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What To Do With Your Old 401k

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When you leave your job and you have a 401k, there are a few things you can do with it. You can leave it there, you can cash it out, you can roll it into an IRA, or you can roll it into a retirement plan with your new employer. So what should you do with your old 401k?

Theoretically, you have four options.

Withdrawing your funds

If you are under the age of 59 ½ and you withdraw the money, you’ll have to pay a tax penalty on it. UNLESS, you meet some of the exceptions: medical expenses, your first, primary residence (up to $10,000), health insurance premiums while unemployed, distributions from an inherited IRA, pay off an IRS tax levy, higher education expenses, as well as a few others.

If you don’t meet any of those criteria and you’re under 59 ½, you’ll have to pay that penalty. It’s not worth it. UNLESS you’re using that money to pay off a credit card. Credit card interest rates are usually well above 10%. So if you’re saving yourself from paying a 27% interest rate, theoretically, you’re making a 17% return on your money (27–10=17). But this calculation doesn’t account for taxes so you might come out even, or behind.

95% of the time, it makes the most sense to pursue other options.

Keep it where it is

Some people will leave their old 401k with their previous employer. I think a lot of that has to do with laziness, but it could be a good, rational decision as well. The primary factor has to do with cost. What are the expenses of the 401k? Typically, if it’s a large employer and/or a large plan with a lot of assets, the fees are going to be low.

That might be a good reason to leave it. The plan might also have good investment options. If the fees are reasonable, or at least average, then the investment options might be reason enough to stay.

Roll it to your new employer

Nine times out of ten, I’ll have people roll their old 401k into their new one. If they’re able to. Some employers don’t allow income transfers. Having everything with one firm makes managing it so much easier.

The only time I don’t think it would be appropriate is if the new firm has high fees, but it’s also important to compare the new fees to the fees of the alternative. That alternative is rolling it into an IRA at a separate firm.

Roll it into an IRA

As an independent financial advisor, this option is best for me, but not typically best for the client. If you take a standard fee for a financial advisor (1.00 %) and compare it to the standard expense paid by a 401k participant. Employers with 2,000 employees pay below 1% and employers with 50 or fewer employees pay 1.25%. Here’s some more info on that.

That might be the case if it’s a small plan. The large plans, however, can have ALL IN fees of around .5%.

As is the case with a lot of things in the finance world, the answer is not black and white. You need to compare and contrast your options and then make a decision. Here are things to consider: cost, investment options, ease of management, and customer service. How do the fees compare? What are the investment options? Do you have everything in one place and is it easy to make changes? Can you get in touch with someone if you have problems/questions?

Related reading:

7 Tips to Get the Most Out of Your 401k v/s Pension

401k Withdrawal Taxes and Penalties

Is your 401k Hurting you or Helping you?

How 401k Fees Impact Your Retirement

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

When Should You Use Your Emergency Fund?

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Many people spend a lot of time setting money aside to build a healthy emergency fund. In some cases, this might cause them to hesitate to use the cash even if the situation seems to justify doing so. In others, they might be tempted to use some of the money to treat themselves on occasion. Even if they aren’t facing an actual financial emergency. By understanding when it is and isn’t wise to use that cash. You can make smarter choices about your finances. If you’re wondering when you should use your emergency fund. Here are some times when tapping into that cash reserve is warranted.

Living Expenses After a Job Loss

One of the main reasons to have an emergency fund is to pay for living expenses if you unexpectedly lose your job. In this case, the cash is a functional safety net, allowing you to continue paying required costs while you plan your next career move.

Similarly, using an emergency fund to pay for living expenses after a reduction in hours or another situation that results in a pay cut is fine. It allows you to stay afloat while you either wait for your hours to go back up or find something new that provides you with a better income.

Just make sure you focus on genuine necessities if you’re using your emergency fund for this reason. For example, shop grocery sales or use coupons to limit food-related spending. Avoid unnecessary car trips to save fuel. Forgo dining out and cut back on other kinds of optional entertainment. That way, your money will last as long as possible, giving you more time to determine what comes next.

Additionally, access any other resources that you may have available. For instance, you may qualify for unemployment if you’ve been let go, laid off, or had your hours cut. Make sure you apply for unemployment even if you aren’t sure your situation qualifies. If it turns out it does, you’ll get a bit of an income boost, allowing you to use less of your emergency fund.

Vehicle Repairs After a Breakdown

While you should plan for routine vehicle maintenance in your budget, unexpected issues may warrant using your emergency fund. Even if you are diligent about maintaining your car, that doesn’t mean you’re guaranteed to avoid breakdowns, flat tires, or similar problems.

If something unexpected happens that puts your vehicle out of commission and having a car is essential to your day-to-day, using your emergency fund to get it back up and running is reasonable. Just make sure you get a competitive price on the work by shopping around and getting several quotes from reputable repair shops, ensuring you don’t have to spend more than is necessary.

Home or Auto Insurance Deductibles

In a similar vein to the point above, using your emergency fund to pay a home or auto insurance deductible is typically appropriate. Usually, you’ll only owe a deductible after an unexpected covered event, like a vehicle accident or fire at your house.

Since paying your deductible allows you to get the required repairs, using your emergency fund to handle it isn’t a bad idea. Just make sure you get quotes for the work and that your insurer pays its share, ensuring you don’t have to come further out of pocket than necessary.

Emergency, Must-Have Medical Treatments

Even if you have insurance, the cost of emergency medical treatments can be incredibly high. Since accidents or sudden illnesses aren’t something you can typically predict, using your emergency fund to handle any of the resulting costs isn’t out of line.

However, you may not want to default to this option if it isn’t necessary. For example, if the bill is large, many hospitals offer no-interest payment plans. In that case, you may be better off using that arrangement, allowing your emergency fund to earn interest while you pay down the debt over time.

Travel Costs Associated with Family Emergencies

During certain kinds of family emergencies – like a sudden, serious illness or death – you might need to head to another city or state without notice. If that’s the case, don’t hesitate to use your emergency fund to cover the cost if you can’t manage it otherwise. That way, you can get where you need to go fast.

Just remember that recreational travel doesn’t fall in this category, even if you’re planning to see family along the way. With that, you’re better off saving up the money you’ll need separately, ensuring your emergency fund is intact in case you end up needing it.

Emergency Home Repairs

While regular, expected home maintenance costs shouldn’t come out of your emergency fund, you might need to tap that cash if an unexpected issue arises. For example, a pipe bursting, refrigerator breaking down, or a similar problem needs to be addressed quickly, so using your emergency fund can make sense.

As with other repair or replacement-oriented emergencies. You may want to shop around to ensure you’re getting a great price. That way, you can use as little of your emergency fund as possible. Just make sure that you don’t sacrifice when it comes to quality. As it’s better to get a solid repair or replacement than go with a cheap solution that’ll just result in an issue in the near future.

Critical Technology Replacement

While some technology you own may be primarily for entertainment purposes. Other kinds of tech might be essential. For instance, you might need a capable smartphone or laptop for work, or your children may need a computer to handle their homework.

If a genuinely essential piece of technology breaks down or it has catastrophic damage. Consider using your emergency fund to replace it. However, only do so if it’s legitimately a must-have for a purpose other than entertainment. If it’s solely for amusement. Then you’re better off setting money aside out of your budget and using that to cover the cost once you’ve got the money gathered up.

Emergency Care for Pets

Like people, pets can experience unexpected health issues, including acute illnesses, injuries, and more. While you shouldn’t use your emergency fund for routine pet appointments.  Using the money to handle an unexpected, urgent pet health matter is fine. It ensures you can get your pet the help they need right away. Thus, increasing the odds that they’ll survive the incident and live a healthy, comfortable life afterward.

Have you ever tapped your emergency fund for any of the reasons above? Do you think there are other times when using your emergency fund is a good idea? Share your thoughts in the comments below.

Read More:

How to manage your finances with peace of mind and being happy 

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The long months of lockdown and restrictions have triggered a strong desire for freedom in people’s minds, pushing them more and more towards completely new activities to be enjoyed to the full, with gusto and fun, without any kind of limitation. This is not an entirely unexpected reaction: if one of the most venerable principles of physics is still valid – to every action there is an equal and opposite reaction -, after months and months of draconian restrictions and measures that even affected people’s freedom of movement (even in their own neighbourhoods, effectively confining them to their homes), each individual, faced with the timid reopening that each country began to grant, inevitably felt a strong desire for freedom, manifesting it also through the selection of new activities and pastimes capable of triggering a strong feeling of freedom, personal redemption and, ultimately, rebirth.  [Read more…]

Student Loans – Do you have too much?

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I had this question posed to me and I thought it was interesting, I also think I have a different response than most people would, so let’s talk about it. Do you have too much borrowed for student loans? Does a dollar amount define the answer? Or is it situational?

Current student loan debt dilemma

To illustrate what the current student loan debt landscape looks like, I’d like to show some statistics.

  • Since 1970, the average student loan debt has increased by 2,807%. After adjusting for inflation, the average student loan debt has increased 317%.
  • The current average student loan balance is $37,113.
  • Total student loan debt is currently $1.75 trillion and grows 6 times faster than the national economy.
  • Those aged 25-34 are most likely to hold student loan debt, but people aged 35-49 hold the greatest proportion of debt – $600 billion.
  • Over 25% of borrowers owe more than $100,000

Student loan debt is a problem. I do believe it’s a manageable problem though. At least, it’s manageable going forward. Which brings me to my next point and the answer to the proposed question.

Situational answers

Here’s my no answer, answer. It depends. Some students will borrow over $100,000, but they could go to school to become a doctor, dentists, lawyers, or engineers.

Another question to ask is what school are you going to? Is it necessary for you to go to a big school that costs $50,000 per year? I think in most instances, probably not.

I think those are the two biggest questions that help answer the “how much too much” question. What are you going to school for and what school are you going to?

I think that the push to go to college to get an education is cyclical. Obviously, there are professions where it is very much needed, but there are others where that’s arguable. I also think that there’s been a lot of innovation done in the educational space that has provided legitimate alternatives to your typical college education. As with most things, however, only time will tell.

What are your post-graduation plans?

Do you anticipate you’ll earn a lot of money? Does your profession have a track record for medium to high earning potential? That is definitely a factor to consider. You could have your sights set on going to college already, but answering those two questions will help you decide what type of university to go to (online, state-run, private, etc.).

Mathematical answer

There’s a percentage answer, there’s not really a dollar amount answer because it’s relative to your income. Lenders, specifically, want to see your debt to income ratio below 43%. So if your projected income to debt ratio is above that number, then you need to think about alternatives.

How much is the average starting salary in your industry for your position? If it’s $50,000 per year, that’s where you start. How much student loans will you have when you graduate? Using the national average, it’s $37,113.

Breaking it down. Your monthly gross income is $4,166.67. You plan to pay off your student loans in 10 years and your interest rate on that debt is 8%, so your monthly payment is $450.28. Your debt to income ratio is roughly 11%.

If you’re looking for a home to purchase, the proposed mortgage will get added to that monthly student loan payment to help calculate your new debt to income ratio, so pay attention to that as well.

Related reading:

How do you pay for college?

Student loan repayment guide

Is it a good idea to pay off student loan debt quickly?

Simple solutions for repaying student loan debt

The pros and cons of refinancing your student loan debt

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

6 Pros And Cons Of Payroll Business Loans

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Typically, employees can be considered valuable assets to your company. They play an integral role in the growth and success of your business operations. As such, they deserve to get compensated for all the work they’ve done for your organization. This means regularly paying them their salaries, wages, and other statutory benefits. When you fail to pay your employees their compensation, your business may be in huge trouble.   [Read more…]

First Time Applying for a Mortgage? 6 Expert Tips to Boost Your Chances 

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Your home is one of the biggest financial investments you’ll ever make in your lifetime. If you’re like most people, you’ll need the help of a mortgage to make it happen. Mortgages are viewed as the default way to finance a house, but that doesn’t guarantee that you’ll qualify for the one you want, especially if you’re a first-time homebuyer. The entire process can be daunting and overwhelming as there are tons of steps involved, and anyone new in the real estate market may not know all the best practices. So, how do you make yourself more attractive in the eyes of your lender? Read more to learn six expert tips to boost your chances. [Read more…]

How to Increase Your Net Worth

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Your net worth is a benchmark for your financial success. Notice that I said financial success and not just success. That was intentional because money doesn’t define your success. Money can afford you freedom, but I believe real success doesn’t involve money. That was free of charge, now let’s talk about how to increase your net worth.

What is net worth?

Net worth is assets minus liabilities. How much wealth do you have after you subtract what you owe versus what you have? It’s typically used to gauge your progress in your financial life. If you have debt, then when you pay it down, your net worth goes up. The same happens when you increase your savings.

How to increase your assets

Honestly, the only way to increase your assets is to save money. At least, that’s where it all starts. The more you save, the more you have to work with.

How do you save money? Decrease your expenses and/or make more money. That’s what it comes down to. Figure out what’s important – in terms of your budget and spending. Everything else that doesn’t fit on that list needs to either be removed or reduced.

Once you have money saved, then you can put it to work. Invest it in securities or assets that have a chance to increase in value. What kinds of things have a chance to increase in value? Stocks, bonds, mutual funds, ETFs, precious metals, real estate, certificates of deposit (CDs), and cryptocurrency/NFTs (though I would tread carefully here).

Growing your assets will help you increase your net worth.

How to decrease your liabilities

Pay down your debts. That’s it. Obviously, it’s more challenging than that. Ideally, what you’d want to do is pay down your debts before you focus on the saving aspect of it. If you have debts with high-interest rates, like credit cards, those should be your first priority.

We’ve gone into detail about the repayment methods before so we’ll only touch on them briefly, but what’s important is decreasing your expenses so you can make larger, more regular payments towards your debts.

The next step is developing a repayment strategy. The two we’ve talked about before are the debt avalanche and the debt snowball. The debt avalanche – you pay the debt with the highest interest rate off first before moving to the next one. The debt snowball – you pay the debt with the smallest balance off before moving on to the next one.

Paying down your debts will really help you increase your net worth.

Is there a net worth number you should hit?

At the end of the day, your net worth number is really a reflection of what you’ve saved for retirement. Ideally, you will not have any debts, including your mortgage. So there’s no math that needs to be done. What are your assets? Primary home, any rental properties, and then your retirement savings, with primary home and retirement savings being the two most common for everyone.

So the question becomes, how much should you save for retirement? Thankfully, we’ve created a guide for you to help answer that question (see below).

Related reading:

How much do I need to save for retirement?

Diving Deep Into Debt

3 ways to responsibly save money

Gig economy financial security

Johnny Depp Net Worth

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Top 7 Benefits of Applying Accountants Pre-employment Tests

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A job market is a tough place these days. With so many unemployed people looking to get hired and employers looking to hire, new hiring tools have been implemented.

One of those tools is the pre-employment skills assessment tests that employers use. The purpose of these tests is to evaluate an applicant’s skills and knowledge as they show potential for the profession. [Read more…]

Is Selling Your Home the Best Choice?

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Selling a home is the biggest decision one will ever make. Considering that a home is the most valuable possession you could ever have, selling it is not easy. However, some situations, such as moving, may necessitate you to sell your home fast. However, selling a house has to be done right; this will guarantee you good money and a better lifestyle. However, selling the house at the wrong time may put you at risk and more trouble in future years. Therefore before selling a house, it is essential to factor in the market conditions to guide you on the best time to sell a house. However, market conditions are not the only things you need to factor in;  [Read more…]

Save Money on Your Mortgage by Negotiating These Fees

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After all the haggling you do to get the best price on your home, and all the work you put into your credit to get the best interest rate, it can be disappointing to realize that closing on a home comes with thousands of dollars in bank and legal fees. You need to pay for multiple inspections, an appraisal, attorneys’ fees, title insurance – and that’s just the tip of the iceberg. [Read more…]