401(k) News

A recent survey by HelloWallet revealed that currently, workers age 40 to 49 comprise the largest group making withdrawals from their 401(k) plans. Are they using this money for retirement expenses, as intended? No. More than 50% have used the cash to pay current bills and debt; over 12% are paying for housing and 10% general expenses.[1]


This is not a good sign.


[CLICK HERE to read, “The 401(k) and Our Emergency Savings Problem” at Forbes, January 17, 2013.]


If depleting your 401(k) with early withdrawals for basic expenses (as opposed to a once-in-a-lifetime trip to Paris) isn’t bad enough, consider that your 401(k) investment may not be up to snuff. A recent blog by the Financial Security Project at Boston College published analysis of 401(k) funds – and the results were not encouraging: “The extra fees that investors pay for advice or the stock pickers who manage their mutual fund often don’t translate to better returns.” You can read more about the analysis here:


[CLICK HERE to read, “401(k) Funds Mediocre” at Squared Away Blog by the Financial Security Project at Boston College, January 15, 2013.]


Because of the increase in the number of people retiring, employers have made more efforts to enhance workers’ financial education. Some even include a projection of retirement income amounts based on the participant’s current account balance via their regular statements, much like Social Security offers a Personal Earnings and Benefits Statement based on work history to date.


The difference, however, is that Social Security bases its estimation on time already worked – which can’t be undone. A 401(k) income projection, however, is based on the participant’s current account balance. This can be inaccurate because you may need to withdraw prematurely from your account, or a downfall in market performance could take a bite out of your accumulated assets. Either way, it’s not always a good idea to consider your 401(k) “safe” money.


[CLICK HERE to read, “Misuse 401(k) retirement income statements and risk going broke,” at CBSMoneyWatch, January 18, 2013.]


One thing the new tax bill does is permit employers to amend 401(k), 403(b) and 457(b) plans to allow participants to convert pre-tax account balances to a Roth account option. Now, according to a survey conducted by Towers Watson last year, only 46% of employers even offered a Roth option in their 401(k) plans and, among them, 57% of those said less than 5% of participants had selected the option.[2]


If your 401(k) does provide this option, converting other options to a Roth means these assets – and whatever earnings they gain in the future – may be withdrawn tax free when you retire. However, be aware that such a conversion is a taxable event in the year it occurs because technically it’s considered a distribution, and it could push you into a higher tax bracket. Also note that although the new law became effective January 1, 2013, it allows for the conversion of balances accumulated before 2013. Be sure to consult with a qualified tax professional before making any decisions regarding your IRA.


[CLICK HERE to read, “New Law Expands ‘In-Plan’ Roth 401(k) Conversions,” at Mondaq, January 14, 2013.]


[CLICK HERE to read, “Time to Convert to a Roth 401(k)?” at The Wall Street Journal, January 4, 2013.]


If you’d like to discuss the current status of your 401(k) or other employer-sponsored plan and ways you might better position these assets for the future, please give us a call.


By contacting us, you may be provided with information regarding the purchase of insurance products.  Any transaction that involves a recommendation to liquidate funds held in a securities product, including those within an IRA, 401(K) or other retirement plan for the purchase of an annuity, can be conducted only by individuals currently affiliated with a properly registered broker/dealer or registered investment advisor.  If your financial professional does not hold the appropriate registration, please consult with your own broker/dealer representative or registered investment advisor for guidance on your securities holdings”.


The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. Content is provided for informational purposes only and is not a solicitation to buy or sell the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.   

[1] HelloWallet.com, The Retirement Breach in Defined Contribution Plans,” January 2013; http://signup.hellowallet.com/retirementbreach.

[2] Towers Watson, “Today’s Plan for Tomorrow’s Retirees,” 2012; http://www.towerswatson.com/assets/pdf/8056/TowersWatson-DC-SponsorSvy-NA-2012.pdf.

Source: Woods Blog Old

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