The Ultimate Guide to Understanding and Utilizing Your 401K | Ep. 292

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Ready to dive into the confusing world of 401Ks? Join Tiffany Grant in this must-listen podcast episode as she shares her conversation with a phlebotomist who sparked the topic.

Tiffany discusses why 401Ks are essential to your total rewards package and how to utilize employer-matching contributions to build retirement savings. She decodes the tricky language of 401Ks, clears up misconceptions about vesting schedules, and offers valuable advice on whether to roll over your 401K or leave it with your previous employer.

Don’t miss out on this informative and eye-opening discussion to help you make the best decisions for your financial future!

Every Tuesday, Tiffany answers one of your submitted questions. To submit a question for an upcoming episode, visit https://www.moneytalkwitht.com/asktiffany.

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Transcript
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Intro/Outro: You know what it is. That's right. It's time to talk

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money with your money nerd and financial coach.

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Now tighten those purse strings and open those ears.

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It's the money talk with Tiff. podcast.

Tiffany Grant:

Hey, hey. And welcome to another episode of Tiffany's take,

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where I answer your questions right here on the

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podcast. Now, if you want your question answered, just go

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to

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Tiffany, and I will be more than happy

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to answer for you. Also on the website, I have a

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lot more information. So I have a whole bunch

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of blog articles and things, and especially on the

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topic that I plan on talking about today. So, first

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and foremost, let me just say, y'all, I apologize for

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last Tuesday's episode. It sounded

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horrible, and I realized after the fact

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that I didn't have my good mic on. So hopefully this

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week sounds better. But I felt so bad that your

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listening experience wasn't optimal last week,

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so I apologize for that, but let's go ahead and

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hop in. So, this morning, I actually had a

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doctor's appointment. And as I was

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sitting in the chair, I'm recording this on

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Monday, to get my blood drawn,

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the phlebotomist asked me, what do you do for a

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living? So, of course, when I said, oh, I do financial

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counseling, everybody always hits me with their money

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questions, right? So he

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started asking me as he was drawing my blood, and you're probably like,

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well, Tiffany, it doesn't take long to draw your blood. They had to

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draw, like, 15 vials. I kid you not. It was a

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lot, because they're trying to figure out what's going on. But

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anyway, as he was drawing my blood,

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he was like, well, Tiffany, what do you think about

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401 ks? And so I thought that this would

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be a great conversation to have on the podcast, because

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as I was telling him some information

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about his specific situation, he was just

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like, okay. So I figured it was good

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information. So, anyway, let's get right into it. When

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you are thinking about your four hundred and one k at your

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job, first of all, keep in

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mind that any of your

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employee benefits are included in your total

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rewards, what we in HR call total

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rewards. So that means that is your entire

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benefits package. So your total rewards

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encompasses your salary. It, also

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encompasses all of the benefits that you get

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as an employee of that company.

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So if you don't take advantage of benefits,

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then you're kind of leaving part of your

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compensation package on the table. So that's one way

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to look at it. The other way is if you

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have a 401K available at your job

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if your company matches,

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there's some circumstances where maybe you

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really can't afford to, but most

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of the time, you want to take advantage

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of that benefit up to the match. Okay,

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so that's what I was explaining to the guy. I was like,

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definitely invest in your four hundred and one k. A lot of

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the people that I know that are millionaires

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got there from their 401,

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honestly. and when you

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read about the millionaires next door,

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a lot of times they gain their riches

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from 401 or iras or just

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investing for the long haul. So 401K is a

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great way to get into the market, and do

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so with a pretty low barrier to entry.

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Right. you can get

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your deductions, and so they just take it automatically

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out your check. You don't have to really think any extra about

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it. Just put your money in there, invest

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it, and it does its thing. So I always recommend,

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if people are wanting to get started in investing in the

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market, to go ahead and start with their

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401K, right. And up to the match.

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So if your company does a match, the match

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works in a few different ways. And this is what I was

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explaining to him as well, because he was kind of confused about

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how matches work and all that

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stuff. So usually you'll

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hear, and I'll just throw an, example

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one out there, we'll match

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50%, up to

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6% of your

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income. Okay, so what does that

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mean? That means that they will

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match 50 cent on every

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dollar that you put in,

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but only up to

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6% of your annual income. So like, let's

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say, for instance, and I'm, pull up my calculator here.

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Let's say that your annual

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income is, let's just use a whole number,

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$100,000, right, a year. So

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that means that up to

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$6,000, they will put in

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50% of that. So if you put

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in $6,000, they'll put in

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$3,000 for the entire year. Okay,

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so that's what that means when it says

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50% up to 6%, or sometimes you can see

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100% up to 6% or 50%

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up to 5%. That's what all of that means. It

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means that they will match the first

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percentage amount up to the second

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percentage amount, which is your annual income, a

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percentage of your annual income. So now that you know

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that, definitely look at your employee benefits and

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see where you stand, because every company is different,

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and I can't stress that enough. Don't think when you

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go and you're investing in your 401k in one

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company, that it'll be the same exact thing at the next

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company, because, honestly, I have

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never been at a company where it was exactly

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the same. Okay. and I've had quite

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a bit of jobs over the years, so definitely check over your employee

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benefits and see what you are

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offered. Now, once we get past the

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match. Right. We also have to look at the vesting

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schedule. So what is vesting? Vesting

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is when a company says, you have to be

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with us for x amount of years before

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what we put in is completely yours.

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So let's take the same example. We've put in

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6000 for the year. The company has put in

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3000 for the year. And let's say that the

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vesting schedule is

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25% by year,

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350 percent by

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year five, and then 100% by year

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six. And that's very dramatic, y'all, but I'm just

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trying to get an example out. Okay? So keep with

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me. If you leave

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the company before year three,

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then you may not get access to

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that $3,000 that they put in.

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Right. If you leave the

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company after year three, you

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get access to 25% of the

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$3,000 that they put in. Now,

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mind you, the vesting schedule does not

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affect anything that you put in. Whatever you

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put in is yours to keep, okay? This

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only affects whatever the company has put in

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on your behalf. So also, keep that in mind.

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They're not going to take your money, because that's

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another, narrative I hear out

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there, with people, typically, that want to sell you life

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insurance, but they'll say, oh, if you leave the

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company, they'll take your money. Well, really,

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honestly, if you look at the vesting schedule,

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you'll know, when you should leave

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the company, if you're planning on leaving,

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and how that would affect your

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retirement dollars. Now, they're not taking your

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money that you put in. They're taking

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their money that they put in. So it's kind of

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misleading when they say that, because it doesn't

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affect your money at all. They're not taking, let's say,

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25% of your money that you put in. It's

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only what they match. So keep that in mind, too.

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Another thing to keep in mind when it comes to

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401 is when

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you leave a company. Okay? Let's say

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you've been investing in a company. They have a

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401. When you leave a company,

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depending on m, what your income is. So

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I will say, get with a financial professional to

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discuss your options in your specific case.

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But most of the time, it's more

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beneficial to roll it over into an

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IRA versus keeping it into

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that. Reason I say that is

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because when you're at a company, like I

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said, this is part of your benefits, right? And

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so they are taking the hit on

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fees for you. So once you leave

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the company, you no longer have that benefit. So

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guess what? Your fees may go up. So that means

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a portion of your investments, a bigger

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portion of your investments go to the

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manager of the 401K, right?

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Not the manager at the company, but where they

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house the, So

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when you leave the company, your management fees may go

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up when you leave a company. Also,

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the broader market, which you could find in the

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IRA, has more options than the

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workplace. Four hundred and one k. The workplace

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401, they choose what you can

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and cannot invest in. So that's why you only

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see, typically it's, like target

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date funds or lifecycle funds, and then you

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may see a few other types of funds

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that you can sign up for, what have you. But your options

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are limited. When you go over to an

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IRA, which is an individual retirement account,

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you have access to the entire market, and so you

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can invest in whatever it is your heart desires.

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You're not limited to those options.

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Also, a lot of times, people forget about

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their 401 ks, honestly. And

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so if you leave the, your previous

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employer, it may be way down the line, and

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you're like, oh, I forgot I had a 401k over

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there. I get that all the time. where you

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forgot that you even had a there

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somewhere. And so that's why I say, most of the

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time, it's in your best interest to roll it over to a

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rollover IRa. Now, when you do that, and this could

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be a whole other episode, but I want to make sure I mention it

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here. You want to make sure that you do a direct

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transfer rollover. You do not want the type of

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rollover where they actually give you a check,

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and they count it as you cashing it out

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because that also will hurt

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you because then you'll be taxed on

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it. You'll be penalized because nine times out of ten,

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you haven't met retirement age yet. And so you

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want to make sure you request a direct transfer rollover.

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Those are the keywords. Okay. So you shouldn't get anything

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in your hand that you're not directly

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putting over into another account.

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Okay? So keep that in mind.

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So those are just some things

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about 401 ks that I wanted to get out there that I

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had the conversation about this morning, and I figured it would be helpful to

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get it out to a broader audience. If you have

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any questions about 401, I'll be more than happy to

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answer for you. Benefits are my jam, so please

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shoot those questions over if you want a little one on one help.

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I also take one on one counseling clients. And

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if you need help with rolling over 401

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ks or finding 401 ks, I have

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a resource that I'm going to put in the show notes as well

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that can help you do just that. I've had a couple of clients use

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them, and they were satisfied, with the

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ease of doing that process, and it was

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helpful for them. So I'll share that with you all as well.

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But in the meantime, in between time, I hope that cleared up some

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information about 401, and

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it is a great investment to use. Like I said,

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there's a lot of people that make their

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millions from 401. Of course,

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over time, we're talking a whole career's worth

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of putting in money, but it's

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a great benefit to have, and honestly, one that

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I truly missed with being an

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employee. as an entrepreneur, I do not have

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that luxury. There are ways that entrepreneurs

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can do that, but it's, something that I'll go over in

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another episode because this one's getting a little too long.

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But, I really miss

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that as a benefit. So if you

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do have access, please make sure that you're investing in

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your 401 up to the match. If you want to

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do anything over the match,

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you can do an IRA, you can do something

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different. It's completely up to you. Get with your financial

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professional, but that's just the route that I go. and

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this is not investment advice. This is for entertainment and

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educational purposes only. So please do not say,

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well, Tiffany said I should not

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do my IR. so

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please do not say, Tiffany said I shouldn't invest

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in my four hundred and one k past match or I should do

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an IRA. Tiffany is just telling you the options that

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are out there, okay? Everybody's

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situation is different. And, oh, speaking of, that's

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where I was going with the 401K. Leaving it at your

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employer. If you are a high earner, it's best

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if you leave it, because then you can do a backdoor

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IRA later on and I'll do another episode with that.

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But that's just a little tidbit. So if you make a lot of money,

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you might want to keep the whatever

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employer is at because it may be more beneficial.

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So that's why I say personal finance is personal,

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because it just varies by the individual

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situation. Anywho, all right, y'all, y'all have a

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wonderful rest of your day and I will see you

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next week. Bye.

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Intro/Outro: Thank you for listening, joining and being a part of the Money

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talk with TIFF podcast this week. You can check Tiff

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out every Thursday for a new Money talk podcast,

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but if you just can't wait until next week, you can listen

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to previous podcast

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episodes@moneytalkwitht.com

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or follow TIFf on all social media

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platforms at Moneytalkwith.

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Until next time, spend wise by

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spending less than you make a word to the moneywise

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is always sufficient.