Tag: 401k

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Fidelity Is My One Stop Shop

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.

  • Step 1 – Setup a new Fidelity checking account. It’s super easy and takes about 5 minutes. You can also request a debit card and checks. I added link here: Open Account
  • Step 2 – Setup direct deposit to allow your employer paychecks to deposit into your checking account automatically. Once you setup your cash account in Step 1, type in direct deposit in the Fidelity search bar and you will find a link to the banking and routing info. Provide that info to your employer and you are done!
  • Step 3 – Add the Fidelity BillPay feature to your checking account and add payees so you can pay through your checking account. In most cases Fidelity will already have your payee setup information, e.g. Visa, however there is an option to setup payees manually too. I added a link to a video that explains Fidelity BillPay here: Fidelity BillPay Video
  • Step 4 – Setup a Fidelity savings account (optional). For some folks, having a separate account helps to encourage saving for unexpected expenses. If this is your style, go ahead and setup a savings account by repeating Step 1. Personally, I don’t have a separate savings account, I added a money market sweep account to my existing checking account to act as a savings account.
  • Step 5 – Setup a 401k account. My employer already uses Fidelity, so I didn’t need to setup a new account. If your employer doesn’t use Fidelity, you can setup a new account and easily rollover your 401k to Fidelity account tax free. Since you already have cash accounts setup with Fidelity (after completing steps 1-4), simply click on “Open An Account” at the top of your Fidelity homepage.
  • Step 6 – Setup a Brokerage account, which allows you to purchase stocks, ETFs and other types of investments. Again, click on the “Open An Account” link.
  • Step 7 – Setup a 529 Plan to save for your child’s future education expenses. Your investments grow tax free as long as the funds are used for qualified educational expenses. Check out Fidelity’s website for more information.
  • Step 8 – Setup a Health Savings Account “HSA.” In my case, my employer uses Optum Bank, so I filled out a transfer form to move my HSA investments from Optum to Fidelity. Note – if you don’t already have a HSA account, check with your employer whether they offer it as there are certain qualifications that need to be met.

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.

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2021 401k Limits

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

  • $19,500 – Deferral limit. No change from 2020.
  • $6,500 – Catch-up contributions for those age 50 and over. Up $500 from 2020.
  • $58,000 ($64,500 including catch-up contributions) – Overall limit on contributions. Up $1,000 from prior year, this is the maximum that you and your employer can contribute per year. For example, let’s say you are 35 yrs old, contribute the maximum $19,500 and your employer match is $5,500. This means you can contribute an additional $33,000 per year ($58,000 – $19,500 – $5,500 = $33,000).

For additional resources, visit the IRS 401k webpage https://www.irs.gov/retirement-plans/401k-plans

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401k Plans

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.