Stop wasting money

Should your borrow from your 401k?

Mistakes that can ruin your retirement

What is a Roth 401k?

Traditional IRA vs Roth IRA

Starting a Roth IRA for your child

Being tax efficient in retirement

The reality of retirement

Compounding: let time make you money

Learn to pay yourself first

Handling a 401k account from a former employer

Sources of retirement income

Making the most of your retirement strategy

It’s important to feel financially secure in retirement. Being tax efficient is just one more way to prepare for the future. Taxes are often an intimidating subject, and mixing them with the idea of financial freedom in retirement can seem even more daunting. Because of this, we’ve answered some of the preliminary questions you might have.

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In a village of La Mancha, the name of which I have no desire to call to mind, there lived not long since one of those gentlemen that keep a lance in the lance-rack, an old buckler, a lean hack, and a greyhound for coursing.

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It’s important to feel financially secure in retirement. Being tax efficient is just one more way to prepare for the future. Taxes are often an intimidating subject, and mixing them with the idea of financial freedom in retirement can seem even more daunting. Because of this, we’ve answered some of the preliminary questions you might have.

Will you pay higher taxes in retirement?

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<h2>Will you pay higher taxes in retirement?</h2>

It is possible to pay higher taxes in retirement, though this will depend on how you generate your retirement income. Will it be from investments? Will it be from retirement plans? If it will be from retirement plans, then which plans? How many?

It is possible to pay higher taxes in retirement, though this will depend on how you generate your retirement income. Will it be from investments? Will it be from retirement plans? If it will be from retirement plans, then which plans? How many?

Social Security also plays a heavy hand in retirement and has its own contributing factors like: when do you plan on taking Social Security benefits? Do you have a spouse? If so, when do they plan on taking Social Security benefits?

Social Security also plays a heavy hand in retirement and has its own contributing factors like: when do you plan on taking Social Security benefits? Do you have a spouse? If so, when do they plan on taking Social Security benefits?

These are some of the initial factors that contribute to your tax bracket in retirement. Preparing answers to these questions will help give you a much better understanding of how your taxable income will be affected in retirement.

These are some of the initial factors that contribute to your tax bracket in retirement. Preparing answers to these questions will help give you a much better understanding of how your taxable income will be affected in retirement.

What is a pre-tax investment?

<h2>What is a pre-tax investment?</h2>

Investments designed to help you save for retirement, like traditional IRAs and 401ks, are pre-tax investments. These investments are also referred to as tax-deferred investments; in other words, the money accumulated in these accounts can benefit from tax-deferred growth.

Investments designed to help you save for retirement, like traditional IRAs and 401ks, are pre-tax investments. These investments are also referred to as tax-deferred investments; in other words, the money accumulated in these accounts can benefit from tax-deferred growth.

You will not need to pay taxes on the money in these accounts until you begin taking distributions. While you can begin taking distributions right when you retire, you must begin taking distributions from a traditional IRA, 401k, and other defined contribution plans once you reach the age of 72.&nbsp;

You will not need to pay taxes on the money in these accounts until you begin taking distributions. While you can begin taking distributions right when you retire, you must begin taking distributions from a traditional IRA, 401k, and other defined contribution plans once you reach the age of 72.&nbsp;

These distributions are taxed as ordinary income. If you choose to begin taking withdrawals before the age of 59½, they will be subject to a 10% federal income tax penalty.

These distributions are taxed as ordinary income. If you choose to begin taking withdrawals before the age of 59½, they will be subject to a 10% federal income tax penalty.

What’s an after-tax investment?

<h2>What’s an after-tax investment?</h2>

An after tax investment is money paid into a retirement or investment account after income taxes have been deducted from those earnings. The most common after-tax investment account is a Roth IRA.

An after tax investment is money paid into a retirement or investment account after income taxes have been deducted from those earnings. The most common after-tax investment account is a Roth IRA.

After-tax investment accounts offer the opportunity for tax-free and penalty-free withdrawals of earnings. For Roth IRA distributions to qualify for tax-free and penalty-free withdrawals, they must occur after the age of 59½ and meet the five-year rule: at least five tax years must pass after the first contribution to any Roth IRA you own.1&nbsp;

After-tax investment accounts offer the opportunity for tax-free and penalty-free withdrawals of earnings. For Roth IRA distributions to qualify for tax-free and penalty-free withdrawals, they must occur after the age of 59½ and meet the five-year rule: at least five tax years must pass after the first contribution to any Roth IRA you own.1&nbsp;

In addition to this, tax-free and penalty-free withdrawals can also be taken under certain qualifying circumstances such as purchasing, building, or rebuilding a first home, the event in which the Roth IRA holder becomes disabled, or upon the death of the IRA holder.

In addition to this, tax-free and penalty-free withdrawals can also be taken under certain qualifying circumstances such as purchasing, building, or rebuilding a first home, the event in which the Roth IRA holder becomes disabled, or upon the death of the IRA holder.

Being even more tax efficient.

<h2>Being even more tax efficient.</h2>

As stated earlier, understanding the intricacies of taxes is a solid way to prepare for the future. If you’re looking to have more questions answered, or want to look at putting a retirement plan together, reach out to us today!

As stated earlier, understanding the intricacies of taxes is a solid way to prepare for the future. If you’re looking to have more questions answered, or want to look at putting a retirement plan together, reach out to us today!

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<ol><li>https://www.irs.gov/publications/p590b#en_US_2019_publink1000231057</li></ol>

Advantages of being a young investor

<h2>Advantages of being a young investor</h2>

If you’re a young professional in your twenties or thirties, you have an incredible advantage on your side: time. You can take this time you have and put it to work for you. If you start regularly investing in your twenties and thirties, you will have so much time to study investing, learn from your successes and failures, and experience the great power of compounding.&nbsp;

If you’re a young professional in your twenties or thirties, you have an incredible advantage on your side: time. You can take this time you have and put it to work for you. If you start regularly investing in your twenties and thirties, you will have so much time to study investing, learn from your successes and failures, and experience the great power of compounding.&nbsp;

The power of compounding

<h2>The power of compounding</h2>

Many people underestimate the power of compounding. On the surface, it looks and feels like not much is happening but if you stick with it you’ll see stellar results. Compounding allows your wealth to grow faster so you don’t have to put away as much money as you think to reach your goals.

Many people underestimate the power of compounding. On the surface, it looks and feels like not much is happening but if you stick with it you’ll see stellar results. Compounding allows your wealth to grow faster so you don’t have to put away as much money as you think to reach your goals.

Put simply, compounding involves drip-feeding smaller amounts of money into your investment accounts consistently, whether it be at a weekly or monthly rate. The money you invest then sits in the investment account and grows, giving you a much higher return over a long period of time.

Put simply, compounding involves drip-feeding smaller amounts of money into your investment accounts consistently, whether it be at a weekly or monthly rate. The money you invest then sits in the investment account and grows, giving you a much higher return over a long period of time.

To make it even better, the sooner you start means the harder time will work for you and your money. If you begin investing for retirement in your early to mid twenties, you will have a significant advantage over those who begin in their thirties.

To make it even better, the sooner you start means the harder time will work for you and your money. If you begin investing for retirement in your early to mid twenties, you will have a significant advantage over those who begin in their thirties.

The best way to understand the power of compounding is through a simplified example. Let’s say you start with an initial investment of $100. Using a hypothetical average annual rate of return of 5%, your initial investment will grow to $105 in the first year, $110.24 in the second year, $115.76 in the third, and so on and so forth. Without you even lifting a finger, your initial investment of $100 will have made you $15.76 in unrealized gains — and that’s without even drip-feeding smaller investments along the way.

The best way to understand the power of compounding is through a simplified example. Let’s say you start with an initial investment of $100. Using a hypothetical average annual rate of return of 5%, your initial investment will grow to $105 in the first year, $110.24 in the second year, $115.76 in the third, and so on and so forth. Without you even lifting a finger, your initial investment of $100 will have made you $15.76 in unrealized gains — and that’s without even drip-feeding smaller investments along the way.

Let’s take that same initial investment of $100, but this time continue to invest just $50 a month along the way. After the first year, your investment will grow to $735, then $1,401.75 in the second year, and $2,101.84 in the third. You’ll have made around $200 in 3 years without lifting a finger. If this still seems underwhelming, consider this: in 30 years, your investments will grow to about $40,000 with your total contributions sitting at around $18,000. You’ll have made roughly $22,000 in unrealized gains!

Let’s take that same initial investment of $100, but this time continue to invest just $50 a month along the way. After the first year, your investment will grow to $735, then $1,401.75 in the second year, and $2,101.84 in the third. You’ll have made around $200 in 3 years without lifting a finger. If this still seems underwhelming, consider this: in 30 years, your investments will grow to about $40,000 with your total contributions sitting at around $18,000. You’ll have made roughly $22,000 in unrealized gains!

That’s why young investors have such an incredible advantage. A 22 year old that begins investing for retirement will have 40 years for their money to compound and grow. If we put a 22 year old in that same hypothetical investment strategy, they will have made around $49,000 by the time they retire (assuming they retire at 62).

That’s why young investors have such an incredible advantage. A 22 year old that begins investing for retirement will have 40 years for their money to compound and grow. If we put a 22 year old in that same hypothetical investment strategy, they will have made around $49,000 by the time they retire (assuming they retire at 62).

Bear in mind, this hypothetical situation is very conservative. The idea of compounding only becomes more impressive when you consider monthly investments of $100, $200, or even $500 that allow you to exponentially increase your total returns.&nbsp;

Bear in mind, this hypothetical situation is very conservative. The idea of compounding only becomes more impressive when you consider monthly investments of $100, $200, or even $500 that allow you to exponentially increase your total returns.&nbsp;

Begin investing early and often

<h2>Begin investing early and often</h2>

The bottom line is you should begin investing early and often. If you’re in your twenties and thirties, it’s time to start investing. Take advantage of time, make it work for you, and make preparing for retirement that much easier for yourself.&nbsp;

The bottom line is you should begin investing early and often. If you’re in your twenties and thirties, it’s time to start investing. Take advantage of time, make it work for you, and make preparing for retirement that much easier for yourself.&nbsp;

More often than not, moving on from a job is a big and difficult decision to make. This decision is only made more complicated if you have a 401k account with your former employer and don’t know what to do with it.

More often than not, moving on from a job is a big and difficult decision to make. This decision is only made more complicated if you have a 401k account with your former employer and don’t know what to do with it.

To make it simple, you have four options regarding the 401k account you’ve accrued at a previous employer.

To make it simple, you have four options regarding the 401k account you’ve accrued at a previous employer.

<h2>Option 1 - Leave the account where it is</h2>

The simplest option is to do nothing and leave your 401k account with your previous employer. Though, if your account balance is below a certain threshold, your previous employer may choose to distribute the funds to you by placing the funds in an IRA or simply cashing you out.

The simplest option is to do nothing and leave your 401k account with your previous employer. Though, if your account balance is below a certain threshold, your previous employer may choose to distribute the funds to you by placing the funds in an IRA or simply cashing you out.

Note: This does not limit you from opening a new 401k account with your new employer.

Note: This does not limit you from opening a new 401k account with your new employer.

There are several potential reasons to leave your 401k with your previous employer, like having a low cost for certain investments or others that have limited availability outside of your previous employer’s plan. Other reasons might include maintaining creditor projections unique to qualified retirement plans, or retaining the ability to borrow from the account if the plan allows for loans to be distributed to ex-employees.

There are several potential reasons to leave your 401k with your previous employer, like having a low cost for certain investments or others that have limited availability outside of your previous employer’s plan. Other reasons might include maintaining creditor projections unique to qualified retirement plans, or retaining the ability to borrow from the account if the plan allows for loans to be distributed to ex-employees.

The largest downside to leaving your 401k account with your previous employer is that you may lose touch with the account. Not only do you run the risk of paying less attention to how the investments are being managed, but you also might forget the account even exists.

The largest downside to leaving your 401k account with your previous employer is that you may lose touch with the account. Not only do you run the risk of paying less attention to how the investments are being managed, but you also might forget the account even exists.

Option 2 - Roll the account over to your new employer’s plan

<h2>Option 2 - Roll the account over to your new employer’s plan</h2>

If your new employer’s 401k plan has a more competitive and robust investment menu, and assuming that your current employer’s 401k plan accepts rollover contributions from your previous employer, another option is to consider rolling over the funds to your new plan. This would offer a much better position for you while making a full break with your previous employer.

If your new employer’s 401k plan has a more competitive and robust investment menu, and assuming that your current employer’s 401k plan accepts rollover contributions from your previous employer, another option is to consider rolling over the funds to your new plan. This would offer a much better position for you while making a full break with your previous employer.

The biggest benefits to rolling over your previous 401k contributions are conveniently consolidating your assets, retaining strong creditor protections, and keeping the assets available with your new employer’s 401k plan loan features.

The biggest benefits to rolling over your previous 401k contributions are conveniently consolidating your assets, retaining strong creditor protections, and keeping the assets available with your new employer’s 401k plan loan features.

Option 3 - Roll it into a traditional IRA

<h2>Option 3 - Roll it into a traditional IRA</h2>

A third option is to roll over your 401k account into a traditional individual retirement account (IRA). This IRA can be new or existing. Individuals often opt to roll their 401k into a traditional IRA to gain some investment choices that don’t exist in their new employer’s 401k plan. If you are unfamiliar with traditional IRA’s and their benefits/drawbacks, consider meeting with a professional to ensure you are making the best move with your money and your future.

A third option is to roll over your 401k account into a traditional individual retirement account (IRA). This IRA can be new or existing. Individuals often opt to roll their 401k into a traditional IRA to gain some investment choices that don’t exist in their new employer’s 401k plan. If you are unfamiliar with traditional IRA’s and their benefits/drawbacks, consider meeting with a professional to ensure you are making the best move with your money and your future.

Some immediate drawbacks to this option includes having less creditor protection and the loss of access to 401(l) loan features.

Some immediate drawbacks to this option includes having less creditor protection and the loss of access to 401(l) loan features.

Note: Do not rush important financial decisions. Take your time, consider your options, and speak with a professional to answer any questions you may have and prepare yourself for your financial future.

Note: Do not rush important financial decisions. Take your time, consider your options, and speak with a professional to answer any questions you may have and prepare yourself for your financial future.

The final option is to cash out of the 401k account, though this is not recommended. Cashing out of a retirement account has several negative consequences including tax repercussions and opportunity cost.

The final option is to cash out of the 401k account, though this is not recommended. Cashing out of a retirement account has several negative consequences including tax repercussions and opportunity cost.

If you opt to cash out, you’ll have to pay a 10% early withdrawal penalty (assuming you’re under the age of 59½) on top of ordinary income tax on the account’s balance. In addition to this, your previous employer might hold onto 20% of the account balance to prepay the taxes owed.

If you opt to cash out, you’ll have to pay a 10% early withdrawal penalty (assuming you’re under the age of 59½) on top of ordinary income tax on the account’s balance. In addition to this, your previous employer might hold onto 20% of the account balance to prepay the taxes owed.

The opportunity cost of cashing out of a retirement account early is more than you would expect. If you take $10,000 out of a 401k instead of rolling the funds into a new account, this could leave you $100,000 short after just 30 years.

The opportunity cost of cashing out of a retirement account early is more than you would expect. If you take $10,000 out of a 401k instead of rolling the funds into a new account, this could leave you $100,000 short after just 30 years.

You don’t need to rush into a decision right away. It’s best to take your time and find the best option for you and your future. Reach out today and we will help you find the best route possible.

You don’t need to rush into a decision right away. It’s best to take your time and find the best option for you and your future. Reach out today and we will help you find the best route possible.

As we all know, each month comes with more bills to pay. You pay your mortgage lender. You pay the electric company. You pay your credit card. You might even pay down your student loans. Now think, do you pay yourself?

As we all know, each month comes with more bills to pay. You pay your mortgage lender. You pay the electric company. You pay your credit card. You might even pay down your student loans. Now think, do you pay yourself?

Before you pay any of your bills, make your first payment be a deposit into your savings account. “Paying” yourself first is one of the best habits you can get into, as the savings patterns of the average American vary widely. The average personal savings rate in the United States is 8.9%, though the record lows have reached 2.2% and the highs have reached 33.8% during the COVID-19 pandemic.1 Being on the higher end of these statistics allows you to be properly equipped to deal with life's mishaps and surprises.

Before you pay any of your bills, make your first payment be a deposit into your savings account. “Paying” yourself first is one of the best habits you can get into, as the savings patterns of the average American vary widely. The average personal savings rate in the United States is 8.9%, though the record lows have reached 2.2% and the highs have reached 33.8% during the COVID-19 pandemic.1 Being on the higher end of these statistics allows you to be properly equipped to deal with life's mishaps and surprises.

The advantage of paying yourself first

<h2>The advantage of paying yourself first</h2>

With so many bills and obligations, saving can be a challenge. Month after month, year after year, there seems to be a near endless array of expenses that beg for a portion of your monthly income. This is where the advantage comes into play: you get to make sure you’re on track for your savings and retirement goals while still paying your bills.

With so many bills and obligations, saving can be a challenge. Month after month, year after year, there seems to be a near endless array of expenses that beg for a portion of your monthly income. This is where the advantage comes into play: you get to make sure you’re on track for your savings and retirement goals while still paying your bills.

This might sound like a gimmick, but it isn’t. The secret lies in prioritizing your budget and making a point to put your future first. If you wait to “pay” yourself after you’ve paid off your bills, you will be more likely to see it as leftover money you can spend. “Paying” yourself first, however, will make you prioritize your monthly spending and secure your future wealth.

This might sound like a gimmick, but it isn’t. The secret lies in prioritizing your budget and making a point to put your future first. If you wait to “pay” yourself after you’ve paid off your bills, you will be more likely to see it as leftover money you can spend. “Paying” yourself first, however, will make you prioritize your monthly spending and secure your future wealth.

Making your money work for you

<h2>Making your money work for you</h2>

It’s time to decide what you want to do with the money you save.

It’s time to decide what you want to do with the money you save.

As far as retirement goes, you should consider taking advantage of tax-advantaged investments. Your employer’s 401k plan is a prime example of a tax-advantaged investment. Allocating money to a 401k is also effortless on your part, since the money comes directly out of your paycheck. To make it even better, most employers offer to match a certain percentage of your contributions. Check with your employer to set up a 401k and start saving today!

As far as retirement goes, you should consider taking advantage of tax-advantaged investments. Your employer’s 401k plan is a prime example of a tax-advantaged investment. Allocating money to a 401k is also effortless on your part, since the money comes directly out of your paycheck. To make it even better, most employers offer to match a certain percentage of your contributions. Check with your employer to set up a 401k and start saving today!

If you want to prioritize having access to your money before retirement, consider placing your funds in a separate account. That way you can move money into more lucrative investments as opportunities come up. Though as always, it’s best to consult with a professional and understand your own risk tolerance, time horizon, and long-term goals.

If you want to prioritize having access to your money before retirement, consider placing your funds in a separate account. That way you can move money into more lucrative investments as opportunities come up. Though as always, it’s best to consult with a professional and understand your own risk tolerance, time horizon, and long-term goals.

<ol><li>https://fred.stlouisfed.org/series/PSAVERT</li></ol>

When preparing for retirement, it’s important to build a strategy that makes the most sense for you. Typically, a retirement strategy is built off of your employer’s 401k plan, IRA accounts (the most common being traditional or Roth), and taxable savings.

When preparing for retirement, it’s important to build a strategy that makes the most sense for you. Typically, a retirement strategy is built off of your employer’s 401k plan, IRA accounts (the most common being traditional or Roth), and taxable savings.

Think of these different accounts like players on a team. You’re the coach, and it’s time to make some game-winning decisions. Of course, you should always seek an assistant coach (financial advisor) to help advise you along the way.

Think of these different accounts like players on a team. You’re the coach, and it’s time to make some game-winning decisions. Of course, you should always seek an assistant coach (financial advisor) to help advise you along the way.

Making the most out of your retirement strategy begins with understanding the hierarchy of savings.

Making the most out of your retirement strategy begins with understanding the hierarchy of savings.

Since we don’t have unlimited funds to save for retirement, you need to make sure that your hard-earned money is being allocated to the highest priority retirement account first. More often than not, your priority will be your 401k, followed by your IRA account(s), and finally taxable savings. Keep in mind that you should still contribute to other investment accounts whenever possible.

Since we don’t have unlimited funds to save for retirement, you need to make sure that your hard-earned money is being allocated to the highest priority retirement account first. More often than not, your priority will be your 401k, followed by your IRA account(s), and finally taxable savings. Keep in mind that you should still contribute to other investment accounts whenever possible.

Going beyond deciding which retirement account you should contribute to first, you will then need to consider how to invest in each of these retirement accounts. The most simple strategy would be to reflect the same asset allocation across the board, though there are always different strategies to explore depending on your risk tolerance.

Going beyond deciding which retirement account you should contribute to first, you will then need to consider how to invest in each of these retirement accounts. The most simple strategy would be to reflect the same asset allocation across the board, though there are always different strategies to explore depending on your risk tolerance.

Planning for retirement is more involved than just allocating your money to the proper account and investments. You also need to consider what to do when it comes time to live off of your savings and investments. Different retirement accounts have different tax implications depending on whether or not the initial contributions were pre-tax or after-tax, and therefore can influence which account you pull from first.

Planning for retirement is more involved than just allocating your money to the proper account and investments. You also need to consider what to do when it comes time to live off of your savings and investments. Different retirement accounts have different tax implications depending on whether or not the initial contributions were pre-tax or after-tax, and therefore can influence which account you pull from first.

In addition to this, there are other factors to consider like: taking distributions from the poorer performing accounts first, whether or not you will be in a higher or lower tax bracket in retirement, or your individual risk tolerance.

In addition to this, there are other factors to consider like: taking distributions from the poorer performing accounts first, whether or not you will be in a higher or lower tax bracket in retirement, or your individual risk tolerance.

No matter what, it all comes down to your goals. Everyone has their own risk tolerance, time horizon, and goals, and their retirement strategy should reflect that. The same goes for you. If you work out your own goals, risk tolerances and understand the hierarchy of savings, developing a solid retirement strategy will be that much easier.

No matter what, it all comes down to your goals. Everyone has their own risk tolerance, time horizon, and goals, and their retirement strategy should reflect that. The same goes for you. If you work out your own goals, risk tolerances and understand the hierarchy of savings, developing a solid retirement strategy will be that much easier.

Preparing for retirement is a tricky, but an incredibly important endeavor. If you pile on some common and avoidable mistakes, it only gets more complicated and challenging. To help you avoid these errors, here are some of the top mistakes that can ruin your retirement.

Preparing for retirement is a tricky, but an incredibly important endeavor. If you pile on some common and avoidable mistakes, it only gets more complicated and challenging. To help you avoid these errors, here are some of the top mistakes that can ruin your retirement.

<ol><li>Having no strategy Without a doubt, not having a retirement strategy is the biggest mistake you can make. Without a strategy, you will easily get lost and have no way of knowing if or when you’re ready to retire. Developing a strategy, whether it be through independent research or working with a financial advisor, will greatly increase your chances of success.</li><li>Frequent or panicked trading One of the easiest ways to lose money or stunt your investment’s growth is to trade often, chasing down new and exciting opportunities. This goes hand-in-hand with panicked trading during the market’s ups and downs. It is very hard to accurately time the market, leaving you with an abundance of chances to fail along the way. The best thing you can do is stick to an asset allocation strategy that properly reflects your goals, time horizon, and risk tolerance.</li><li>Failing to maximize tax-deferred savings There are several ways to maximize tax-deferred savings, with the easiest being your employer’s 401k plan. Not participating in your employer’s 401k is a mistake; you’d be passing up the employer-matching contributions. In other words, you’d be passing up free money.</li><li>Prioritizing college funds Your kid’s education is always important, though not as important as your own retirement. If money is tight, you should prioritize your savings over a college fund. You can get loans, grants and scholarships for college, but you can’t for retirement.</li><li>Unexpected healthcare costs Preparing for retirement isn’t as simple as saving your money in various retirement accounts. Failing to prepare for life’s unexpected events, like sudden healthcare costs, will inevitably set you back. It’s best to prepare for retirement while setting money aside for emergencies.</li><li>Retiring with a lot of debt Too much debt is bad enough when you’re actively making money. Seeing that you won’t have a great income in retirement, too much debt can be deadly. Be sure to reduce your debt before you retire.</li><li>Never changing your investment approach The stock market and state of the economy is never static. The last thing you need before retirement is a sharp fall in your retirement portfolio during a bear market. Adjusting your asset allocation depending on the state of the market can be such a big help in preventing this or at least preparing for it.</li></ol>

The only time you should consider borrowing from your 401k is to pay off extreme debt or during a true emergency. With a 401k account being geared toward retirement, there are several factors to consider when looking to borrow money from your 401k.

The only time you should consider borrowing from your 401k is to pay off extreme debt or during a true emergency. With a 401k account being geared toward retirement, there are several factors to consider when looking to borrow money from your 401k.

<h2>Advantages of borrowing from your 401k</h2>

<ul><li>No credit check - Borrowing from a 401k account doesn’t require a credit check. If you have trouble getting credit and really need the funds, borrowing from your 401k could be a viable option — so long as your 401k permits loans. </li><li>More convenient - To borrow from your 401k actually requires less paperwork than other loans, making it quicker than the alternative. </li><li>Competitive interest rates - The interest rate on a 401k loan depends on the individual plan’s terms, though this rate tends to be lower than personal or credit loans. In addition to this, you’ll be paying yourself interest instead of a finance company.</li></ul>

Disadvantages of borrowing from your 401k

<h2>Disadvantages of borrowing from your 401k</h2>

<ul><li>Opportunity cost - Your money will inevitably work harder the longer you let it stay in the account. Because of this, you will not benefit from the higher returns that comes from leaving your money be. In addition to this, those who take loans from their 401k tend to stop contributing altogether. This means even less returns over the course of your life.</li></ul>

<ul><li>Risk of job loss - If you take out a 401k loan and don’t pay it, it will be considered a distribution. This will then be subject to income taxes and a 10% penalty tax if you’re under the age of 59½. If you have an outstanding 401k loan and change or lose your job, your loan will be immediately due. Failing to pay the remaining balance will have tax consequences.</li></ul>

<ul><li>Red flag alert - Being in a position to borrow money from retirement savings to fund current expenditures is a red flag. You may be able to pay off your emergency bills and balances, though you most likely won’t have the ability to cover another emergency and will end up doing yourself more harm.</li></ul>

Most financial experts will caution against borrowing from your 401k. Of course, this opinion will differ depending on the circumstances. Always consult with a professional before making such a big decision.

Most financial experts will caution against borrowing from your 401k. Of course, this opinion will differ depending on the circumstances. Always consult with a professional before making such a big decision.

Just as we all live unique lives, our retirement income and strategies will come from a variety of different sources. Here are the 6 most common sources of retirement income:

Just as we all live unique lives, our retirement income and strategies will come from a variety of different sources. Here are the 6 most common sources of retirement income:

Social Security is one of the most common, and significant sources of retirement income. Being a government-administered retirement income program, workers become eligible to receive these benefits after paying Social Security taxes for 10 years.&nbsp;

Social Security is one of the most common, and significant sources of retirement income. Being a government-administered retirement income program, workers become eligible to receive these benefits after paying Social Security taxes for 10 years.&nbsp;

The biggest decision to make regarding Social Security benefits is when to actually apply for the benefits. There are several options to consider, including taking reduced benefits at age 62, waiting until you’re eligible for full benefits, and further postponing your first payment to qualify for an even larger amount. As always, consult with a financial professional to find which strategy works best for you.

The biggest decision to make regarding Social Security benefits is when to actually apply for the benefits. There are several options to consider, including taking reduced benefits at age 62, waiting until you’re eligible for full benefits, and further postponing your first payment to qualify for an even larger amount. As always, consult with a financial professional to find which strategy works best for you.

Defined contribution plans

<h2>Defined contribution plans</h2>

Many workers are able to participate in an employer’s defined contribution plan like a 401k, 403(b), or 457 plan. Participating in these plans means you will be setting aside some of your pre-tax income to the given account. This account then continues to accumulate your pre-tax contributions and accrues more value, tax deferred.

Many workers are able to participate in an employer’s defined contribution plan like a 401k, 403(b), or 457 plan. Participating in these plans means you will be setting aside some of your pre-tax income to the given account. This account then continues to accumulate your pre-tax contributions and accrues more value, tax deferred.

In most cases, you will have to begin taking required minimum distributions (RMDs) from your given defined contribution plan at age 72. Withdrawals from these defined contribution plans are taxed as ordinary income. If you start withdrawing from these accounts before the age of 59½, the withdrawals may be subject to a 10% federal income tax penalty.

In most cases, you will have to begin taking required minimum distributions (RMDs) from your given defined contribution plan at age 72. Withdrawals from these defined contribution plans are taxed as ordinary income. If you start withdrawing from these accounts before the age of 59½, the withdrawals may be subject to a 10% federal income tax penalty.

<h2>Defined benefit plans</h2>

Employer-sponsored pension plans have benefits based on factors such as how long you worked at the company, how much you earned, and the age you stopped working. If you have an employer-sponsored pension plan, you should know how much pension income you’ll receive before you retire. Unfortunately, the number of traditional employer-sponsored pension plans has dropped significantly over the past 30 years.

Employer-sponsored pension plans have benefits based on factors such as how long you worked at the company, how much you earned, and the age you stopped working. If you have an employer-sponsored pension plan, you should know how much pension income you’ll receive before you retire. Unfortunately, the number of traditional employer-sponsored pension plans has dropped significantly over the past 30 years.

Individual retirement accounts

<h2>Individual retirement accounts</h2>

Individual retirement accounts (IRAs) are retirement accounts that allow you to save and invest for retirement on the side while being able to save on taxes. The two most popular individual retirement accounts are traditional IRA and Roth IRa, each coming with their own rules and benefits.

Individual retirement accounts (IRAs) are retirement accounts that allow you to save and invest for retirement on the side while being able to save on taxes. The two most popular individual retirement accounts are traditional IRA and Roth IRa, each coming with their own rules and benefits.

A traditional IRA allows you to make pre-tax contributions. You may get a tax break while contributing to the account, though you still have to pay taxes on the money you withdraw from the account during retirement. A traditional IRA does not give you the opportunity to easily make withdrawals before retirement, as most early withdrawals made before the age of 59½ are subject to penalties and taxes. Though, there are exceptions when making withdrawals for major life events such as medical expenses or purchasing your first home under certain circumstances.

A traditional IRA allows you to make pre-tax contributions. You may get a tax break while contributing to the account, though you still have to pay taxes on the money you withdraw from the account during retirement. A traditional IRA does not give you the opportunity to easily make withdrawals before retirement, as most early withdrawals made before the age of 59½ are subject to penalties and taxes. Though, there are exceptions when making withdrawals for major life events such as medical expenses or purchasing your first home under certain circumstances.

A traditional Roth IRA allows you to make after-tax contributions. You will not get a tax break while contributing to the account, though you won’t have to pay taxes on the money you later withdraw during retirement. A Roth IRA also gives you the opportunity to withdraw your investment earnings before retirement, but they are subject to penalties and income taxes if you’re making a withdrawal before the age of 59½. A Roth IRA also gives you the opportunity to withdraw your contributions at any time, penalty-free.

A traditional Roth IRA allows you to make after-tax contributions. You will not get a tax break while contributing to the account, though you won’t have to pay taxes on the money you later withdraw during retirement. A Roth IRA also gives you the opportunity to withdraw your investment earnings before retirement, but they are subject to penalties and income taxes if you’re making a withdrawal before the age of 59½. A Roth IRA also gives you the opportunity to withdraw your contributions at any time, penalty-free.

Personal savings and investments as retirement income

<h2>Personal savings and investments as retirement income</h2>

Personal savings and investments help provide additional income during retirement. Examples of personal investments include stock positions, home equity, real estate portfolios, etc. It is common to find retirees that prefer personal investments that offer monthly guaranteed income over potential returns, as it helps create a reliable flow of income.

Personal savings and investments help provide additional income during retirement. Examples of personal investments include stock positions, home equity, real estate portfolios, etc. It is common to find retirees that prefer personal investments that offer monthly guaranteed income over potential returns, as it helps create a reliable flow of income.

Continued employment as retirement income

<h2>Continued employment as retirement income</h2>

While it might not be ideal for some people, continued employment is an excellent way to supplement retirement income. Working part-time at a company that offers great benefits for virtually little or simple work can go a long way.

While it might not be ideal for some people, continued employment is an excellent way to supplement retirement income. Working part-time at a company that offers great benefits for virtually little or simple work can go a long way.

If you want to give your child or grandchild a financial head start, consider starting a Roth IRA for them. Not only will this help prepare them for retirement early on, but it will also give them the opportunity for extra support during qualifying life events.

If you want to give your child or grandchild a financial head start, consider starting a Roth IRA for them. Not only will this help prepare them for retirement early on, but it will also give them the opportunity for extra support during qualifying life events.

Setting up a Roth IRA for your child is often referred to as a custodial IRA, assuming they’re still a minor. Because of this, you will act as the custodian of the account until they are able to take it over. In this case, individual state laws determine when the minor is capable of managing the account for themselves. Once your child has an earned income, you can begin setting up their Roth IRA. Bear in mind, their maximum annual contributions cannot exceed their earned income. For example, if your child earns $4,000 working during the summer, then their maximum contributions for the year will be $4,000.

Setting up a Roth IRA for your child is often referred to as a custodial IRA, assuming they’re still a minor. Because of this, you will act as the custodian of the account until they are able to take it over. In this case, individual state laws determine when the minor is capable of managing the account for themselves. Once your child has an earned income, you can begin setting up their Roth IRA. Bear in mind, their maximum annual contributions cannot exceed their earned income. For example, if your child earns $4,000 working during the summer, then their maximum contributions for the year will be $4,000.

You can also help contribute to your child’s Roth IRA, but again these contributions cannot exceed their earned income. Your contributions to your child’s Roth IRA can also count as a gift within your $15,000 yearly gift tax exclusion. Married couples have a $30,000 yearly gift tax exclusion.

You can also help contribute to your child’s Roth IRA, but again these contributions cannot exceed their earned income. Your contributions to your child’s Roth IRA can also count as a gift within your $15,000 yearly gift tax exclusion. Married couples have a $30,000 yearly gift tax exclusion.

Typically, if money is withdrawn from the Roth IRA before the age of 59½, it will be subject to a 10% federal tax penalty. That being said, there are a few notable exceptions. During certain major life events, like buying a first home or paying a college tuition, the IRS may waive the pesky early withdrawal penalty.

Typically, if money is withdrawn from the Roth IRA before the age of 59½, it will be subject to a 10% federal tax penalty. That being said, there are a few notable exceptions. During certain major life events, like buying a first home or paying a college tuition, the IRS may waive the pesky early withdrawal penalty.

As with normal Roth IRAs, tax-free and penalty-free withdrawals cannot occur unless your child has reached the five-year holding requirement and is above the age of 59½.

As with normal Roth IRAs, tax-free and penalty-free withdrawals cannot occur unless your child has reached the five-year holding requirement and is above the age of 59½.

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