past the threshold that is taxed in that bracket.
So glad you point out that the default 401k investment should be scrutinized - i am afraid when i first started contributing in 1992 i went into: 3% contribution (max match 3% 1:1) match was in the company''s stock - could not sell it. Money Market fund Plus - there was no yearly review by me with the fund admin, which is a constant in today's retirement fund / benefits reviews w/ HR : didn't increase the % (which i could have since expenses were low & salary increases large) didn't switch to other fund investments ( do not remember the expense ratio of funds nor the 401k) ROTH was not offered SO GLAD you are pointing out that a little bit of fund management & self-education can go a long way even with the 'default' setups ..... which are much better now. ... bottom line ---- I put my head down and worked with the same retirement choices for 8 years!!! --- ARRGGGHHHHH ---- Do NOT do that!!!
Thank you Mr jack bogle. RIP to a true legend and we are forever grateful for all you have done. Every time I deposit money into my vanguard index fund I am reminded of what he did for the average investor, instead of paying a high priced financial advisor!!!
Honestly - I only have a small amount actually in retirement accounts. I worked for 13+ years at a business that offered no retirement option. So I used an IRA - then I got a job with a major corporation, came with great benefits (yes retirement) but was only there for 4.5 years. I started my own business last year, and you bet it has a retirement account 😂 But all of this is to say - outside of an IRA, I haven’t had access to other retirement accounts for much time. I simply have used trusty brokerage accounts.
@@ErinTalksMoney right I am sorry I think you miss understood. Those are still retirement accounts. Weather through an employer or not. Do you invest in the market in non retirement accounts at all? Like you wanna retire at 50 so you have just a normal brokerage account that you put money in so you have 1 million in or something to get you to retirement age to be able to pull from a retirement account.
@@Fishfood007 I think I explained poorly - I was trying to say that most my investments are in fact in non-retirement, brokerage accounts. I mentioned the Roth IRA, because I do love a Roth - but but the contribution limits are VERY low. So after I max that out - I move on to the brokerage accounts. And absolute musts, you are correct, if I want to retire early 🙂 I actually think ALL investors should have a traditional brokerage account!
@@ErinTalksMoney my apologies for misunderstanding. That is awesome you should do a video on how you go about the non retirement accounts tax plans with them any plans you have for them. Would be great to hear more about how you think and plan.
I signed up with fidelity which was the only company that was not insurance based. The fund I chose was not an index fund but fidelity is no load and relatively low expense. They send prospectus every quarter. Where does the responsibility fall if the investor does not wish to research!
I think you made a mistake in your calculations. If you withdraw from your 401k, and your income is 80.000$. You should not deduct 22%. You need to deduct 10% for the first 11.000. After 12% for the next 33.000. And 22% for 36.000 left.
Tax free? But not ever, hopefully your employer pays all of them in a matching but not usually. She’s wrong about average being 1% I usually see 3% & that’s usually half of the lowest contribution from employer
Very good video Erin! I have most of my money in a Roth through Charles Schwab. I also have a taxable account in Schwab which i trade options in for extra income. I have a Roth and taxable through M1, which I contribute to weekly. I also have a Roth 401k through my employer which has a match. I have went through and picked broad base indexes in the 401k that all have fairly low fees. (I figure most of my return in the 401k will be the match anyways) so i went with cheap expense fees.
Very important information here regarding fees on your mutual funds. John Bogle, as mentioned, reiterates this over and over in his books. Nice job, Erin!
Im currently in one of Vanguards target date funds for my Roth IRA. For my 401k I am in chosen funds. Fees at Vanguard for a target date are quite low (I want to say 0.1%)
Haha 😂 - some people have asked for them to come back. Comes down to two things - time, takes much longer to end it then into the end, and I’m at a phase of life that is time poor. And two, I’ve simply gotten better in front of the camera - I’m more comfortable and make less errors. It use to take me 45 min to film these 10 min videos (lots of bloopers) - now it takes about 20 min 😊
Best 401(k) for me is a solo 401(k) I have as a self-employed individual. No fees whatsoever and I can invest directly in equities. Also, we have Roth IRAs and my wife has a Fidelity 403(b) through one of her employers where the only account fee is $24 annually (plus internal funds fees).
it's only "popular" because it's been forced upon us! When companies got away from pensions, they are the ones that chose this type of retirement fund. When you change employers you have to change to their offered 401k or you don't get the 'benefits'. A really dumb system if you ask me.
That 1 percent fee is interesting. Mostly because you explained it wrong..required revenue record keepers charge don't work that way. More over those fees could be covered with rev share investments or your employer covering it. Also the average RR is not 1 percent and hasn't been in years.
I currently hold a Roth IRA and hold a traditional 401k. I personally don't convert to Roth 401k because I still got Bills to pay. You must have some kind of leverage or comfortably situated to hold a Roth 401k.
I currently put 22% of my income from my job into my 401K with a 7:2 ratio to the Roth 401K. When I do increases, I put it more to the Roth 401k along with other investments I allocate funds towards retirement.
Your **STANDARD DEDUCTION** will lower your tax bracket. A $40K withdraw is reduced by $13,850, putting you at $26,150 income, and a 12% rate (not 22%). Taxes are important, but the calculation is important - which is the topic of this video.
The conversation of taxes was far to complex for the purpose of the video. It was made simple for illustrative purposes. For instance if we go down the road of taxes in retirement - we could assume that a portion of this retirees income come from SS - well then we have to address do they live in a state that taxes SS benefits - there are 11 that do. Is any portion of this income from investments like a brokerage account and instead subject to long term capital gains at a reduced rate compared to ordinary income? Do they have a job that provides the other source of income? Did the other income come from municipal bonds and this not taxed….was part of it rental income that could be offset by other deductions…perhaps it was alimony, and thus not taxed….the list goes on… What if this retiree was a caregiver for a dependent- perhaps a grandchild they have custody of - then their standard deduction would be $20,800, not $13,850. Or what if this individual is married, but filing separately - and their SO opts to itemize - well then he doesn't quality for the standard deduction and must itemize. This is why I deliberately avoided the discussion deductions and income sources. The example was intended to be simple to illustrate that there is a tax consequence. I offered no consideration for deductions - simply that the income was $80K - all subject to ordinary income tax.
@@ErinTalksMoney Fair, but maybe qualify it as "taxable income" or marginal tax rate (depending on your circumstance.) I offered the basic single taxpayer standard deduction in my example simply to illustrate that someone just taking 40K doesn't automatically pay 22%. If we are talking basic generalities, perhaps starting with the simplest scenario is best. I suspect that your listeners either understand taxes (as I do), or has no idea and will be unduly panicked by the thought of paying 22% on their only $40K. Love your work. Keep it up.
One caveat, you mention you WILL owe taxes. I've structured my retirement so I will not owe any taxes in retirement. I've taken advantage of the tax laws to max out pretax deposits and post tax deposits. This is the benefit of understanding taxes from when I began work back in the 80's. I've planned and structured my withdrawals to limit them to what the tax law allows before tax is calculated on them. I know many find this hard to believe but it is reality. I've even had it reviewed recently by a financial advisor and they were impressed with my lifelong planning for an early retirement and structuring my pre-tax and post tax accounts. Happy holiday weekend. Hope it is safe and fun! Cheers!
saying things like structure to take advantage of tax laws or that what tax laws allows and saying you reviewed by a financial advisor just makes your entire comment dubious. pre-tax tax deferred is tax deferred, so how you are getting around that is questionable. post tax you paid taxes already. What you've generically or tried to hint at is complete malarky, especially since you also wrote early retirement. began work in the 80s means you would be at least 61yo based on your work back in the 80s and giving benefit that you started working around 16yo. That is dubious also making you older than 61yo based on the info, since you said you understood taxes beginning work in the 80s. financial advisors unless they are tax experts aren't tax experts. now perhaps you just bought a bunch of costly annuities.
@@hanwagu9967 lol. Go check your numbers again mr malarkey. I’m 58 now. I retired at 52. I worked full time to put myself thru college. I started in 1984 graduated in ‘88 with an accounting degree. So, I knew tax law in college. Nothing dubious in my comments just the facts.
Should I get a Roth IRA max it out every year AND get a Roth 401k and get try to max that out? Should I get both? What would YOU do I’d love your opinion please also others watching this vid thanks!
Your tax part was way off. Yes I read your comment taxes are to complex for this video but your example is worse case scenario With 45,000 in retirement income I'm going to pay less than 10% before social security and 5% after I collect at 70 And I'm purposely paying the 10% because I'm spending down traditional which I didn't pay 22% when I earned it
The tax rate would not be 22% it would be 10% for 0 to 11k then 12% 11,001 to 44,725 So I'm not doing the math but it's probably around 11.5% effective tax rate
What i do understand is they rip you off after 40 to 45 yrs. You think u walking out with 1 million dollars Taxes you gotta pay Your old, health care cost And for 40 yrs, investors been playing with your money. Win some, lose some
Do you have any information about the fees charged by managed funds inside target funds? We end up paying fees twice. Also, they collect fees and commissions when they decide to move your money from stocks to bonds and you have no control over that decision. I pity anyone who was moved into bonds in 2020 and now has to sell at a discount.
I self manage my 401k. When I started investing I used a financial advisor but I fired him after I figured out he was charging me the 1% fees for mediocre returns.
I love my job and earn a nice salary. Unfortunately, it's kind of a Mom & Pop company and they don't offer a 401k. I do have an HSA through our company health insurance though and I max that out. I also max my Roth IRA and invest in a brokerage account. However, I really do wish I could have participated in a 401k plan.
Question…. If someone is paying 1% fee for a 401(k), is that 1% of the total balance? So, as the balance goes up, that one percent would always be ever increasing?
With my 403b at my current work, it's typically charged at $5 per quarter or so, from what I've seen in my activity section with Fidelity. Thankfully, the S&P 500 fund provided as part of the package has a low management fee (.015% I think), so rather than mixing and matching with other funds or target-date funds, I just went full in S&P 500 and called it. I went with the Roth deferral for my share of contributions in order to cut down on taxes in retirement years, especially since I plan to make more money in the future.
Hi Erin, if a 401k withdrawal is treated as taxable income, if I live in a income tax free state like Tennessee or Texas, do I still need to pay income tax on my 401k withdrawal? Great video and thank you👍💯
Would have loved to have your videos when I was in my twenties. Retired at 57 due to health reasons. Had a choice between a monthly payment or lump sum. I chose the lump due to growth potential and the fact I could keep it in the company 401k with low fees. I’m allowed two withdrawals a year so budgeting is a must. What I didn’t know was a mandatory 20 percent federal withholding tax. That’s a hefty sum not growing. 😢
2:55 How does one find out what those 401K Management fees are if they're not getting invoiced? Also, is this change visible to the 401K Account holder, as in the number of shares units they hold decrease or some such? Or, is it the price of the share unit? It could be the latter, but how does one find out how much they charge from that?
It’s going to be in your 401k paperwork. You can certainly talk to your HR for a copy. Think of it like a fund - when you look into an fund, they will list the expense ratio when you pull up the documentation on that fund. In the paperwork on your plan, there will be a management fee that is listed. Otherwise you can call the company that manages your 401k and they can tell you what the fee is
You will still have to pay Federal taxes. BTW, California is adopting a severance tax for people who move away. I expect Oregon (and others) will follow suit.
My (small) employer now has a custodian/plan which lists the fees as a separate line item on the statements for our 401k accounts. It caused a lot of questions, but is a Good Thing as far as I'm concerned. We previously used a custodian that hid the fees for the 401k by adding it to the fund fees. Many of us objected to the custodian, the investment choices and the high fees (like almost 1% on an S&P 500 index fund!) and finally in fall of 2020 we changed to T Rowe Price. As part of the planning for this change, I advocated to our HR and the benefits consultants to break out the fees rather than hide them. We had a large reduction in fees just by switching custodians, and having the overall wrap fee listed on statements, almost in your face, surely made people aware. Since fall of 2020, almost every year the fee has dropped. A few weeks ago they announced that starting today (1 July) the overall fee was waived. I'm still not sure what this means... How does TRowe get paid? Are they going to return to hiding the fee in the fund expenses? Is some other change in the works?
There are also transaction fees. Every time a fund manager sells a stock they charge a transaction fee. There are separate management fees. There are 12B-1 advertising fees. They need to advertise the fund so people will invest into it. Many times throughout the year the fund manager will sell tens of thousands of shares to pay retirees like myself who are withdrawing funds to live on every month. There are also many working employees who withdraw funds early with penalties and taxes because they lost their jobs or other financial crisis. Also, a fund manager will sell certain stocks because they are the bottom 50 performers in the fund of 500 companies. Think of Silicon Valley Bank that went bust earlier this year....don't want that in your investment portfolio. There are also onerous "front loaded fees" meaning the manager takes 5% up front as a rip off charge.... i mean as a fee just like when you buy an annuity they charge 5-10% front loaded fees. So, if you invest $10,000 into the fund, a front loaded fee of 5% will give the manager $500 and invest only $9500 because of this extortion....I mean fee. Vanguard Funds are designed by Jack Bogle to eliminate these fees and generally charge about .05% as fund fees. a 1/2 of a percent with "no loads" You can find out all of these management and fund fees by googling rhe name of your fund and the "prospectus" So, google Vanguard S&P 500 fund ticker VOO prospectus. In the prospectus you will find all the answers to your questions about the fund. What the fee structure is , what companies they are investing in, what is the goal of the fund, what is the turnover rate/ buying and selling of stocks in fund, Who the managers are and how much experience they have, what are the early withdrawal fees are, how much time it takes to receive your funds when withdrawing them, How much bonds make up the fund or short term commercial paper is being invested including what percent of fund is in cash. I recommend you look at some prospectuses for funds you are interested in or are invested in.
In my opinion, it doesn't matter if you are in a higher tax bracket now vs later. If the investment returns of your Roth account is more than double your contributions over its lifetime, then you have effectively paid the least amount of tax possible. That's how I see it.
Ignoring the effective vs marginal distinction for a moment: If you take 30% off before you double it or if you double it, then take 30% off, you end up with the same dollar amount (exactly). That's why tax rates matter. I do think though that people early in their careers should be optimistic and assume they will make a lot more later in their careers and go 100% Roth until they are near their personal peak earnings rate, then switch to traditional to maximize the difference in tax rates for when they retire.
I always max out my Roth 401k instead of traditional. What helped make my decision is knowing I can contribute the same amount but all the Roth will be tax free later. Between state and fed top tax bracket of about 25 percent
The ROTH/Traditional 401K decision is based on your tax bracket now vs. what you believe your tax bracket will be in retirement. If your tax rate is higher now, then you don't want to invest in a ROTH.
I'm so thankful that my 401k account manager charges a fixed annual fee. Doing some mental math, that fee is around 0.1% of my current account total, so that is a pretty dang good rate. It also hasn't been raised since I started working for this company 5 years ago.
If your 401K manager is only charging a set fee, and not a percentage of the portfolio they really are the minority. As she said, typical is about 1% of assets. And this is on top of fees charged by the actual mutual funds. that are in the plan. So the 401K manager is charging you to administer a plan that has very little to cost to them, AND as your portfolio gets larger, charging you more. Even if you have a 401K plan with about $250,000, really not that large for someone who is investing 10% of ther salarly regularly, they will be paying thousads a year. I ask you for what? To give employees bad advice on what funds to invest in? Like targeted date funds, or loaded funds. Since there a lots of limitations on when you can withdrawal from a 401K plan, my recommednation is only contribute in the 401K the amount that your employer is matching you on. So if they are matching 3% than contribute 3% annually. Then make your retirement investments in an IRA. (which almost all do not charge a management fee, and you got lot more options on what you can invest in too.)
0.1% is pretty much unheard of. I bet many would like to know who and if this is a special deal only for you or the general public? Personally I manage all my own retirement funds.
@@joethecomputerguy1 Transamerica. I assume the fixed rate is a deal through my company and not available to the public. We're a government contractor. The fixed rate is also 0.1% of my current total, not .01%.
Make sure that 0.1% fee is not on top of Fund fees. I was in a similar situation years ago where the account manager was charging a fixed fee, but then I found out that was on top of the fund fees, so there was double-dipping I was not aware of. There really should ONLY be fund fees and not account manager fees, as the account manager should be making money from the funds that pay them for having their funds listed in your plan, not by charging your dollars directly. 0.1% is also high when you compare it to Vanguard fees for some of their basic funds, such as VTSAX for example, which has a fee of 0.04%.
@@buyerclub2 My 401k is administered by TRowePrice. The company is small but growing and we have been with TRowe since fall of 2020. In addition to the standard expenses on the fidelity funds I have chosen, there is a quarterly administration fee charged by TRowe and not subsidized by the company. (I was one of the employees advocating for this fee to be listed separately during the change to TRowe, unlike the previous custodian who hid it in increased fund expenses.) I don't have the second quarter statement yet, but as of the end of march (first quarter) the administration fee is much less than1%. Simple division of the fee divided by the quarter start balance, and then the same operation using quarter end balance: 0.000517158 ... (or less than 0.052% based on quarterly beginning balance) 0.000466067... (or less than 0.047% based on quarterly ending balance) If even the higher fee occurs 4x per year, that would be 0.208%. Unlike when with the prior custodian, I have no complaints about fees. I do wish for more investment options (i.e. a brokerage window) but I understand as a 401k investor I am in a distinct minority. (and my 401k is a distinct minority of my investments due to job changes, etc)
I do 6% into traditional and get a 5.5% match then do another 3% into roth, I expect to be in a lower bracket in retirement so how would you adjust this ratio?
@@howardfriedman7077 shouldnt everyone be? If u go from having a job/making money to not having one/making way less then obviously you'd be in a lower bracket
@@shazam2323 You seem to agree with me yet, you are contributing to a ROTH. Why? But everyone does not have that situation. Most workers in their 20s will likely be in a low tax bracket and can contribute to a ROTH knowing that their tax bracket in retirement will likely be higher. You also have to look at all income streams in retirement, along with RMDs from tax deferred accounts.
@@howardfriedman7077 idk what tax rates will be like but between my retirement funds, disability pay, 3+ rental properties, etc I just have no idea and could potentially be in a higher bracket hence why i invest in both so im covered either way
1) Taxes are going up automatically in 2026. 2) Required Minimum Distributions will likely push you into a higher tax bracket during retirement. 3) There are other reasons to use a Roth, like making your estate tax-free when you pass it to your kids.
Some general wisdom when it comes to retirement and investing: 1. Index funds are less expensive than mutual funds. This is because most mutual funds have someone constantly making trades (called active management). This leads to transaction fees, management fees and often times expense ratio fees that are higher than normal. Passively managed funds take out the transaction fees and management fees, and have much lower expense ratios. 2. If your company offers a 401k match, what you put in every year is the max match. 3. Once you go above 6 index funds and/or 20 stocks, you are usually a) overdiversified, b) have redundant asset classes (paying multiple expense ratios typically for the same return), c) engaged in speculation which pretty much always loses money in the long run unless you were there at the beginning of an apple or Amazon, or d) a combination of all three. 4. An expense ratio of 1.25 means for every 10k invested, you owe $125. An expense ratio of 0.03 means for every 10k invested, you owe $3. So, you want to owe more or less money? My general rule is if the expense ratio is greater than 0.6, I'm not buying unless it's the lowest cost option in a selection of 401k funds for a key asset class like S&P 500 fund. 5. If you are eligible to have a roth ira, open one and contribute the max per year to it ($6,500). Money grows tax free, you have total control over what it gets invested in, and it comes out tax free. It also follows you everywhere instead of being tied to a job. 5. Learn rollover rules (within 60 days post termination) to avoid having to cash it out (taxes) or have it stuck where you can't contribute anymore to it. 6. 1st question to ask a new job: what is the vestment period. If it's three years, you have to work for the company at least three years, or they get to keep all the employer match money when you leave. If vested immediately, you keep all the money that is in when you leave. 7. If you're eligible for an HSA, use it. And watch a video about HSAs. Use these over flex savings accounts if possible. 8. Warren Buffet and Jack Bogel preached over and over again, the average individual in America needs 2 index funds, 3 for full exposure, 4-6 if you want specialty. They are an S&P 500 or total stock market, a total US bond market, a total international, a REIT (tax advantaged account only), and depending on your goals a mixture of dividend value or growth class. Anything else is betting against the market and the equivalent of a ticket at the horse race track. Can be fun, can win big. But do you really wanna bet your entire future on a horse race? 9. Good investing is like watching paint dry. Straight from Buffet himself. It's boring and dependable. 10. Anyone who says good investing is super complicated is probably a fund manager trying to convince you they are worth 1-2% of your total portfolio for managing it.
Many companies who offer 401Ks do not have Vanguard. In fact that offer sub par mutual funds that are very expensive. But you have no choice if you want to take advantage of the tax deduction and/or company match. You will have to wait until you retire to roll it over to an IRA where you can have inexpensive index funds.
Except Roth has a maximum investment cap of $7,500 per year. That's not nearly enough to reach my goal of 1million dollars by the time I retire. The traditional 401K cap of $22,500 & the catch up cap of $7500 totalling $30,000 per year is barely enough to reach my retirement goals. I'm 53 & started way too late investing in to my 401K. I currently have $16,500 in my 401K 🥺
The $7,500 cap applies to IRAs, not 401k plans. If your work offers a Roth 401k (and they should), you could invest the full $30k in a Roth. Please note: as of 2025, 401k catchup of $7,500 MUST go to Roth for higher wage earners. If your company doesn't offer a Roth, you won't get the catchup amount.
My company matches up to 25% I'm contributing 13% traditional and 12% ROTH. all I see and hear is free money. Hope I'm contributing to maximize my contributions.
Mine was the typical "invest in funds not individual stocks" deal. Really poor returns until I got control of the funds and learned stocks. Don't know of any good alternatives; 401ks were invented to help companies.
A married couple would not be in the 22% tax bracket for the whole 40k withdrawn from their 401K. $80,000 minus std deduction of $25,900 leaves 54,100 taxable income maybe less if they have pretax money taken out. The first $10,275 would be taxed at 10%, from $10,276 to $41,775 would be taxed at 12% and only the remainder of $12,325 would be taxed at 22%. The $8,800 tax on the 40k withdraw is not correct.
Glad this comment is here.
Is that for the federal or for the state?
@@RAFAEL92108 That's federal taxes same that she was referring to in the video.
Taxable Income
=$54100 = $41775+$12325
Tax=$41775x.12 + $12325x.22
= $5013 + $2712 = $8725
Based on your reply!
Right! It's levels to this taxation lol
Quick note about the tax example in this video. This example is deliberately kept *extremely* simple for purposes of succinctness for the video. A single income earner - who *first* earns $40,000 taxed as ordinary income, and then withdrawals $40,000 from his traditional 401k for a total income of $80,000. No consideration is made for ANY deductions. Nor were there considerations of any other income types that would affect the tax rates.
So in simplest form for this example, $11,000 taxed at 10%, $11,001-$44,725 taxed at 12%, & $44,726-$80,000 taxed at 22%.
Sorry, that was the comment that I just added to the video. Your comment should have been pinned to the top.
We experienced the peak of our era, and now it is gone. Recession is tanking everything including 401K. My retirement equities portfolio of $750K is in the reds. I keep losing because of inflation. This world will fall to the corrupt rulers in the same way that Rome did. I'm sorry if you're thinking about retiring and you're worried that your pension won't be enough to meet the rising cost of living. Horrible foreign policies everywhere, bad regulatory policy, bad fiscal policy, and bad energy policy.
Rising prices have affected my intention of retiring at 62, working part-time, and building my savings. I'm worried about whether individuals who weathered the 2008 financial crisis found it less challenging than my current situation. The stock market's volatility, coupled with a reduced income, is making me anxious about having enough for retirement.
This is precisely why I like having a portfolio coach guide my day-to-day market decisions: with their extensive knowledge of going long and short at the same time, using risk for its asymmetrical upside and laying it off as a hedge against the inevitable downward turns, their skillset makes it nearly impossible for them to underperform. I've been utilizing a portfolio coach for more than two years, and I've made over $800,000.
Mind if I ask you to recommend this particular coach you using their service?
"Carol Vivian Constable " maintains an online presence. Just make a simple search for her name online.
Carol Vivian Constable is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
Biggest financial mistake I ever made was with my 401k. My company had a Roth 401k when my kids were in college, but I didn't actually start contributing until year 3 of the 6 years I had kids in college. Because I was helping them with expenses, I was entitled to the tax credits, so my effective tax rate was extremely low. That is the time you NEED to be in a roth!
Why would you start investing into a 401 at the age of when kids are in college? What about the previous 20 years rather than just the first 3 years at this job? I dont even know any employers that do not offer 401k's since pensions are essnetially wiped from the face of the earth. "Mostly".
@@WheresWaldo05 I was contributing, but to a traditional 401k. The mistake was not contributing to the roth when my kids first entered college, as the tax credits I was getting lowered my effective rate to about 5%. Nowhere in my post did I say I wasn't contributing to a 401k!
Tax credits have nothing to do with it unless you’re talking about the tuition deduction (not the credit), which reduces your AGI.
You should focus on the Roth when your *marginal* tax rate is low.
@@stormcrowssb6412 That is what TAX CREDITS do! If I have $100,000 in income, and owe $10,000 in taxes, my marginal rate is 10%. However, if I have two kids in college, and I get $5,000 in TAX CREDITS, I only owe $5,000 in taxes, bringing my marginal rate to 5%!
I wish Erin was able to publish this about 25 years ago. I estimate I have lost out on 300k-500k in growth because no one explained what and how a 401k worked, and I didn’t know what questions to ask. As a youngster I only knew you really should have one, so that’s what I did.
I’ve done well making up for lost time and lack of knowledge, through self-education and increased risk, but it’s frustrating to know I could have been early retired right around now.
Thanks Erin for all your thoughtfully produced topics!
What specifically did you do to miss out on 300-500k? Only asking so I can learn from you.
I too would like to know, if you do not mind sharing.
@curtisfranks1093 Traditional IRA are taxed. Roth IRA are tax-exempt. There are rules you need to be aware of before opening a Roth IRA. Step one do DD research, with a simple Google search will get you on the way to a better investor.
@@Master4999Most common is putting your money in stable funds rather than investing in the market.
That graph that explains the raminfications of just a 1% fee was an eye opener for me. I was always skeptical of cost ratio's but have to admit i didn't know long term consequences. i feel blessed to be invested only in the Thrift Savings Plan (TSP) and Vanguard index funds. Thanks Erin!
Thanks Erin, I teach a benefits class at my work. This video makes me realize that I may need to add in a few elements that I just assumed everyone already knew.
This is very helpful.
Glad it was helpful!
I would say this is probably one of the most important videos you have done for the average person in the time I’ve been following you. I only started to understand some of these things in the last few years and while I’ve been in target date funds and have done just fine, I might have done thjngs differently knowing what I know now. I’m actually in the process of converting everything out of target date funds so I can better control my asset allocation.
I think so often it’s just assumed when we talk about something, everyone just already understands the details. And that’s certainly not the case - so much of it comes down to the fact that there really is a lack of education around financial matters. I’m so happy to hear that you are taking control of your finances and setting yourself up for the future! 😊
Excellent video. I am in the TSP, and my fees are 63 cents per $1,000 dollars invested. No complaints.
let's not forget even with Roth 401k, employer match is always tax deferred.
22% tax bracket on $40k = $8800... no that's not how progressive tax brackets work. Oops!
What I love about the Roth 401(k) is that it can help you save on taxes in retirement. Not only are withdrawals tax-free at 59 1/2 , it won't impact the taxation of your Social Security benefit and Medicare premiums.This is an important aspect of a Roth account that most people are not aware of.
yes right now I prefer the Roth 401k! Because I am paying 19% in taxes on my Roth contributions. That is for state and federal combined.
@@WheresWaldo05 , with the secure act 2.0. Roth 401k's no longer have RMD'S. And my account will be open for at least five years before I retire.
Great content as always, Erin! However, I just want to point out the 401k tax example isn't correct. While the marginal tax rate is 22%, the effective tax rate is more like 7.6% (progressive tax system).
Roth IRA
Roth 401k Traditional 401k 50/50
HSA
Brokerage
529 😅
my companies plan offers a self directed or actively managed 401k, so obviously i took the self directed. If you take out the target date funds, there is really only 12 available funds to choose from, and 3 are bond funds. So i just have to pay the expense ratio of the funds i choose, which are all vanguard and pretty cheap. I also do half traditional and half roth. Great video!
Love it!
It's interesting to see how many people (like me) say they wished they would have learned these things earlier. I find it a real shame that our high schools don't have mandatory classes about money (budgeting, retirement, debt, investing, etc). Erin is fantastic with her educational content, but there are a LOT of misleading videos that don't educate... and for people looking to learn, those are traps. So Thank You, Erin!
Amen ! Instead of teaching useless nonsense this is what needs taught !
That's one way the government makes you reliant on government; government education.
Our economy NEEDS spenders NOT savers. That is why personal finance is not taught in schools.
I agree but it needs to be taught correctly, not w some political slant to it?
The 22% tax rate specified at an income of 80K is not real in this presentation. That assumes that there was no personal standard deductions. If they were married it subtracts $27,700 from the gross income plus deduction for health care premiums. So almost 35 to 40K will be deducted from that $80K income. So the taxable amount(federally) would be about 11% not 22%.
Erin very nice job on the 1% fee calculation as that was very insightful. FYI the tax calculation on the 40k of income was incorrect. That income would’ve still fallen under the 12% rate but for sake of discussion the tax system is progressive so you only would tax the amount excess of about 45k at the 22%, the prior 44k would’ve been taxed at 12%. Nice video and have a good weekend!
Came here to say this ... working off the video's statement that it'd be $8,800 on $40,000, then we must conclude the assumption is that the $40,000 represents full taxable income. But based on those assumptions and the marginal tax rates for 2023, I figure that the tax owed would actually be only $2,921 for a single filer. For a joint return, by the way, that'd fall to only $1,233, by my calculation.
I get the attraction to target date funds, but the way they are put together defeats much of the purpose. Plus, you pay more in fees for the management without getting all the real benefit.
Specifically, as you get closer to retirement, there is a reason you don't want all your money in stocks. If the market tanks, you don't want the value of what you will soon be withdrawing tanking. That would force you to take withdrawals while the fund is down.
The real purpose is to have separate buckets. When the market tanks, you can withdraw possibly from your cash portion so that you don't cash in your funds at a low point. Conversely, when the market is up, you can take some of those gains.
Target funds don't allow that. When you withdraw, you take from all investments proportionately. You will be forced to sell some of those down stocks at a low point.
My point? You should not use a target date fund to diversify for your age appropriate investments. You should have physically separated "buckets" and keep those investments independent.
I assumed my company paid the admin fee for the plan, but now I am not sure. I cannot find anything on the site saying if the plan has a fee or not. Googling it, it appears it can be added to each fund's admin fee, so that seems impossible to figure out.
Ask your HR benefits department. The administration fee might be company paid in full, part or not at all. It is probably document in all the plan docs, but the HR rep should know off hand, or at least where to look.
My company switched custodians in fall of 2020, prior to which the fees were just added to fund expenses. Now the administration fee is listed as a line item on the quarterly statement. I (and other employees) advocated for this practice. I don't know how things would have been if we hadn't.
Erin, I am a 73 year old and watch your videos all the time. Most of your topics are pretty basic to me and my wife of 51 years as we both have done our own investing for about 40 years now. I have been retired since February 2009 and we live off our portfolio and sell covered calls. We have done a lot of different methods of investing over the years, but what seems to work for us is primarily dividend growth stocks and we do sell covered calls. I have always felt if you listen to anyone you just might learn something as I do watching your video. With all that said I like to forward your videos to my grandchildren because you have such a way of explaining "investing" that is much better than me or my wife explaining the same things. I would hope with a little of your explaining on different topics they might get started on the correct path with investing. Being 73 and having worked for 50 years give or take I can tell you horror stories about people who worked at companies with matching 401's and did not participate. Sad to me because I did and now my wife and I a Rollover IRA from the 401 and we also have sizable Roth IRAs under each of our SSN. Best of all we have choices and are very comfortable.
I’m so glad you watch!! I am always reading and watching other finance people as well….I have the same attitude as well, if I just learn ONE THING, it all worth it! And thanks you for sharing the videos with your grandkids, I hope they get started investing early 😊 you and your wife enjoy a wonderfully saved for retirement!
Sir, I applaud you working and saving so long and retiring comfortably.
I want to learn about the "sell covered call". I heard it few times from people who have successfully managed their retirement portfolio.
Can you suggest any reading and/or youtube videos explaining what it is and how it's done?
I guess I have not really answered your question, "Can you suggest any reading and/or youtube videos explaining what it is and how it's done?" because I really didn't get anything from any of the many I watched. They tend to get into long term strategies that was more than what I wanted. So start slow and learn from doing. Last week for instance I sold a CC on MDT, I own 500 shares, sold a CC on Thursday for $0.19 per share for $95.00 less the Commission of 3.25 and fee of $0.15 for a net to me of $91.60. I sold the call 1 day out with a strike of $89.00 which was at the time 1.6% above the strike at the time I sold it, but I felt based on what the market was doing for that particular stock would not hit the strike. I usually go to Yahoo Finance and look up the history on a stock and use the last 4 months to see what the trends have been and use that information as my guidance sort of. Stocks like SOUN and AI can have 16% days up and down so that is where experience comes in. I would never sell a call on one of those two at 1.6% from the strike. I use Fidelity and I am used to their format, but I am sure all the others have something akin. Try a few slowly and gain your experience. Slowly.
What dividend growth stocks do you like or are you talking about a fund?
I personally contribute to my Roth 401K over traditional. Im 33 and currently in that iffy 22% tax bracket. Im more of a facts person though. Because we don’t know what will become of taxes in the next 30 years, I choose to take the guaranteed tax rate I know that I have now and pay at the front end. That could possibly bite me in the end, but at least I know I don’t have to worry about it later on.
You made the right call. Add to that the simplicity Roth makes for estate planning, it blows me away that it wasn't more popular earlier (I'm 48)
Don't worry they will tax Roth by the time we retire.
I’m a huge Roth fan as well 😊
@@ErinTalksMoneyI never understand why advisors say if you think you’re going to be in a higher tax bracket when you retire use a Roth. Who is in a higher tax bracket after they retire??? I’d rather pay the taxes now regardless of tax rates later. That’s why I do Roth in both 401 and IRA forms.
@@Wbrundog A LOT of people! If you save for 30 - 40 years, you could have a pretty hefty account, which would be taxable. There are other things to think about. If you plan on Obamacare, it's based on income. Roth does not count, so it doesn't impact your subsidy. Roth does not count as income which determines how much of your SS is taxed. However, the biggest concern with taxes is the "widow tax trap." You may be in a low tax bracket as a retired married couple, drawing on a 401k, but when one spouse dies, you could jump to a higher bracket.
If I could go back and start over, I'd buy real-estate instead of giving my money to Wallstreet.
That math on the taxes is sus...
I've been contributing to a 401K for over a decade and had no idea what the fee was. I guess I just assumed it was maybe half a percent... didn't realize it could be relatively high
Worth looking into!
You know you can find out right? Log into your account and look at transactions history. Your plan administrator is probably taking a few bucks per month. Then go into your actual fund holdings and look at their prospectus. This should state the expense ratio and any other fees you pay. It's up to you to understand what you're spending your money on. None of this is hidden.
Totally unrelated, but this morning, the market cap of Ferrari (RACE) passed that of GM (GM) and Ford (F). Ferrari makes fewer than 15K cars per year. (I'm not an investor in any of these companies.)
Very interesting 🤔
Ferrari is up 256% since IPO with operating margin greater than 23% compared to GM's over 7% and F over 5%. Heck, Tesla is only above 13%. Also note that Ferrari's generates about half its revenues from non-auto sales, too. People buying ferrari's also aren't impacted by economic down turns. Now would Italy ever bailout Ferrarri like the US did for GM?🤣 Given that Ferrari bonds are considered safer than the Italian Government bonds, I doubt it would ever need to.🤣
@@hanwagu9967 Actually, Ferrari is up at least 480% since IPO. The IPO was oversubscribed at $52.00, but RACE closed at $56.00 on the first day of public trading. RACE closed on June 30, 2023 at $325.21. At this year's BRK annual meeting, Warren Buffett said he liked Ferrari as a company.
Most people will be in a lower tax bracket when they retire, so having a pre0tax account is still a good idea. Prior to retirement, you just look at your current tax bracket to determine which account to fund. One trick is to have an HSA fund, and fund it fully. That contribution lowers your AGI income, so it won't push you into a higher tax bracket. Also if you are married, with say an 80K retirement income, you can take about 25K off the top for the standard deduction. So now your taxable income is only 55K, and you are well within the 12% tax bracket.
Your 401k tax calculation is slightly off. Those taxable income tables are AFTER the standard deduction ($13,850 for single in 2023). So part of his withdrawal would fall in the lower bracket. His taxable income could be even lower if he itemizes deductions.
standard deduction and the cap on property tax deduction makes almost most people ineligible for itemized deductions thanks to Trump (sarc).
I've been fortunate with multiple employers throughout my career to have great 401k plan options primarily with Vanguard and now with Fidelity with reasonably low fee's!
In my opinion target date funds still hold too much Bond exposure for the younger folks just starting to invest, they should be 100% stocks and then maybe start adding bonds the last decade before retirement, I'm still 97% stocks 3% bonds and hold 5-7 years of cash products and 3 years away from retirement
That’s awesome, and I tend to agree with that opinion on target dates
Spoken like a man who has ridden the longest bull market in U.S history (2009-present). You might feel a little differently if the bottom falls out with that allocation. Or should I say, when the bottom falls out.
@@jackspencer8290 I'm prepared have good cash reserves set a side for that purpose, I've been through multiple down turns before
If you pick index funds, you’re paying less. I have 875k in my 401ks and I’m 60.
Better cash out before the next market crash
@@Tenjiecorner I didn’t in 1999 or in 2008
Love your vids. The tax example given however, wasnt quite right. It taxed the whole $40K @ 22% when, really $4725 would be taxed @ 12%, $13,850 would be taxed at 0% (standard deduction) and the remainder ($21425) @22% for ~ $5280 due in tax. Still something to be aware of, for sure, but a little less dire.
You missed the 10% bracket
The total tax bill on 40k for a single filer will be approx $2800 , an effective 7% taxe rate
@@sergiosantana4658 assumed income in the example is $80,000 - not simply the $40,000 401k withdrawal. Example assumes that the entire $80K is subject to income tax
@@ErinTalksMoneyI get it, it doesn't change my comment on the taxes owed on 40k.
It seems unlikely that tax rates will stay the same or go down in the future with all the baby boomers leaving the workforce. The line of thought that tax rates will go up in the future (as they already likely will when the TCJA expires in a few years) is why I'm leaning more into Roth 401k vs traditional.
32 trillion in debt, crumbling infrastructure. Many think taxes will have to be higher generally speaking.
So something that is slightly incorrect is if you make 80k a year you are taxed at 22%. Only a portion of the 80k is taxed at 22%. The way tax brackets actually work out when it comes to your income is the first x amount of money you make is taxed at 12%, if you make above that dollar amount and move into the tax bracket anything after that cap of 12% is capped in that tax bracket. Example: let’s say Anyone that makes under 12k is taxed at 12% and 22% is anyone from 12,001-22,000. 24% 22,001-32,000. So if you make let’s say 40k the first 12k is taxed at 12% the next 10k would be taxed at 22% then the next 10k would be taxed at 24%. The remaining 8000 you make that year would be taxed in the next bracket and in the US that would be 32%. This is come from a CPA. Common misconception Americans make is the entire income they make that year is taxed in the new tax bracket based on crossing he threshold into that bracket. However it’s only the amount that moves past the threshold that is taxed in that bracket.
My company chose Vanguard for our 401k. I pay $6.75 every quarter in fees plus the yearly expense ratio of the fund.
Vanguard for the win!!!
@@ErinTalksMoney it’s funny to me to use Fidelity for the ESPP.. but it works
So glad you point out that the default 401k investment should be scrutinized - i am afraid when i first started contributing in 1992 i went into:
3% contribution (max match 3% 1:1)
match was in the company''s stock - could not sell it.
Money Market fund
Plus - there was no yearly review by me with the fund admin, which is a constant in today's retirement fund / benefits reviews w/ HR :
didn't increase the % (which i could have since expenses were low & salary increases large)
didn't switch to other fund investments ( do not remember the expense ratio of funds nor the 401k)
ROTH was not offered
SO GLAD you are pointing out that a little bit of fund management & self-education can go a long way even with the 'default' setups ..... which are much better now.
... bottom line ---- I put my head down and worked with the same retirement choices for 8 years!!! --- ARRGGGHHHHH ---- Do NOT do that!!!
Thank you Mr jack bogle. RIP to a true legend and we are forever grateful for all you have done. Every time I deposit money into my vanguard index fund I am reminded of what he did for the average investor, instead of paying a high priced financial advisor!!!
Another great video Erin.
Curious do you have any longer term investments in the market that are not in a retirement account?
Honestly - I only have a small amount actually in retirement accounts. I worked for 13+ years at a business that offered no retirement option. So I used an IRA - then I got a job with a major corporation, came with great benefits (yes retirement) but was only there for 4.5 years. I started my own business last year, and you bet it has a retirement account 😂
But all of this is to say - outside of an IRA, I haven’t had access to other retirement accounts for much time. I simply have used trusty brokerage accounts.
@@ErinTalksMoney right I am sorry I think you miss understood. Those are still retirement accounts. Weather through an employer or not.
Do you invest in the market in non retirement accounts at all? Like you wanna retire at 50 so you have just a normal brokerage account that you put money in so you have 1 million in or something to get you to retirement age to be able to pull from a retirement account.
@@ErinTalksMoney well, you have your sugga daddy 🤣 When he retires, you have to sign away SBP (don't sign it away) so that's also a retirement plan😂😇
@@Fishfood007 I think I explained poorly - I was trying to say that most my investments are in fact in non-retirement, brokerage accounts. I mentioned the Roth IRA, because I do love a Roth - but but the contribution limits are VERY low. So after I max that out - I move on to the brokerage accounts. And absolute musts, you are correct, if I want to retire early 🙂 I actually think ALL investors should have a traditional brokerage account!
@@ErinTalksMoney my apologies for misunderstanding. That is awesome you should do a video on how you go about the non retirement accounts tax plans with them any plans you have for them. Would be great to hear more about how you think and plan.
I signed up with fidelity which was the only company that was not insurance based. The fund I chose was not an index fund but fidelity is no load and relatively low expense. They send prospectus every quarter. Where does the responsibility fall if the investor does not wish to research!
I think you made a mistake in your calculations. If you withdraw from your 401k, and your income is 80.000$. You should not deduct 22%. You need to deduct 10% for the first 11.000. After 12% for the next 33.000. And 22% for 36.000 left.
My 401k allows me to put up to 90% in “brokerage link,” where i can invest in anything i want and avoid the fees… so guess where 90% of my money is? 😂
Tax free? But not ever, hopefully your employer pays all of them in a matching but not usually. She’s wrong about average being 1% I usually see 3% & that’s usually half of the lowest contribution from employer
Very good video Erin! I have most of my money in a Roth through Charles Schwab. I also have a taxable account in Schwab which i trade options in for extra income. I have a Roth and taxable through M1, which I contribute to weekly. I also have a Roth 401k through my employer which has a match. I have went through and picked broad base indexes in the 401k that all have fairly low fees. (I figure most of my return in the 401k will be the match anyways) so i went with cheap expense fees.
Very important information here regarding fees on your mutual funds. John Bogle, as mentioned, reiterates this over and over in his books. Nice job, Erin!
Im currently in one of Vanguards target date funds for my Roth IRA. For my 401k I am in chosen funds. Fees at Vanguard for a target date are quite low (I want to say 0.1%)
Vanguard is wonderful!!
@@ErinTalksMoney just watched your target date video. Why don't you do the bloopers anymore lol
Haha 😂 - some people have asked for them to come back. Comes down to two things - time, takes much longer to end it then into the end, and I’m at a phase of life that is time poor. And two, I’ve simply gotten better in front of the camera - I’m more comfortable and make less errors. It use to take me 45 min to film these 10 min videos (lots of bloopers) - now it takes about 20 min 😊
@ErinTalksMoney Erin if I was to open a taxable brokerage account, which would be better? VTSAX or VTI? Why?
@alrocky word. Been buying into VTI recently. Planning to hold onto it for basically ever if I can.
Best 401(k) for me is a solo 401(k) I have as a self-employed individual. No fees whatsoever and I can invest directly in equities.
Also, we have Roth IRAs and my wife has a Fidelity 403(b) through one of her employers where the only account fee is $24 annually (plus internal funds fees).
Don't forget that they also take fees for managing Target Date Funds and anything other than index funds.
it's only "popular" because it's been forced upon us! When companies got away from pensions, they are the ones that chose this type of retirement fund. When you change employers you have to change to their offered 401k or you don't get the 'benefits'. A really dumb system if you ask me.
Excellent content! AGAIN! Love this video. We're retired, but we are slowly transitioning our traditional IRAs to Roth.
For those in the government we are doing great! The fee is very low at only 0.05%
That 1 percent fee is interesting. Mostly because you explained it wrong..required revenue record keepers charge don't work that way. More over those fees could be covered with rev share investments or your employer covering it. Also the average RR is not 1 percent and hasn't been in years.
You make this so much more interesting. Maybe it’s your calm voice
Thanks 😊
I currently hold a Roth IRA and hold a traditional 401k. I personally don't convert to Roth 401k because I still got Bills to pay. You must have some kind of leverage or comfortably situated to hold a Roth 401k.
Just came across your channel. Love the content. Subscribed.
Thanks Mitch!! Welcome to the channel! 😊
I currently put 22% of my income from my job into my 401K with a 7:2 ratio to the Roth 401K. When I do increases, I put it more to the Roth 401k along with other investments I allocate funds towards retirement.
Nice!
To me it doesn't make sense to the ROTH. The inflation is not going away..you paying taxes now but your purchasing power will be lower in 10 years.
Your **STANDARD DEDUCTION** will lower your tax bracket. A $40K withdraw is reduced by $13,850, putting you at $26,150 income, and a 12% rate (not 22%). Taxes are important, but the calculation is important - which is the topic of this video.
The conversation of taxes was far to complex for the purpose of the video. It was made simple for illustrative purposes.
For instance if we go down the road of taxes in retirement - we could assume that a portion of this retirees income come from SS - well then we have to address do they live in a state that taxes SS benefits - there are 11 that do. Is any portion of this income from investments like a brokerage account and instead subject to long term capital gains at a reduced rate compared to ordinary income? Do they have a job that provides the other source of income? Did the other income come from municipal bonds and this not taxed….was part of it rental income that could be offset by other deductions…perhaps it was alimony, and thus not taxed….the list goes on…
What if this retiree was a caregiver for a dependent- perhaps a grandchild they have custody of - then their standard deduction would be $20,800, not $13,850.
Or what if this individual is married, but filing separately - and their SO opts to itemize - well then he doesn't quality for the standard deduction and must itemize.
This is why I deliberately avoided the discussion deductions and income sources.
The example was intended to be simple to illustrate that there is a tax consequence. I offered no consideration for deductions - simply that the income was $80K - all subject to ordinary income tax.
@@ErinTalksMoney Fair, but maybe qualify it as "taxable income" or marginal tax rate (depending on your circumstance.) I offered the basic single taxpayer standard deduction in my example simply to illustrate that someone just taking 40K doesn't automatically pay 22%. If we are talking basic generalities, perhaps starting with the simplest scenario is best. I suspect that your listeners either understand taxes (as I do), or has no idea and will be unduly panicked by the thought of paying 22% on their only $40K. Love your work. Keep it up.
Is that a mistake? Is not a management fee, there's though an expense fee which varies depending on the fund.
One caveat, you mention you WILL owe taxes. I've structured my retirement so I will not owe any taxes in retirement. I've taken advantage of the tax laws to max out pretax deposits and post tax deposits. This is the benefit of understanding taxes from when I began work back in the 80's. I've planned and structured my withdrawals to limit them to what the tax law allows before tax is calculated on them. I know many find this hard to believe but it is reality. I've even had it reviewed recently by a financial advisor and they were impressed with my lifelong planning for an early retirement and structuring my pre-tax and post tax accounts. Happy holiday weekend. Hope it is safe and fun! Cheers!
That’s awesome! You are in a very unique position for sure!
saying things like structure to take advantage of tax laws or that what tax laws allows and saying you reviewed by a financial advisor just makes your entire comment dubious. pre-tax tax deferred is tax deferred, so how you are getting around that is questionable. post tax you paid taxes already. What you've generically or tried to hint at is complete malarky, especially since you also wrote early retirement. began work in the 80s means you would be at least 61yo based on your work back in the 80s and giving benefit that you started working around 16yo. That is dubious also making you older than 61yo based on the info, since you said you understood taxes beginning work in the 80s. financial advisors unless they are tax experts aren't tax experts. now perhaps you just bought a bunch of costly annuities.
@@hanwagu9967 lol. Go check your numbers again mr malarkey. I’m 58 now. I retired at 52. I worked full time to put myself thru college. I started in 1984 graduated in ‘88 with an accounting degree. So, I knew tax law in college. Nothing dubious in my comments just the facts.
@@joethecomputerguy1 my 61yo guess was pretty spot on. accounting degree does not equal tax law. i stand by the dubious nature of your scheme.
@@hanwagu9967 to each your own. I’m happily enjoying a tax free retirement years be most of the nation. Enjoy the holiday weekend
Should I get a Roth IRA max it out every year AND get a Roth 401k and get try to max that out? Should I get both? What would YOU do I’d love your opinion please also others watching this vid thanks!
Your tax part was way off. Yes I read your comment taxes are to complex for this video but your example is worse case scenario
With 45,000 in retirement income I'm going to pay less than 10% before social security and 5% after I collect at 70
And I'm purposely paying the 10% because I'm spending down traditional which I didn't pay 22% when I earned it
The tax rate would not be 22% it would be 10% for 0 to 11k then 12% 11,001 to 44,725
So I'm not doing the math but it's probably around 11.5% effective tax rate
What i do understand is they rip you off after 40 to 45 yrs.
You think u walking out with 1 million dollars
Taxes you gotta pay
Your old, health care cost
And for 40 yrs, investors been playing with your money. Win some, lose some
If you kids, use them wisely 😅. While they’re dependents, focus on the Roth 401k, since having dependents lower the overall taxes you pay.
@@Erin.Talks.Money. you’re not the real Erin.
Do you have any information about the fees charged by managed funds inside target funds? We end up paying fees twice. Also, they collect fees and commissions when they decide to move your money from stocks to bonds and you have no control over that decision. I pity anyone who was moved into bonds in 2020 and now has to sell at a discount.
I self manage my 401k. When I started investing I used a financial advisor but I fired him after I figured out he was charging me the 1% fees for mediocre returns.
🥇🥇🥇🥇🥇
Love this video. Been working as a consultant with participants and plan sponsors since 2017 and I wish I could just send them this lol.
Thank you so much for reminding me about the 401k fees. I’m going to roll them over to my self managed account soon…😢
My 401(k) Plan has an asset based fee. That fee is a ripoff fee.
There seems to be an error in your tax payment we stair step taxes so your marginal tax rate isn’t applied to the entire amount.
Also the amount would be decreased by the standard deduction. Please correct me if my thinking is wrong. Love your videos
Everyone knows traditionals are taxed, cmon
Almost all my funds in my 457 are very very low fees
I’m 56 it’s maxd, you need to continue now!
I love my job and earn a nice salary. Unfortunately, it's kind of a Mom & Pop company and they don't offer a 401k. I do have an HSA through our company health insurance though and I max that out. I also max my Roth IRA and invest in a brokerage account. However, I really do wish I could have participated in a 401k plan.
What do you expect your tax bracket to be in retirement compared to what it is now.
Question…. If someone is paying 1% fee for a 401(k), is that 1% of the total balance? So, as the balance goes up, that one percent would always be ever increasing?
Yep 👍
With my 403b at my current work, it's typically charged at $5 per quarter or so, from what I've seen in my activity section with Fidelity. Thankfully, the S&P 500 fund provided as part of the package has a low management fee (.015% I think), so rather than mixing and matching with other funds or target-date funds, I just went full in S&P 500 and called it. I went with the Roth deferral for my share of contributions in order to cut down on taxes in retirement years, especially since I plan to make more money in the future.
Hi Erin, if a 401k withdrawal is treated as taxable income, if I live in a income tax free state like Tennessee or Texas, do I still need to pay income tax on my 401k withdrawal? Great video and thank you👍💯
Yes, you have to pay the Federal income taxes.
Would have loved to have your videos when I was in my twenties. Retired at 57 due to health reasons. Had a choice between a monthly payment or lump sum. I chose the lump due to growth potential and the fact I could keep it in the company 401k with low fees. I’m allowed two withdrawals a year so budgeting is a must. What I didn’t know was a mandatory 20 percent federal withholding tax. That’s a hefty sum not growing. 😢
Hi Erin,
I found your channel today and love the content of your videos.
I just subscribed to your channel to get more of your great videos.
Thanks for subscribing! Welcome to the channel! 😊
Hi Erin, love the videos, can you do one on municipal bonds
@@Erin.Talks.Money. I don’t understand your reply, I was just asking about a video on municipal bonds.
2:55 How does one find out what those 401K Management fees are if they're not getting invoiced? Also, is this change visible to the 401K Account holder, as in the number of shares units they hold decrease or some such? Or, is it the price of the share unit? It could be the latter, but how does one find out how much they charge from that?
It’s going to be in your 401k paperwork. You can certainly talk to your HR for a copy. Think of it like a fund - when you look into an fund, they will list the expense ratio when you pull up the documentation on that fund. In the paperwork on your plan, there will be a management fee that is listed. Otherwise you can call the company that manages your 401k and they can tell you what the fee is
What if i dont report my 401k on my tax return.
I already paid my taxes
Daniel: You didn't pay taxes on your 401K contributions.
I live in Oregon I'll do regular 401k and move to a none income tax state
You will still have to pay Federal taxes. BTW, California is adopting a severance tax for people who move away. I expect Oregon (and others) will follow suit.
My (small) employer now has a custodian/plan which lists the fees as a separate line item on the statements for our 401k accounts. It caused a lot of questions, but is a Good Thing as far as I'm concerned.
We previously used a custodian that hid the fees for the 401k by adding it to the fund fees. Many of us objected to the custodian, the investment choices and the high fees (like almost 1% on an S&P 500 index fund!) and finally in fall of 2020 we changed to T Rowe Price. As part of the planning for this change, I advocated to our HR and the benefits consultants to break out the fees rather than hide them. We had a large reduction in fees just by switching custodians, and having the overall wrap fee listed on statements, almost in your face, surely made people aware. Since fall of 2020, almost every year the fee has dropped. A few weeks ago they announced that starting today (1 July) the overall fee was waived. I'm still not sure what this means... How does TRowe get paid? Are they going to return to hiding the fee in the fund expenses? Is some other change in the works?
There are also transaction fees. Every time a fund manager sells a stock they charge a transaction fee. There are separate management fees. There are 12B-1 advertising fees. They need to advertise the fund so people will invest into it. Many times throughout the year the fund manager will sell tens of thousands of shares to pay retirees like myself who are withdrawing funds to live on every month. There are also many working employees who withdraw funds early with penalties and taxes because they lost their jobs or other financial crisis. Also, a fund manager will sell certain stocks because they are the bottom 50 performers in the fund of 500 companies. Think of Silicon Valley Bank that went bust earlier this year....don't want that in your investment portfolio. There are also onerous "front loaded fees" meaning the manager takes 5% up front as a rip off charge.... i mean as a fee just like when you buy an annuity they charge 5-10% front loaded fees. So, if you invest $10,000 into the fund, a front loaded fee of 5% will give the manager $500 and invest only $9500 because of this extortion....I mean fee. Vanguard Funds are designed by Jack Bogle to eliminate these fees and generally charge about .05% as fund fees. a 1/2 of a percent with "no loads"
You can find out all of these management and fund fees by googling rhe name of your fund and the "prospectus"
So, google Vanguard S&P 500 fund ticker VOO prospectus. In the prospectus you will find all the answers to your questions about the fund. What the fee structure is , what companies they are investing in, what is the goal of the fund, what is the turnover rate/ buying and selling of stocks in fund, Who the managers are and how much experience they have, what are the early withdrawal fees are, how much time it takes to receive your funds when withdrawing them, How much bonds make up the fund or short term commercial paper is being invested including what percent of fund is in cash. I recommend you look at some prospectuses for funds you are interested in or are invested in.
Great video
Thanks so much for your videos Erin! I always learn so much!
I'm so glad! Have a great weekend, Nathan! 😊
In my opinion, it doesn't matter if you are in a higher tax bracket now vs later. If the investment returns of your Roth account is more than double your contributions over its lifetime, then you have effectively paid the least amount of tax possible. That's how I see it.
Ignoring the effective vs marginal distinction for a moment: If you take 30% off before you double it or if you double it, then take 30% off, you end up with the same dollar amount (exactly). That's why tax rates matter. I do think though that people early in their careers should be optimistic and assume they will make a lot more later in their careers and go 100% Roth until they are near their personal peak earnings rate, then switch to traditional to maximize the difference in tax rates for when they retire.
Thanks!
Thank you! 😊
T Bills no fed tx
I always max out my Roth 401k instead of traditional. What helped make my decision is knowing I can contribute the same amount but all the Roth will be tax free later.
Between state and fed top tax bracket of about 25 percent
The ROTH/Traditional 401K decision is based on your tax bracket now vs. what you believe your tax bracket will be in retirement. If your tax rate is higher now, then you don't want to invest in a ROTH.
@@howardfriedman7077this is why I maxed out both. 🎉
I'm so thankful that my 401k account manager charges a fixed annual fee. Doing some mental math, that fee is around 0.1% of my current account total, so that is a pretty dang good rate. It also hasn't been raised since I started working for this company 5 years ago.
If your 401K manager is only charging a set fee, and not a percentage of the portfolio they really are the minority. As she said, typical is about 1% of assets. And this is on top of fees charged by the actual mutual funds. that are in the plan. So the 401K manager is charging you to administer a plan that has very little to cost to them, AND as your portfolio gets larger, charging you more. Even if you have a 401K plan with about $250,000, really not that large for someone who is investing 10% of ther salarly regularly, they will be paying thousads a year. I ask you for what? To give employees bad advice on what funds to invest in? Like targeted date funds, or loaded funds. Since there a lots of limitations on when you can withdrawal from a 401K plan, my recommednation is only contribute in the 401K the amount that your employer is matching you on. So if they are matching 3% than contribute 3% annually. Then make your retirement investments in an IRA. (which almost all do not charge a management fee, and you got lot more options on what you can invest in too.)
0.1% is pretty much unheard of. I bet many would like to know who and if this is a special deal only for you or the general public? Personally I manage all my own retirement funds.
@@joethecomputerguy1 Transamerica. I assume the fixed rate is a deal through my company and not available to the public. We're a government contractor. The fixed rate is also 0.1% of my current total, not .01%.
Make sure that 0.1% fee is not on top of Fund fees. I was in a similar situation years ago where the account manager was charging a fixed fee, but then I found out that was on top of the fund fees, so there was double-dipping I was not aware of. There really should ONLY be fund fees and not account manager fees, as the account manager should be making money from the funds that pay them for having their funds listed in your plan, not by charging your dollars directly. 0.1% is also high when you compare it to Vanguard fees for some of their basic funds, such as VTSAX for example, which has a fee of 0.04%.
@@buyerclub2 My 401k is administered by TRowePrice. The company is small but growing and we have been with TRowe since fall of 2020. In addition to the standard expenses on the fidelity funds I have chosen, there is a quarterly administration fee charged by TRowe and not subsidized by the company. (I was one of the employees advocating for this fee to be listed separately during the change to TRowe, unlike the previous custodian who hid it in increased fund expenses.) I don't have the second quarter statement yet, but as of the end of march (first quarter) the administration fee is much less than1%. Simple division of the fee divided by the quarter start balance, and then the same operation using quarter end balance:
0.000517158 ... (or less than 0.052% based on quarterly beginning balance)
0.000466067... (or less than 0.047% based on quarterly ending balance)
If even the higher fee occurs 4x per year, that would be 0.208%. Unlike when with the prior custodian, I have no complaints about fees. I do wish for more investment options (i.e. a brokerage window) but I understand as a 401k investor I am in a distinct minority. (and my 401k is a distinct minority of my investments due to job changes, etc)
Target funds have higher fees in general. So, in my opinion, not good. Getting lowest expense ratios is priority.
I do 6% into traditional and get a 5.5% match then do another 3% into roth, I expect to be in a lower bracket in retirement so how would you adjust this ratio?
shazam: If you will be in a lower tax bracket in retirement you should stay away from any ROTH account.
@@howardfriedman7077 shouldnt everyone be? If u go from having a job/making money to not having one/making way less then obviously you'd be in a lower bracket
@@shazam2323 You seem to agree with me yet, you are contributing to a ROTH. Why?
But everyone does not have that situation. Most workers in their 20s will likely be in a low tax bracket and can contribute to a ROTH knowing that their tax bracket in retirement will likely be higher. You also have to look at all income streams in retirement, along with RMDs from tax deferred accounts.
@@howardfriedman7077 idk what tax rates will be like but between my retirement funds, disability pay, 3+ rental properties, etc I just have no idea and could potentially be in a higher bracket hence why i invest in both so im covered either way
1) Taxes are going up automatically in 2026. 2) Required Minimum Distributions will likely push you into a higher tax bracket during retirement. 3) There are other reasons to use a Roth, like making your estate tax-free when you pass it to your kids.
Some general wisdom when it comes to retirement and investing:
1. Index funds are less expensive than mutual funds. This is because most mutual funds have someone constantly making trades (called active management). This leads to transaction fees, management fees and often times expense ratio fees that are higher than normal. Passively managed funds take out the transaction fees and management fees, and have much lower expense ratios.
2. If your company offers a 401k match, what you put in every year is the max match.
3. Once you go above 6 index funds and/or 20 stocks, you are usually a) overdiversified, b) have redundant asset classes (paying multiple expense ratios typically for the same return), c) engaged in speculation which pretty much always loses money in the long run unless you were there at the beginning of an apple or Amazon, or d) a combination of all three.
4. An expense ratio of 1.25 means for every 10k invested, you owe $125. An expense ratio of 0.03 means for every 10k invested, you owe $3. So, you want to owe more or less money? My general rule is if the expense ratio is greater than 0.6, I'm not buying unless it's the lowest cost option in a selection of 401k funds for a key asset class like S&P 500 fund.
5. If you are eligible to have a roth ira, open one and contribute the max per year to it ($6,500). Money grows tax free, you have total control over what it gets invested in, and it comes out tax free. It also follows you everywhere instead of being tied to a job.
5. Learn rollover rules (within 60 days post termination) to avoid having to cash it out (taxes) or have it stuck where you can't contribute anymore to it.
6. 1st question to ask a new job: what is the vestment period. If it's three years, you have to work for the company at least three years, or they get to keep all the employer match money when you leave. If vested immediately, you keep all the money that is in when you leave.
7. If you're eligible for an HSA, use it. And watch a video about HSAs. Use these over flex savings accounts if possible.
8. Warren Buffet and Jack Bogel preached over and over again, the average individual in America needs 2 index funds, 3 for full exposure, 4-6 if you want specialty. They are an S&P 500 or total stock market, a total US bond market, a total international, a REIT (tax advantaged account only), and depending on your goals a mixture of dividend value or growth class. Anything else is betting against the market and the equivalent of a ticket at the horse race track. Can be fun, can win big. But do you really wanna bet your entire future on a horse race?
9. Good investing is like watching paint dry. Straight from Buffet himself. It's boring and dependable.
10. Anyone who says good investing is super complicated is probably a fund manager trying to convince you they are worth 1-2% of your total portfolio for managing it.
Many companies who offer 401Ks do not have Vanguard. In fact that offer sub par mutual funds that are very expensive. But you have no choice if you want to take advantage of the tax deduction and/or company match. You will have to wait until you retire to roll it over to an IRA where you can have inexpensive index funds.
Except Roth has a maximum investment cap of $7,500 per year. That's not nearly enough to reach my goal of 1million dollars by the time I retire. The traditional 401K cap of $22,500 & the catch up cap of $7500 totalling $30,000 per year is barely enough to reach my retirement goals. I'm 53 & started way too late investing in to my 401K. I currently have $16,500 in my 401K 🥺
Very good point about the investment cap.
The $7,500 cap applies to IRAs, not 401k plans. If your work offers a Roth 401k (and they should), you could invest the full $30k in a Roth. Please note: as of 2025, 401k catchup of $7,500 MUST go to Roth for higher wage earners. If your company doesn't offer a Roth, you won't get the catchup amount.
My company matches up to 25% I'm contributing 13% traditional and 12% ROTH. all I see and hear is free money. Hope I'm contributing to maximize my contributions.
With a 401K you have NO control. They ae a managed fund. Managers ALWAYS f' them up!
Mine was the typical "invest in funds not individual stocks" deal. Really poor returns until I got control of the funds and learned stocks. Don't know of any good alternatives; 401ks were invented to help companies.
you're damn cute
You pay taxes on your 401k distributions post reaching retirement age based on your income level tax bracket, if you live in the united states
You should be more informed if you are going to advise people…you are wrong about the taxes