What To Do With Your Old 401(k)

Have you been laid off before, recently left a job, or just starting a new one? If so, keep reading. We’ve been getting tons of questions about what to do with old retirement accounts. This is a great question that is oftentimes not discussed, causing many people to “forget” or lose track track of their old accounts. Many people often make rushed decisions and think they need to pack up their savings when they leave a job.  And conversely, some people pay no attention when they move from job to job and leave a trail of 401(k) plans behind them.  With any employment change, it’s important to know which mistakes to avoid when it comes to your 401(k).

Here are some tips regarding your 401(k). First and foremost, pause before simply cashing out on your 401(k) when leaving a job. Cashing out and not reinvesting your funds in a qualified retirement plan is a mistake.  People don’t realize the cost to their financial security by cashing out on their 401(k) and that cost includes an immediate tax hit – income taxes plus another 10% early withdrawal penalty if you are younger than 59 ½.

One thing to be weary of is not to roll over your accounts too many times. Employees who decide to move their money to another 401(k) plan or an IRA typically have two options—transfer the funds directly to another account, or do a rollover. Although “rollover” is when you move money from one retirement account to another. That money is best moved by direct transfer, but some employers will send a check. You have 60 days to roll that money over to an IRA or other qualified plan. If you miss that window, there is a grace period (with a penalty fee), but this is offered only once every 12 months, so direct transfers are often best to avoid penalties and issues. 

There are plenty of good reasons to move your money into an IRA (individual retirement account).  These accounts aren’t linked to any one employer and consolidate your money into a single retirement account. You also are not confined to that employers or old 401(k)s fund lineup, so may have more flexibility moving over to an IRA.  However, your employer’s plan may offer you access to investment options, tools and institutional pricing that you might not get with an IRA so it’s important to analyze that beforehand. 

Next, make sure not to overlook other tax strategies. There may be other strategies to consider when weighing a job move, although most people associate 401(k) plans with pretax contribution. One option may be to convert the savings to a Roth IRA; you’ll owe income taxes on what you convert, but future growth and withdrawals will be tax free. If your income is lower that year, the tax impact will be less.  For those who’ve accumulated their employer’s stock in their 401(k) plans, leaving a job may open the door for an often overlooked tax break. 

As we get ready to kick off summer plans, use this opportunity to evaluate and understand what old accounts you have if any and your options to consolidate them. Keeping regular tabs on what is going on with your investments is critical to ensuring they line up with your goals for the future.  For more specific advice on what to do with your old retirement accounts, email, info@shermanwealth.com. 

Understanding The True Value and Need For A Financial Plan

We’ve been talking a lot about the importance of having a financial plan in place, especially given the current market climate with hot inflation and rising interest rates. Establishing financial goals and creating a roadmap to achieve them is extremely important to your financial life.  It’s often hard to see the whole scope of your financial picture on your own, which is why we want to discuss the value of establishing a financial plan. So, for those of you who have never utilized a financial place, let’s discuss some services you can expect.

Whether you work with a financial professional or build a financial plan on your own, having all your finances in one place with a strategic plan and goals in mind is crucial. Financial literacy in this country is lacking, so it’s extremely important to educate individuals on the true value of financial planning. Financial planning isn’t as daunting and scary as you might think – it’s actually quite a seamless process that allows you to organize yourself and set you and your family up for financial success in the future. 

At Sherman Wealth, we take a holistic, micro and macro approach when attacking your financial plan, beginning with a qualitative risk tolerance questionnaire to gauge your comfortability with your current asset allocation risk and risk for future investments. We then take a look at everything you have, aggregating your whole financial into our financial software in order to analyze it and see the bigger picture.

As you can see in the document above, we offer many services and can help you in all assets of your financial life, whether its getting organized and automating, establishing a budget and goals, discussing your cash flows and tax efficient strategies, reviewing your insurance and estate planning needs, or preparing for college. While these are only a few of the services we offer, having a financial concierge to talk these topics through with can simplify your life.

For example, given where interest rates are, many people have questions on what the best vehicles are to park cash. It’s okay not to know what to do with your money, but it’s important to seek advice or ask for help. A solid financial plan can help you separate your needs from your wants and create a budget that allows you to put your money into “buckets” – one for saving, one for investing and one for spending. 

Many people think they are in a good financial situation if they can simply pay their monthly bills and have some money in a savings account; however, oftentimes, this mindset won’t allow you to reach your financial dreams. While this isn’t necessarily a bad position to be in, creating a financial plan can help you learn some different ways to grow your money and how to save for retirement. 

At Sherman Wealth, we say that life is complicated, but your finances don’t have to be. We have designed a customized and comprehensive financial plan system that helps you see your whole financial picture and makes sure you don’t forget about things such as investing, employee benefits, and more. Encourage your friends and family to start thinking about their personal finance and empower them to seek help to better their financial future. If you have any questions or would like to demo our financial planning software, email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. 

 

Are You Setting Aside More Cash in This Environment?

If you’ve been following major headlines in the media recently, you sure have read about interest rates, inflation, the Federal Reserve, and a potential recession. As the Federal Reserve recently implemented its 10th interest rate hike in its effort to combat inflation, many individuals continue to discuss the possibility of a looming recession on the economy. So, in response to the state of the economy with rising interest rates and inflation data, many individuals are revisiting ideas on their budgets and cash, stashing away more cash and cutting out unnecessary items from their budgets.

Although this week we saw retail sales increase 0.4% in April, indicating shoppers are picking up spending, over the last few months many Americans have cut back on shopping. According to recent reports from Bank of America Institute and Deloitte, American consumers are cutting back on their spending and saving more. In fact, now “71% of Americans are likely to keep cash on hand,” and “to save more, about half of all adults are dining out less frequently and 42% have changed the way they shop for food”. Given higher prices to purchase goods yet also higher interest rates available on cash, many individuals are starting to take advantage of getting paid more to save. 

Taking advantage of higher interest rates in this environment with your cash is extremely important and a great way to earn some extra cash. We’ve been talking about the best vehicles to park your cash in, including high yield savings accounts and CDs that are as high as the 5% range, earning well over the traditional bank account that’s still yielding around 0%. So, if you have adjusted your budget due to inflation and are finding yourself saving more cash, make sure you are maximizing the interest rate you can earn, making the smartest decision with your finances. If you have any questions about ways to best maximize your cash and your financial plan, email us at info@shermanwealth.com or schedule a complimentary intro call here. In an ever changing economic world, we believe that periodically revisiting your financial plan and strategies to align with the opportunities available to you is so important.  

 

Ep. 138 Launch Financial- Mortgage Rates & Spring Housing Market with Jody Eichenblatt

Overview: Tune into this week’s very special episode of Launch Financial joined by special guest and senior mortgage consultant at PHM Loans, Jody Eichenblatt. On this episode, we will discuss the Biden Administration mortage fees and rules, credit score bands, tips for homebuyers in this environment, and Jody’s outlook on the spring housing market and interest rates. For questions or inquiries, email info@shermanwealth.com

 

Show Notes: For more information about Jody, visit www.jodyeichenblatt.com

Cell 973-951-8077, jody.eichenblatt@phmloans.com

 

Check out this episode!

Ep. 137 Launch Financial-US Economy Digests Rising Interest Rates Awaiting CPI Data

Overview: Tune into this week’s episode of Launch Financial as we discuss last week’s interest rate hike of 25 basis points and this week’s economic topics of the debt ceiling, CPI and PPI data reports. How are you and your family feeling as it relates to travel and the costs associated? Let us know at info@shermanwealth.com! 

Show Notes:

https://twitter.com/lisaabramowicz1/status/1655356633671671808?s=43&t=OXvu2R0roJX0UmTJ96VzQQ 

Check out this episode!

Don’t Make These Errors With Your Estate Plan

Estate planning is a financial topic that many individuals oftentimes overlook; however, it is one of the most important components of a solid financial plan. We know that estate planning is not the most joyful conversation topic and it is typically avoided due to its morbidity, but if you are reading this, we want you to take this opportunity to revisit your estate plan and avoid these common mistakes. 

The most common mistake you can make around estate planning and your will, is NOT having one. Everyone knows they should have a will, but many either think they are too young for it to make sense or think they do not have enough assets to need one. However, this misconception has been proved wrong time and time again. In fact, we recorded a podcast episode with Head of Trusts and Estates Practice, Adam Moskowitz on why it’s never too early to establish a will, medical directive, and power of attorney. Many also believe that they only need a will, and forget about their power of attorney and medical directive, that plays a crucial role in your wishes should anything happen to you. 

Another common mistake we see is not updating your will as your life becomes more complicated. Whether it’s a new house, more children, marriage, or complexities within your familial situation, updating your will as your life becomes more complex is extremely important. Making regular updates to not only your will, but also the beneficiaries on your retirement and other investment accounts is a great way to make sure you remain protected as your life goes on. Make sure that when you make changes to your will or living trust, that you are reflecting and updating those changes on your beneficiary designations as well. 

Depending on your financial and life situation, creating a will, medical directive, and power of attorney can include many moving parts, which is why we encourage you to at least speak with a professional who can help guide you through it or in the right direction. Another common error many individuals make when it comes to their will is losing their original copy, so make sure you are holding onto your original copy somewhere safe. 

As you can tell from above, drafting a will, medical directive and power of attorney is a crucial player in your financial plan. Not only do you want to protect yourself should anything happen to you, but you also want to think about your heirs and make sure that they are taken care of as you wish. If you have any questions for us regarding your need for a new or updated estate plan, let us know and we are happy to set up a conversation to head you in the right direction. If you have any questions, email us at info@shermanwealth.com.