20 Jun CPA Client Bulletin Select June 2017
CPA Client Bulletin Select
The Third Best Investment You Can Make
Prenups Can Serve Many Purposes
Solo 401(k) Plans for Companies Without Employees
Factoid: Going Higher
Nearly 40% of people under 65 with employer-based insurance had high-deductible health plans in 2016, up from over 25% in 2010.
Did You Know ?
For the lowest air travel prices, purchase tickets on a Sunday. If you’re traveling within the United States, buying on Sunday can cut prices by 11% compared with the average for other days. Sunday savings for flights from the United States to Europe are even better for travelers: 16%.
Article: The Third Best Investment You Can Make
The second-best investment you can make is paying off high interest rate debt (see CPA Client Bulletin, August 2016). That could come after you’ve contributed enough to your 401(k) to get a full match from your employer. What should come next? If you have no expensive debt to pay down and you’re getting the full employer match, where should you direct your money? Here are some suggestions.
Unmatched 401(k) contributions
In 2017, employees can contribute up to $18,000, or $24,000 if they’re at least age 50. Few (if any) company matches are that generous.
Example 1: Julie Benson earns $100,000 a year. Her employer’s 401(k) match is dollar-for-dollar, up to 6% of pay, so Julie will put at least $6,000 into the plan this year to get $6,000 in “free money” from the match. Julie, age 45, could contribute another $12,000.
Such a contribution is easy to do, with the money flowing directly into the 401(k) with every paycheck. The deferred income won’t be subject to income tax and any investment earnings can compound, untaxed. Other possible advantages include access to plan loans, offered by many companies, and considerable shelter from creditors.
That said, the main benefit of an unmatched 401(k) contribution is income tax deferral. If you are in a relatively high tax bracket now and expect to be in a lower bracket when you take withdrawals in retirement, maximizing 401(k) contributions could pay off. On the other hand, tax deferral might not appeal to workers in their 20s with modest incomes, perhaps deferring tax in a 15% bracket, who will face uncertain tax rates on distributions decades from now.