What You Need to Know about Stock Options

Contributed by: Nick Defenthaler, CFP®

As a professional, there are various ways you can be compensated for your work.  Although not as prevalent as they once were, stock options still exist in many different companies and can often be negotiated into your overall compensation package.  Stock options are intended to give you motivation and incentive to perform at a high level to help increase the company’s stock price which will, in turn, have a positive impact on the value of your own stock options.  There are various forms of stock options and they can certainly be confusing and even intimidating.  If you’ve ever been offered options, your initial thought might have been, “I know these things can be great, but I really don’t have a clue what they are or know what to do with them!” For starters, there are two common forms of stock options NSOs & RSUs.

NSO: Non-qualified Stock Options

Non-qualified stock options, or NSOs, have been around and very popular for decades.  The mechanics, however, can be a bit tricky which is partly why you don’t see them quite as much as you used to.  There are various components to NSOs, but to keep things simple, the company’s stock price must rise above a certain price before your options have value.  Taxes are typically due on the difference between the market value of the stock upon “exercising” the stock option and what the stock price was when the option was “granted” to you.  Upside potential for NSOs can be significant but there’s also a downside. The options could expire making the stock worthless if it does not rise above a certain price during the specified time frame.

RSU: Restricted Stock Units

Restricted Stock Units, or RSUs, have become increasingly popular over the past 5 – 10 years and are now being used in place of or in conjunction with NSOs because they are a little more black and white.  Many feel that RSUs are far easier to manage and are a more “conservative” form of employee stock option compared to NSOs because the RSU will always have value, unless the underlying company stock goes to $0.  As the employee, you do not have to decide when to “exercise” the option like you would with an NSO.  When the RSUs “vest”, the value of the stock at that time is available to you (either in the form of cash or actual shares) and is then taxable.  Because you do not truly have any control over the exercising of the RSU, it makes it easier and less stressful for you during the vesting period.  However, because the RSUs vest when they vest, it does take away the opportunity to do the kind of pro-active planning available with NSOs.

Stock Options and Tax Planning

As you can see, stock options have some moving parts and can be tough to understand.  There are many other factors that go into analyzing stock options for our clients and we typically also like to coordinate with other experts, like your CPA because tax planning also plays a large part in stock option planning. If stock options are a part of your compensation package, it is imperative to have a plan and make the most of them because they can be extremely lucrative, depending on company performance and pro-active planning.  Please reach out if you ever have questions about your stock options – we work with many clients who own them and would be happy to help you as well!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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How to Apply for Social Security Retirement Benefits

Contributed by: Matt Trujillo, CFP®

There are a few different ways you can apply for social security retirement benefits. The easiest and most time efficient is simply to set up an account at https://secure.ssa.gov/iClaim/rib and apply for benefits online.  You can also apply over the phone by calling 800-772-1213 (or 800-325-0778 if you are hard of hearing). 

Of course, you can always stop down to a social security office and apply in person.  For some of the more advanced social security strategies like file and suspend and restricted application, you will have to stop into a branch as these options are not available online. You can find your local social security office by clicking this link.

If you are currently living outside of the United States you can apply for benefits by contacting the Office of International Operations. For more information visit their website here.

When to Apply for Social Security Benefits

It’s a good idea to apply for benefits a month or two earlier than you want your benefits to actually start. This is because social security benefits are paid the month after they are due.  For instance, if you want your benefits to start in July, you will receive your first benefit check in August. If you want to receive your first benefit check in July, you need to be eligible for benefits in June and tell the SSA that you want your benefits to start in the month of June so that you will actually receive a check in July.

Social security can be a very confusing topic. It’s a great idea to consult with a qualified professional before applying for benefits as your decisions in this area can be permanent and irreversible.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Matthew Trujillo, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Why Financial Planners are a lot like Personal Trainers

Contributed by: Matt Trujillo, CFP®

I recently had the opportunity to work with a personal trainer at my local gym. My wife was kind enough to purchase some sessions for me, and it was her gentle way of letting me know I’ve added on a few pounds! When I sat down with the trainer at my initial session I couldn’t help but notice the similarities between what I do for a living and what personal trainers do.

Personal Trainer's line of questioning: (I’m paraphrasing)

Trainer: What were you hoping to accomplish over the next 8 weeks?

Me: I would like to develop some good habits so I can get back on a systematic workout routine.

Trainer: Ok, I can certainly help with that…anything else on your mind?

Me: Yes I would like to lose 10 pounds.

Trainer: That’s definitely doable, but you’re going to have to push yourself in the gym as well as practice disciplined eating habits outside of the gym. Losing weight is a science and your body is a machine.  Most people lack the mental discipline and have a hard time reaching their goals because of their behavior.

When I left the gym I couldn’t help but think about his comments the whole drive home. At The Center, our entire focus is on goals-based financial planning.

Our initial line of questioning with our clients is very similar to a personal trainer:

We Ask: How can we help you? What were you hoping to accomplish? What matters most to you with regards to your finance and money?

We Get Answers Like: I want to retire at 65. I want to be financially independent by 60. I want to leave a financial legacy.  I want to make sure my family is taken care of if something were to happen to me. I need help with my investment decisions.

These are just a few of the most common answers. Our mission is to provide world class service in helping our clients achieve their goals.  We do this by practicing a disciplined investment approach and by looking at all facets of a client’s financial life. 

If you haven’t taken the time to establish specific financial goals then I strongly encourage you to do so. Financial planners can help you identify and define those goals, just like your personal trainer can help you build and define your muscles.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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Any opinions are those of Matthew Trujillo, CFP® and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss.

Women & Investing: How to get more Engaged with Finances

Contributed by: Laurie Renchik, CFP®, MBA

How does a busy, multi-tasking woman make sure the important financial stuff does not get missed? A statistic in a 2015 Fidelity Investments study recently caught my attention.  According to the study:

83% of women would like to become more engaged with their finances within the next year. 

Working with women over the last 20 years has taught me that the first step is usually the most difficult.  Once the decision is made to pull a financial plan together, the pieces start to fall nicely into place. But getting over that initial hurdle of getting started can seem daunting.

Here is some practical advice to get you started:

• Give your personal financial life the attention that is needed. If you feel like life is whizzing by, take time to step back and ask, “Am I on the right track?”

• Start creating a mental picture of your goals. You probably have at least a vague picture in your head of what you want in the future.  The beauty of the financial planning process is that it makes conversations happen especially with the help of a financial planner who serves as a thinking partner.

• Pull a team together.  Your financial planner, tax preparer and attorney can help you keep your arms around the different aspects of your financial plan. They’ll also help you make important course corrections when necessary and chart the progress as you go.

Practical advice to keep you on track:

• Continue to ask questions. Financial planning means asking, “Where do I want to be in 3 years?, 10 years?, 20 years?” This may change as you go along.

• Stick to your plan.  Good financial habits are a foundation you can build on for a lifetime.

• Stay focused on your priorities. A good plan will help you remind yourself what is most important in your life and decide how your financial resources can help you get there. 

The future is not the finish line; it is just the beginning if you have the resources to lead the life you want.  Is there a better reason to become more engaged with your finances and put your plan together? 

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Laurie Renchik and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.

Why Age Matters with Michigan’s Pension Tax: 2015 Update

Contributed by: Laurie Renchik, CFP®, MBA

In the three years since Michigan’s Pension Tax was enacted, many more baby boomers have reached retirement age and started to tap into their pensions. It’s no secret that tax law is complex and we are not surprised that Michigan retirees have plenty of questions when it comes to the MI pension tax rules.  Even though the pension tax for Michigan retirees was enacted back in 2012, the subject continues to generate interest from retirees and pre-retirees alike. 

The rules for retirees vary based on age:

• Tier 1:  You were born before 1946

• Tier 2:  You were born between 1946 and 1952

• Tier 3:  You were born after 1952

Special Note:  For joint returns, the age of the oldest spouse determines the age category that will apply to the pension and retirement benefits of both spouses, regardless of the age of the younger spouse. 

Taxpayers born before 1946

If you were born before 1946, there is no change in the income taxes for your pension income.  This means your social security income is exempt and so is income from public pensions.  You don’t pay taxes on the first $49,027 ($98,054 if you’re married and filing jointly) from private pensions.  You also get a senior citizen (over age 69) subtraction for interest, dividends and capital gains.

Taxpayers born between 1946 and 1952

 If you were born between 1946 and 1952, your social security income is exempt and so is income from railroad and military pensions.  You don’t get a senior citizen subtraction for interest, dividends and capital gains.  Before age 67, you don’t pay taxes on the first $20,000 ($40,000 if you’re married and filing jointly) from private or public pensions.  After age 67, you can subtract $20,000 ($40,000 if you’re married and filing jointly) from the amount you’ll pay taxes on unless you take the income tax exemption on military or railroad pensions. 

Taxpayers born after 1952

 If you were born after 1952, your social security income is exempt and so is income from railroad and military pensions.  You don’t get a senior citizen subtraction for interest, dividends and capital gains.  Before age 67, you are not eligible for any subtractions from your income from private or public pensions.  After age 67, you can choose to continue to have social security and railroad or military income exempt or you can choose to subtract $20,000 ($40,000 if married and filing jointly) from the amount you’ll pay taxes on. If you choose to keep your social security and railroad or military income exempt, then you can claim a personal exemption.

If you need help sorting through the pension guidelines, please give us a call or email me at laurie.renchik@centerfinplan.com.

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Laurie Renchik, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. You should discuss tax matters with the appropriate professional.

Inspiration from “A Poetic Life”

Contributed by: Timothy Wyman, CFP®, JD

How will you live your life, now and in retirement? Will you live each day to the fullest – regardless of circumstances? Do you take the long way home in order to enjoy the sights, even if the GPS says there is a faster way?  I am fortunate to have so many interesting clients that inspire me to continuously think about and plan for an intentionally lived life. In that spirit, and with permission from the authors, long-term clients of mine, I share “A Poetic Life”.  I hope you enjoy it as much as I did.

A Poetic Life

We live a poetic life. It’s not at all that we are poets. But our lives together are frequently “two cats in the yard” easy but it is always “til death do us part” solid. We live on two acres in an older home filled with the daily rhythms of dappled tree and leaf shadows.   We have some lovely habits: coffee and clipboard plans, well-paced errands, walking, wine time, and evening talk time. We have other not so lovely habits too but we discuss and curb and respect. A poetic life was never meant to be flawless.

Like many of you we had very busy professional lives. Dan as a long-term parish minister of a large congregation and Cathy as pediatric chaplain and hospital department manager in Detroit. We encouraged. We witnessed incredible suffering.  We did all we knew how to do.

In wedding ceremonies Dan included the phrase “may your home be an island where the pressures of a cluttered world can be sorted out and brought into focus; where accumulated tensions can be released and understood; where personal needs do not tower over concern for others; where the immediate does not blur more distant goals; where the warmth of humor and love puts both crisis and dullness into perspective.” It is the heart and soul of our poetic life.

We live love consciously. We give thanks for incredible beauty. We do not turn from sorrow. We intentionally notice the unexpected. We allow for honest contrasts. We make hard decisions. We embrace enoughness. We acknowledge unfinishedness. Poetic enough for us.

We had always known that we’d retire early, though we hadn’t decided exactly when.  Then one day the mail brought a copy of the UUMA News and a copy of Cook’s Illustrated.  Dan sat down with Cook’s.  The time had come for us. Time for others to make their mark. Since retirement, we get great joy from the slower pace.  We savor.  We reflect.  We appreciate.  We live a poetic life.

That doesn’t insulate us from life’s trouble, pain and suffering: a cerebral hemorrhage, cancer, family disappointments, making difficult decisions.  The poetic life, to paraphrase Picasso, washes the dust off the daily life of your soul.

 “time is a tree (this life one leaf)

but love is the sky and I am for you just so long

and long enough.”

e.e. cummings

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Reaching the Right Amount at my “Plan End”

Contributed by: Nick Defenthaler, CFP®

You’ve probably heard someone (morbidly) joke, “When I die, I want my last check to bounce.”  For some, spending your last dollar on your last day would be considered a success. However, in the world of financial planning, we would consider it playing with fire.  This mantra might seem like the ideal situation in a perfect world, but the reality is simple – we do not live in a perfect world!  I believe having “excess” at the end of your financial plan is a product of thoughtful, prudent planning by the client and advisor.

The goal of the vast majority of our clients is simple: Don’t run out of money in retirement.  So how do we help clients make that happen?  When building a new plan or updating a client’s existing retirement analysis, we use a combination of sophisticated technology and good, old-fashioned human knowledge and expertise.  When you put the two together and have a client who is realistic with their goals, it’s typically a recipe for success. 

Tapping into Technology

Our financial planning software takes a look at many different factors (age, life expectancy, income, savings rate, retirement income sources, portfolio value and allocation, etc.) when testing the probability of success of the sustainability of a client’s financial plan.  As with anything, there has to be a balance.  We see some who are spending far too much in retirement and the software puts up red flags. We also have some families who live well below their means in retirement and could actually spend a lot more than they do.  The key, as with anything in life, is finding the appropriate balance. 

Can’t We Spend More?

When I’m walking a client through their retirement analysis, looking at a plan we consider to be in good shape, they often get a perplexed look. It happens when they see an estimate of the value of their investable assets at age 95 or “plan end”.  For example, I recently met with a couple in their early sixties. At age 95 (in the year 2048!) they had an estimated $1.2M left at their “plan end”.  The couple had a goal to spend approximately $70,000/yr in retirement (including Social Security) and had a child who they felt did not need the $1.2M the software program was telling them they would have left upon death.  However, when we dug into the numbers, we showed them that the $1.2M in 2048 (33 years from now) is really the equivalent of just over $450,000 in today’s dollars if we factor in the negative effect inflation (3% assumption) has over your purchasing power.  However, in their minds, it was still a good chunk of change to leave as an inheritance.  They were still stuck on that $1.2M – couldn’t they spend more?!  While this was an extremely fair and logical question, my answer was yes. But next I explained that the likelihood of having to adjust their current spending habits downward at some point in the future would increase.  The reason for this is because we want your plan to have a “cushion” or “buffer zone” for the unknowns we haven’t fully factored into your plan.  Things like unexpected medical events, long-term care needs, helping out family, extended periods of negative market returns, etc. can all eat into that “cushion” or “buffer zone” pretty quickly even though on paper, it looks like a large amount today. 

The bottom line is this – financial planning is an ongoing process.  Meeting annually, tracking progress, making adjustments when necessary and being consistent is planning done right. This approach has helped thousands of our clients feel confident during their 20+ years after working. While spending your last dollar on your last day might seem like the Holy Grail, it isn’t something we strive to do for our clients.  Life is full of unknowns. That is why we plan and work together with you to make sure when those unknowns eventually do occur, you will be properly prepared.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Any examples provided in this material are for illustrative purposes only. Actual investor results will vary.

The “One Per Year” Saving Strategy

Contributed by: Nick Defenthaler, CFP®

This is obviously a very common question people will ask and the typical response you will get from most financial professionals is 10%.  While this is certainly a good number to shoot for, many clients, especially younger ones, simply do not have the capacity to currently hit this figure.  This can become frustrating for some because they may feel like the target of 10% is so far off that it can be deflating and can actually deter retirement savings all together because they feel as if saving a number much lower simply won’t make a difference.  More and more recently, I have been recommending a slightly different approach that many clients have been very receptive to and find it far more realistic to implement – the “one per year” strategy. 

When a 25 year old is just starting their career, saving 10% of their income most likely isn’t feasible.  Between student loans, housing, transportation, utilities, groceries and other discretionary spending, someone in this age group might be lucky to contribute 3% - 5%.  My suggestion for these younger professionals is to start saving 5% into a retirement plan (typically around the most you need to contribute to get the full company match if your employer offers one) and increase the percentage by 1% each and every year until you hit 25%.  By age 30, retirement savings would be at 10%, 15% by age 35, 20% by age 40 and eventually hitting 25% by age 45.  Does this mean you shouldn’t save more than 25% once you get there?  Of course not!  If you have the available cash flow, we will almost never discourage our clients from saving more but most clients find it tough to save beyond this percentage.  If you’re getting a later start on retirement savings, this doesn’t mean you can’t use “one per year” strategy.  The key is to make progress and if you can eventually be saving between 20% - 25% of your income in your fifties (when most are typically in their peak earning years) you are putting yourself in a fantastic position in those crucial years leading up to retirement.

By increasing savings gradually, it makes retirement savings far more manageable and realistic for many.  Think about it, if you’re trying to lose 100 pounds and you become fixated on that large number, chances are you’ll become overwhelmed and give up on your weight loss goal.  The people who have the most success are the ones who focus on small victories.  Losing a few pounds per week until that goal is met– the same goes for retirement savings.  

I personally use the “one per year” approach and have found it extremely helpful and motivating.  More and more 401k plans are now offering the option to enroll in an “auto increase” where this 1% bump occurs automatically so you don’t even have to worry about remembering to make the change online each year.  This is the ideal so ask your HR department if your plan offers this option.  When you increase your savings by 1% each year, you honestly don’t even notice the difference, especially if you’ve received a modest pay raise.  Often times that miniscule annual increase is the equivalent of one less Latté or lunch out per week – something I think we can all manage!  Keeping it simple and being consistent is my advice, which is what the “one per year” strategy is all about!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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This􀀀 material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Part 5 – A Year of Lessons on Money Matters for your Children and Grandchildren Contributed by Matthew Chope

Contributed by: Matthew E. Chope, CFP®

If you know where you’re headed, then you have a better chance of getting there.  This applies in money matters and in life. To help you chart your course, try making a list of the top 100 things you want to accomplish in your life.  The idea here is that if you know what you want to accomplish and what’s important to you, it might help you start on the path that will get you there.

Finance Your Goals

Along that path, I don’t think you should be concerned about spending money, especially if it’s towards these 100 things.  This is what money was meant for.  Money is not an end, but a means to an end.  Part of your money is a temporary store of value to be used towards the goals in your life.

Do you think you could become president if you don’t intentionally set that goal? In my own life, I’ve seen how writing down my goals has helped me find the path to achieving them since I already know the end. Writing down goals will also help you invest in things that will lead them toward that end. You’ll be able to make choices differently than someone who has not considered what’s important to accomplish in life.  Feel comfortable spending money alone this path.  This is what is important to you.

Focus on What Matters

I think Oliver Wendell Holmes said it best:

“Most of us go to our grave with our music still inside us.” 

I have seen many clients get to the end of their lives with much of the music still buried within them.  Their time was spent focused on saving money to build wealth for financial independence.  Or they felt that money should not be used unless necessary.  Financial independence is very important, but so is finding a balance to pursue your interests along the way. 

If you don’t have a list of your own, maybe you’ll get inspired by mine. I started this list in my early 20s and have tweaked it over the years. Here are some of my goals:

Fun – Travel

• Paint a beautiful picture

• Swim with a dolphin

Generosity – Giving

• Be someone’s mentor

• Make it possible for my niece to go to college

 Education

• Achieve Master’s degree

• Give many motivational and inspiring speeches

Personal Achievement

• Own a home in a warm sunny climate to escape the winter gray

• Practice meditation and yoga daily

Professional Life – Career

• Contribute to a healthy financial planning practice for 40 years

• Help 1,000’s of people reach their financial objectives in life

Family

• Earn the right to marry someone special.

• Visit my grandparents and find out about their life as much as possible

Health / Fitness

• To practice meditation and yoga daily

• Exercise with a trainer every month to stay doing things correctly

Financial – Monetarily

• To never be a burden to anyone else

• To be financial independent by age 60

Maybe some of these categories or ideas will spark you to start your own list. I believe when you choose something (make a decision) you should put your full potential behind it. But remember nothing is set in stone. My list has evolved since I started it. After a good try, be open to changing your mind. 

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Matthew Chope, CFP® and not necessarily those of Raymond James.

Should Ford Employees Contribute After-Tax Money to a 401k?

Contributed by: Nick Defenthaler, CFP®

Earlier this month, my colleague, Matt Trujillo and I hosted a webinar for Ford Motor employees to discuss the potential benefits of contributing after-tax dollars to their 401k plan.  These Ford workers are not alone. About 25% of companies offer retirement plans with after-tax contributions that are completely separate from the plan’s Traditional 401k or Roth 401k (Columbia Management). Recent IRS rulings have made contributing to the after-tax component far more attractive because, once an eligible distribution event is met, the dollars can be rolled over to a Roth IRA for tax-free growth.  Most employees aren’t even aware their plan offers after-tax contributions and, if they do, there is typically confusion around how it works and if it makes sense for them.

Do After-tax Contributions Make Sense for Me?

In most cases, the after-tax portion is the best fit for someone who is currently maximizing their pre-tax/Traditional 401k but who still has the capacity to save more for retirement.  As mentioned before, the after-tax contribution is a separate contribution type and is above and beyond the normal 401k limits ($18,000 in 2015, $24,000 if over the age of 50 however, subject to the overall $53,000 plan limit).  It is really all about making “excess savings” as efficient as possible.  Tax-free accounts are about as efficient as they come and can potentially save an individual or family hundreds of thousands of dollars in retirement.  For more information, this blog by Tim Wyman goes into greater detail on contributing after-tax dollars into your plan.

Every 401k plan is different and they all have their nuances.  This is why we’ll be hosting company-specific webinars in the coming months to review how the after-tax component works in specific plans and to go over the pros and cons. This kind of information can help you decide if an after-tax plan makes sense for you.  Keep your eyes open for e-mails, blogs, and more on our Facebook, Twitter, and LinkedIn pages for updates on webinars we will be hosting in the near future!

As always, if you have specific questions relating to your company retirement plan, never hesitate to reach out to us. We are here to help! 

Unless certain criteria are met, employees must be 59½ or older and must have satisfied the five-year period that starts with the year the employee makes his or her first Roth contribution to the 401k plan before tax-free withdrawals are permitted.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and investors may incur a profit or a loss. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters.  

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.