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

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Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

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.

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Does Investing Feel Overwhelming? You’re Not Alone.

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This article is contributed by guest blogger Laura Garfield, a social media and marketing contractor for The Center and the author of The NeXt  Revolution, a business book researching the generational behavior of women in the workplace.

No matter your tax bracket or the credentials you have tacked on to the end your name, many women agree on at least this one thing:

Decisions on Investing can feel Overwhelming

I recently sat in on a session about Women and Investing at the Raymond James National Conference. The point was hammered home by Kristin Gibson, the Senior Director of Sales & Strategic Partnerships at Russell Investments. She said in a survey of high net worth women, most described investing as:

 “Overwhelming”

 “Complicated”

“Boring”

“Latin”

 These may not be your adjectives of choice. In fact, you may buck the trend and love every nuance of the investing process (I certainly know a few of these women … but can’t claim to be among them). But in general, women want to find a way to make investing not feel like scaling a steep climbing wall in heels and a pencil skirt. Some way to make investing approachable.

Using Your Natural Advantage

Women are naturally strong investors. It’s not a stereotype. Research backs this up. “When it comes to making investment decisions, gender plays a larger role than many people realize,” reports USAToday. Factors like risk aversion, ability to ask for advice, and taking your time … these are all traits that fall on the female side of the gender divide. Research indicates that women investors have these natural advantages:

  • Are not over confident

  • Are realistic and risk averse

  • Research more and ask questions

When it comes to behavioral economics, the Washington Post interviewed Terry Odean, a University of California professor who has studied stock picking by gender for more than two decades. In a seven-year study, Odean found single female investors outperformed single men by 2.3 percent while female investment groups outperformed male counterparts by 4.6 percent. Odean told the Washington Post, “In our research, male investors traded 45 percent more than female investors. Men are just making a lot more bad decisions than women. More trading leads to lower performance.”

Finding the Right Ear

So back to the Overwhelming/Complicated/Boring/Latin part of the investing equation, if you’re going to flip those adjectives with a boost from your feminine advantage, you may need some help. A key to that is picking the right investment advisor. Research shows that women and men gather information about investing differently.

  • Women want better communication, the chance to say what they mean

  • Women build trust by collaborating & sharing information

In Kristin Gibson’s session at the conference, she summed up what most women are looking for in a financial advisor like this:

“I want someone who understands my situation.”

Whether that’s a man or a woman shouldn’t matter. What does matter is how well the advisor can listen, communicate and understand your needs. You may be looking for “straightforward” or you might want someone who is “motivational”. Whatever your word, when you find the best fit, that advisor will help you translate “investing” from Latin into English. If they can turn “boring” into “captivating” then you’ve really found a keeper.

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 Laura Garfield and those cited/quoted 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. Raymond James is not affiliated with and does not endorse the services of Laura Garfield, Kristin Gibson or Russell Investments. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Past performance is not a guarantee of future results.

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.

Nick Boguth: From Summer Intern to our Newest Hire

Contributed by: Center for Financial Planning, Inc. The Center

He’s back!!! Or rather, we never let him leave! Please welcome Nick Boguth as The Center’s newest full time employee!  He first came to us in May of 2014 as our summer intern and quickly turned into family.  Nick will closely interact with the Investment Department and also learn Client Service Associate duties. 

His degree in Economics and Statistics from the University of Michigan made him an ideal fit for our Investment Department.  In addition to his internship here, Nick also spent a number of years in a role helping a local business, Hamilton Chevrolet, conduct client satisfaction reviews on inbound sales and service calls.   Though he’s fresh out of college, his experience makes him uniquely prepared to assist our clients.  But enough from us, here’s what Nick has to say about his new role:

How were we fortunate enough to welcome him into our ranks?

“I wanted to come work for The Center after the internship because of how much I was able to learn with the help of the everyone at the office. And I knew that would carry into the future. Also, how much everyone else seemed to enjoy working here was a great sign from the beginning.”

What are your goals for the first year of working at The Center?

“I want to make an impact and take on as many responsibilities as I can in my first year here, while learning as much as possible about investing and financial planning.”

He also plans to pursue the Chartered Financial Analyst® (CFA®) Certification as soon as possible.  When not working hard, Nick enjoys a variety of sports. He’s often playing golf, exercising, reading, watching movies and spending time with friends and family.  Welcome Nick!!!

Why You Should Consider a Community College Education

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

The cost of college, as we all know, has done nothing but skyrocket over the past 20 years.  According to data by the U.S. Labor Department, the price index for college tuition grew nearly 80% between August 2003 and August 2013 as reported by US News & World Report. Just look at the chart below from that report comparing costs like housing, medical care and college tuition.

In recent years, however, tuition has slowed a tad, but is still rising faster than wages.  The thought of funding college for one child -- let alone multiple children -- is enough to give any parent an ulcer.  But what if there was a more cost effective option that still yielded the same degree?  Community college is something more and more students are considering and for good reason when you take into consideration a college education at a Michigan public university will run close to $100,000 (or more) when you account for room and board!

The Community College Reputation

Our society has done a good job of making community college into almost a four-letter word. These are a few reasons community college is a hard sell for some families. You might:

  • Have parents or family who are all alumni from one school

  • Look at college as a socioeconomic “status symbol”

  • View it as an option for kids who didn’t excel as much in high school

While these are all understandable, I encourage clients to be open to it as an option.  The vast majority of classes students take in the first two years of college are very basic and aren’t very different than those you pay $80/credit vs. $250/credit.

The Community College Advantage

I was raised by a single mother who worked tirelessly and sacrificed to do whatever she could to provide for us. She was not in a position to fully fund a four-year tuition bill at an MSU or U of M.  In my senior year of high school, I decided to attend Livonia’s Schoolcraft College for the first two years of my studies and then transfer to Eastern Michigan University.  I was able to transfer just over 80 credit hours to EMU which allowed me to graduate with my bachelor degree in finance with EMU’s name on my diploma. And my total tuition bill was about $15,000.   Granted this was back in 2008, so the equivalent in today’s dollars would probably be closer to $20,000. But that’s still far less than I would have spent if I went away to school for the full four years.  Looking back, attending community college for the first two years was one of the best decisions I’ve ever personally made.  It kept me far more focused on my studies. It allowed me to begin working part-time at my first financial planning gig. I was still able to visit friends on the weekend who were away at school to get plenty of the fun college times in. And I saved a TON of money.  Not having a large student loan burden was the only reason I was able to purchase my first house two years after graduating -- which has since been sold and went towards the home my wife and I just built for our growing family. 

As an expectant father, I can already clearly see why parents want to provide nothing but the best for their children.  There comes a point, however, where we need to take a step back and look at what’s realistic and what’s not.  We never want to see clients abandon their retirement savings to fully fund college for children. Loans can be taken out for education but unfortunately they don’t exist for retirement.  The earlier you can start saving for your child’s education the better, even if it’s small.  Education planning is something we do for hundreds of our clients, don’t ever hesitate to contact us and let us know how we can help!    

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 blog.

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.

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The Truth You Need to Hear: The value of a Dutch Uncle

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Contributed by: Timothy Wyman, CFP®, JD Tim Wyman

Recently, during a preliminary meeting with a new client, he told us that what he really wants us to be is his Dutch Uncle.  I vaguely recalled hearing the term before, but I asked him to clarify -- just to be sure we were on the same page.  The gentleman, in his 70’s, shared that what he really valued most was to work with someone who would give him frank advice, challenge his assumptions on some important financial issues he was wrestling with, and tell him what he needed to hear rather than what he wanted to hear – and do it with compassion. 

The interaction left quite an impression on me. I am glad that I asked for clarification, because if I would have just waited to Google “Dutch Uncle” after the meeting, I may have only seen definitions that address, “frank, harsh, blunt, stern and severe.” I might have missed out on the “with compassion” part; which is very important.

Frank, Candid & Compassionate

A few years ago I read “The Last Lecture” by Randy Pausch.  First, if you haven’t read it, get a copy now. Along with a box of tissue. Second, if you have teenage or adult children, get them a copy too. Third, if you’d rather watch the video, it’s here on YouTube with over 17 million views. You won’t be disappointed. Randy was a professor at Carnegie Mellon University in Pennsylvania. After being diagnosed with pancreatic cancer, he gave his last lecture titled “Really Achieving Your Childhood Dreams.” That was on September 18, 2007. He passed away on July 25, 2008. One of Randy Pausch’s experiences included a man he referred to as his Dutch Uncle. One day, this Uncle took him for a walk to share the truth that he needed to hear (that Randy’s arrogance was getting in the way of his long term success) in a frank, candid and compassionate way and it became a turning point in Randy’s life.

Sales vs. Advice

The Dutch Uncle analogy can also be used to illustrate the difference between sales and advice -- or perhaps, those acting in your best interest and those that do not.  An advisor, or someone interested in your wellbeing, will provide candid and frank feedback; because they want to see you succeed.  In my profession and from my perspective, this is the true litmus test of an advisor: Are you willing to lose a client relationship because you act as their Dutch Uncle (compassion included)?  If you are worried about losing a client because they might not like what you have to provide, share or recommend in your learned professional opinion; then you are really acting in a sales capacity and not an advisory role. Which is fine, just don’t refer to yourself as an advisor.

Nowhere is there a need more for a Dutch Uncle than in financial planning and investment management. Our brains, frankly, are wired to make the easy or wrong decision too many times.  Here’s one familiar example: Buy low and sell high.  But how difficult is this mantra to follow?  Studies suggest it’s extremely difficult. Can you think about what you were feeling and hopefully not implementing in March 2009 during the Great Recession? I bet a Dutch Uncle was pretty valuable.  Or, how about the question can I retire now? Sometimes the correct feedback is you are ready to retire – unfortunately your money isn’t!  A Dutch Uncle might suggest some tradeoffs such as continuing to work but at reduced hours, trading time for income. A Dutch Uncle might also say, sure, go buy X and accumulate additional debt; but also acknowledge that this action will have an impact on your financial independence.  It’s still your choice, but the funds need to come from somewhere.

If you don’t have a Dutch Uncle perhaps it’s time to seek one out – your success might just depend upon it.

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.

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 Timothy Wyman, CFP® and not necessarily those of Raymond James.

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Health Care Dollars and Aging

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Contributed by: Sandra Adams, CFP® Sandy Adams

I ran across an interesting article recently by Howard Gleckman, author of the book "Caring for our Parents." The article “How we Spend Our Health Care Dollars As We Age” discussed current trends in health care spending for seniors and affirmed for me some of the key issues we discuss with clients regarding health care spending and aging in retirement.

Spending on Health Care Changes with Age

The article referenced recent research by the Employee Benefit Research Institute indicating that out-of-pocket spending for routine health care changes very little after age 65, and remains relatively unchanged even after age 85 for these routine expenses (trips to the doctor or dentist, medications, etc.). That’s mainly because Medicare covers the bulk of those expenses. The story changes dramatically when it comes to very high cost medical procedures/care or long-term support or services. As we age, we are far more likely to need these high cost services (about 27% of those age 65 - 74 had an overnight stay in the hospital during the period of 2010 - 2012, while more than 42% of those 85 and over spent at least one night a hospital during that same period). The key here is this: Medicare is the primary source of health insurance for those over the age of 65. MEDICARE IS NOT LONG TERM CARE INSURANCE.

How to Plan for Potential Health Care Expenses

According to a study by the Kaiser Family Foundation, out-of-pocket costs alone for someone spending two years in a nursing facility can run $24,000 - $67,000. If you do need skilled care for a period of time for either rehabilitation or long term care, the costs can be devastating to your finances. So what do you do to plan ahead for these potential costs?

  1. Discuss options with your financial planner for long term care insurance. There are ways to purchase policies as part of employer groups and associations or individually. There are also new hybrid life/long term care or annuity/long term care policies that may fit well in your overall financial plan.

  2. Discuss options with your financial planner to self-insure the costs for potential health/long term care costs using existing assets. You can earmark specific assets or income streams for those potential future costs in a way that least disrupts your overall financial plan.

  3. Discuss with your financial planner any possible future government benefits that you may be eligible for that might help to cover any future long-term care costs (i.e. Veteran's Aid & Attendance Benefits). Determine if you may be eligible and put the proper financial and legal planning in place for future eligibility when and if needed.

As always, planning now for the future what if's is always better than planning in a crisis. Have a conversation about your future health care and long-term care planning with your financial planner at your upcoming financial review.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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 Sandra Adams, 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. Long Term Care Insurance may not be suitable for all investors. Please consult with a licensed financial professional when considering your insurance options.

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Volatility and Commodities (go together like a horse and carriage)

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Contributed by: Matt Trujillo, CFP® Matt Trujillo

There has been a lot of press lately about the recent volatility in the crude oil markets.  Every smart person with a microphone is making predictions about how low it could go or where it ultimately might end up. I can’t open a financial website, magazine, or journal without seeing some sort of headline declaring that Oil is going to $10 a barrel!

All of this sensationalism would lead one to believe that this price behavior is something unusual for commodities and oil specifically. It’s a constant reminder how short sighted the media is and why it’s best not to make financial decisions solely based on what you hear on CNBC or Yahoo Finance.

Historical Perspective on Commodities

In fact, try going back over the last 100 years and study not just oil, but all commodities. You’ll see that large double-digit gains and large double-digit losses are quite common and almost expected in these types of markets.  If you have that kind of time (and that level of interest) click here to browse through all the various commodity prices and historical price data.

For those of you that don’t have that kind of time, let’s focus mainly on the last 10 years.  For illustrative purposes, we’ll use the annual performance data found here. This interactive chart shows the historical pricing performance for oil as well as several other commodities over the last 10 years. Using this data, let’s say I invested a hypothetical $10,000, and earned the returns illustrated on the chart. My original $10,000 would have grown to $12,351 after 2014.  This is equivalent to roughly a 2.3% average annual rate of return.  Not really anything to get overly excited about, but the path to get that 2.3% was quite dramatic. A few notable years: 2005: +40.48%, 2007: +57.22%, 2008: -53.53%, 2009: +77.94%, and 2014: -45.58%.  Quite the volatile rollercoaster ride…especially if you end up with a paltry 2.3% for enduring all of the swings!

As you can see, when it comes to Oil price volatility is nothing new. Commodity markets are not for the faint of heart and might make sense as a part of a well-diversified portfolio. If you are considering adding oil or any other commodity to your overall investment plan, please talk to a qualified professional first to make sure that it is a suitable investment for your risk tolerance and time horizon.

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.

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. Past performance may not be indicative of future results. Hypothetical example provided in this article is for illustrative purposes only. Actual investor results will vary.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.

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Dan Boyce’s Ted Talk: On Becoming a Better Planner & Person

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Contributed by: Center for Financial Planning, Inc. The Center

In a matter of 18 minutes packed with self-revelation, Dan Boyce laid out his personal roadmap to success. The Center’s founding partner was picked to deliver one of three “Ted Talks” to thousands in the financial planning industry at the 2015 Raymond James National Conference in Las Vegas. Dan talked, not just about running a successful business, but being successful in life. Both, as it turns out, can be built on the same foundation. That realization, Dan says, was an eye-opener:

“The sheer audacity of this smacked me between the eyes.”

Among his “Ted Talk” key points, Dan emphasized the importance of growing through knowing. True wisdom doesn’t come from raw data, information, knowledge or judgment. To truly be wise, you must seek to understand.

Dan also delivered an inspiring message on being true to yourself. Sandy Adams, who says Dan has been one of her most important mentors, said his message really resonated. “To be a planner is to become a better person and that’s something I strive to do each and every day.”

Other important steps on the path to success include seeking and embracing feedback and developing intellectual curiosity. Both are things Dan said he personally values. Nancy Sechrist, The Center’s Office Manager, said the best thing she heard at the conference was Dan Boyce’s Ted Talk message about how to become your authentic self. “I think that resonates with everything you do career-wise, your home life, family, and just encompasses everything.”

Live YOUR Plan™