Check out the IRS website here for my details, including higher limits for those age 50 and over.
I recently consolidated all of my banking and investing with Fidelity to streamline depositing paychecks, paying bills, transferring money between accounts and investing. It saves me a ton of time – for example moving money between checking to brokerage accounts to buy stocks, and I can pay my bills through Fidelity BillPay. Check out the diagram below for my recommended setup.
Conclusion
The benefits of having all my accounts under Fidelity are huge. My paychecks automatically deposit to my cash account and I have automatic monthly transfers running between all of the above accounts seamlessly. Most importantly, I can view the activity of all my accounts by logging into one website – imagine that!
Lastly, and most importantly, I’m setup for future retirement when I will need to draw down from retirement accounts. I highly recommended you take the time to consolidate your accounts – it’s worth the extra time spent upfront to spend less time maintaining your finances every month.
It’s November 2020 and we are in the middle of a once in a century global pandemic. Long lines at grocery stores, toilet paper is out of stock and we spend endless hours working from home and juggling kid’s Zoom schedules. Some days are easier than others, and it’s easy to get swept up in the hysteria of the world ending, but one thing is for sure – we will get through this and we will return to normal; at least a new normal.
While there are certain things that will never be the same – there is one constant in our lives – the need to save for retirement. So, let’s take a look at 401k limits for the new year:
2021 IRS 401k limits
For additional resources, visit the IRS 401k webpage https://www.irs.gov/retirement-plans/401k-plans
Is Costco a good way to save money? The answer is yes and no.
Bulk Products – Yes
Bulk products save money in the long run as the cost per unit is always lower relative to standard grocery store chains. Think spaghetti sauce, macaroni & cheese and peanut butter. If you regularly buy these items for meals, Costco is a great way to keep your grocery costs down.
Alcohol – Yes
Liquor, beer and wine prices are always lower than other stores. Also, consider the Kirkland brands, e.g. Vodka and Chardonnay.
Gas – Yes
Best prices in town and extra rewards if you use your Costco Visa Rewards Card.
Dairy products – It Depends
Eggs, milk and butter will save you money, but only if you consume the food before expiration. Families of four or more don’t need to worry, but if you are single and likely won’t eat everything, you are better off buying these items on sale at your local grocery store.
$4.99 Rotisserie Chicken – Yes, Yes and Yes!
Special call out to the $4.99 rotisserie whole chicken! Hands down the best deal in your neighborhood and great item for dinner with rice and veggies, shredded for tacos/enchiladas or leftovers for lunch.
Other Stuff – It Depends
Ever notice you can’t get through Costco without spending $200 bucks? It adds up quick right? This is where Costco makes its money and you lose it. Think about it, if Costco only sold bulk items, customers would only come to the store monthly and the margins would not be high enough for Costco to stay in business.
So, aside from the annual membership, how does Costco make it’s money? The answer is all the “other stuff.” This is where you end up buying a new vacuum cleaner (when the one at home works just fine) or a 10-man tent (when you have a 4 man tent in your garage), ironing boards, coffee makers, pots/pans, toys, paper shredders you never use, extra dining chairs used once a year, and the patio heater that sits in your back yard collecting cobwebs.
Final Thoughts
In one way, Costco is a great example of American capitalism – it delivers value to customers and a profit to shareholders. In another way, it fuels the fire of US consumerism and the ever expanding US and China trade deficit. Every week families buy more stuff they don’t need. And, now we see corresponding minimalism movements with Netflix documentaries like the Minimalists or the popularity of organizing gurus like Marie Kondo who specialize in cleaning out households.
In the end, I have been a member of Costco for years and will continue to shop there, but will do my best to stick to the grocery list.
Estimated Monthly Savings: $75-$100
With so many subscription based TV options, this is an easy win. Most of us already have Netflix and a number of companies offer live TV such as Hulu. I recently cut my cable bill and don’t miss it. I end up watching less TV and spend more time working on projects, hanging out with family and friends or reading books.
Estimated Monthly Savings: $60-$80
I know, going right at the heart of the very thing that makes life manageable. Especially for working parents! Don’t get me wrong, I really do love coffee and “must” have it in the morning to get my day going. So, here is what I do – I make coffee at home 5 days a week and buy coffee 2 days a week from Starbucks or my local coffee shop, Bird Rock Coffee. Maybe you decide to make it a home during the workweek and then treat yourself on the weekends. Personally, I like treating myself on Fridays to kick off the weekend!
Estimated Monthly Savings: $100-$150
This has been the toughest area for me. When you are a working parent, free time is precious, and making lunches daily seems impossible. The alternative is spending $5-$10 per day at your work cafeteria or getting fast food and it really adds up.
Meal planning is a must. Try cooking meals on Sundays and packing up lunches for the week. Start with 1-2 lunches per week and build up!
Estimated Monthly Savings: $20-$50
Obviously, eating at home saves a ton of money, but you can’t expect to eat every meal at home. When you do eat out, order your favorite entree and skip the soda, tea, or alcohol. If you are celebrating a special occasion or getting drinks with your friends this isn’t an option. However, when it makes sense, skip on the drinks. You may find you enjoy your entree more anyway and the bill will be much lower than you think!
Estimated Monthly Savings: $30-$40
Living in Southern California, it’s typical to see new cars everywhere and most people like to keep them looking shiny and clean. I get that, but rather than getting a car wash every week, consider reducing to 1-2 times per month or washing your car at home. I’ve found that once a month is fine.
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Whether you have a CPA or prepare your tax return yourself, here are few words of wisdom.
If you expect a refund, hurry up and file. No sense in the government holding on to your money. Better to put it to good use paying down debt or investing.
If you expect to pay, let Uncle Sam wait for your money. Just make sure you submit by the tax filing deadline. Remember, even if you file an extension, you must pay taxes due by the original deadline.
Also, take a look at your return last year and compare to this year. Does income look similar? How about deductions?
Once you file your 2018 taxes, start the tax planning process for 2019. Take a look at the 2019 tax tables on this site and make adjustments as needed. For example, the limit for IRAs raised to $6,000 for 2019.
An IRA is an account set up at a financial institution (think Fidelity or Chase) that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. The 3 main types of IRAs each have different advantages:
Traditional IRA – You make contributions generally deductible on your tax return, and any earnings grow tax-deferred until you withdraw them in retirement. Best if you expect to be in a lower tax bracket when you retire.
Roth IRA – You make contributions with money you’ve already paid taxes on (after-tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.
Rollover IRA – You contribute money “rolled over” from a qualified retirement plan into this traditional IRA. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) into an IRA.
Why invest in an IRA?
As mentioned in my 401(k) section, IRAs are a great option if you don’t have access to a 401(k) or if your employer does not offer a match and you expect to contribute less than $6,000 per year.
Additionally, if you max your 401(k) and want to accumulate more savings, you can contribute to both a 401(k) and an IRA. However, if you max your 401(k) already, you are likely in a higher tax bracket that may preclude you from either getting the tax deduction of a traditional IRA or ability to contribute to a Roth. In these cases, do your homework. There are still ways to get around this with strategies such as a “backdoor IRA.” More to come on this topic…
HSAs let you save tax-free for medical needs. If you have a high-deductible health insurance plan (over $1,350 for individuals or $2,700 for families), you’re eligible. They are similar to FSAs, but FSAs generally have more restrictions such as “use it or lose it” rules and they don’t offer a way to invest your contributions. I would argue HSAs should be your first choice for investing for retirement, even more so than 401ks and IRAs. Here is why:
Triple tax break
With a Traditional 401k or IRA, you get the tax deferral benefit in #1 above, but pay tax later, so you don’t get the benefits of #2 and #3. With a Roth 401(k) or IRA, you get the benefits of #2 and #3, but not #1. With a HSA you get the benefits of all 3. A triple tax break!
2019 Contribution Limits
You can contribute up to $3,500 to an HSA if you have single coverage or up to $7,000 for family coverage in 2019, which is slightly more than the 2018 limits. If you’re 55 or older anytime in 2019, you’ll continue to be able to contribute an extra $1,000
Buckle up. This year will be a bumpy ride with ups and downs. When we hit the downturns, think about this poem from Rudyard Kipling, which was quoted by Warren Buffet in his 2017 Berkshire Hathaway shareholder letter:
If you can keep your head when all about you are losing theirs …
If you can wait and not be tired by waiting …
If you can think – and not make thoughts your aim …
If you can trust yourself when all men doubt you …
Yours is the Earth and everything that’s in it.
Keep it simple. If your employer offers a 401k Plan, even if there is not a company match, you should join the plan and contribute. Don’t worry about IRAs, stocks or mutual funds. Join your company 401k Plan now!
Contribution Limits
Start with 5% of your salary. If you can afford more, do it. If you can’t afford 5%, start with $50 or $100 per month. Whatever you can. This year the IRS has increased the maximum employee 401(k) contribution limit to $19,000 per year. The maximum contribution for 2018 was $18,500.Additional contributions can be made if you are age 50 or older. For 2019, that number remains at $6,000, which is also the same as the catch-up contributions in 2018 and 2017.
Traditional vs Roth
The biggest difference between a Roth and a traditional IRA is how and when you get a tax break: The tax advantage of a traditional IRA is that your contributions are tax-deductible in the year are made. The tax advantage of a Roth IRA is that your withdrawals in retirement are not taxed.
Tough call. If you are just starting your career, go with a Roth. Otherwise, select a Traditional or mix it up.
Fund Choices
There are several choices ranging from small cap to large cap, domestic vs international and low fee options.
Unless you are plan to monitor your investments daily, your best option is a target fund. I personally invest in the Vanguard target funds through my employer 401k Plan. What is a target fund? A target date fund is designed to provide a simple investment solution through a portfolio whose asset allocation mix becomes more conservative as the target date approaches. As an example, if you pick a Target 2045 fund, the portfolio will be more heavily weighted towards stocks, gradually allocating to more conservative investments (e.g. bonds) are your target date approaches.
