401(k) for Another Day

401(k) plan

401(k) for Another Day

Here’s some trivia for you: In the late ‘70s, an employee benefits consultant named Ted Benna discovered what was then an obscure detail in the Internal Revenue Code. Section 401 would allow employers to sponsor a fairly straightforward tax-sheltered savings plan for employees.

At the time, the idea was unique enough that many met it with a good amount of skepticism. In fact, many in Mr. Benna’s field thought it was outright illegal.

The IRS eventually chimed in and gave its blessing.

401(k) plans grow in popularity

However, 30 years ago, you’d be hard-pressed to find anyone saving and investing money in a 401(k) plan. Not only were the plans new and rare but many employers also still sponsored defined benefit pensions and the like.  

Today, it would require more trivia to name a medium or large business that doesn’t offer a 401(k) plan — or a 403(b) or 457 plan in the public sector. The 401(k) plan has become so common in the workplace that many of us don’t even think twice about contributing. The calculus works out in such a way that, without a defined benefit pension or 401(k)-type plan, the only real option would be to save what you need to save to make retirement an option.

But what about a situation where contributing to a 401(k) plan account isn’t the best choice?  Believe it or not, this is a thing! You should indeed consider some circumstances before you jump right in with “max it out” 401(k) guns a-blazing.

Take, for example, an emergency reserve. What good would accumulating a large sum in a 401(k) plan account do if, when a sudden and large financial need hit, you couldn’t access the money? The foundation of any solid financial plan is an adequate and liquid emergency reserve.

To contribute — or not?

That brings me to a few reasons why you might want to hold off from contributing to your 401(k) plan:

1. You don’t have an emergency reserve. Before adding to your 401(k), fund yourself in case of emergency — or unexpected opportunity. After all, the money you stash long term in your 401(k) for is for another day far in the future — not for you to draw from if an emergency were to occur tomorrow or another day in the short term.

2. You’re in debt. Once you have an emergency reserve set up, the next priority should be paying down debt, especially high-interest debt. Why would you want to approach them in this order? Emergency funding comes first so something unexpected wouldn’t put you further in debt. The debt paydown comes second as, if you were to start your 401(k) before reducing or eliminating debt, the interest on that debt could eat away at your 401(k) returns and hold you back from reaching your long-term goals.

3. You don’t receive an employer match. Consider your incentives to save money in a 401(k) plan in the first place. Usually, the two biggest are

a) a large contribution limit for long-term tax-favored savings and
b) a matching contribution from your employer.

If you don’t have the benefit of an employer match to beef up the amount in your 401(k), you may want to think twice before contributing. If this is the case, consider your other long-term tax-favored saving options, like an individual retirement arrangement (IRA). The IRA caps contributions at $6,000 per year in 2019, but an IRA —traditional and/or Roth — may be a better investment vehicle than a 401(k) for some who don’t receive matching funds.

4. The plan doesn’t meet your needs. Are high fees keeping you from investing in your employer’s 401(k)? What about terrible investment options? These downsides, as well as a lack of features like Roth contributions, in-service distributions, and more, could be good reasons not to contribute to a 401(k). Still, be sure to weigh the potential pros and cons of contributing to make the most educated decision.

These reasons alone won’t necessarily determine whether enrolling in and contributing to an employer-sponsored 401(k) — or not — is the best choice for you. As always, consider your full financial picture. Of course, you should bring your financial professional into the conversation if you want a hand making the decision and to see how it would fit into your plan. The road to financial freedom is a simple series of steps, so take it one at a time — and keep that 401(k) in mind.

Ready to schedule your next meeting?

Simply head to the Meeting page where you can find and schedule a convenient time to discuss whatever is on your mind.

Jason Speciner
jason@fpfoco.com

Jason Speciner is a CERTIFIED FINANCIAL PLANNER™ professional, an Enrolled Agent, and the founder of Financial Planning Fort Collins, a 100% employee-owned and fee-only firm. He is also a member of the National Association of Personal Financial Advisors (NAPFA) and XY Planning Network (XYPN). Since 2004, he has served clients of all ages and backgrounds with unique experience working with members of generations X and Y. To learn more, check out Jason's blogs and see the media he's been featured in.



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The minimum initial investment for the Invest:FOCO platform is only $5,000 per account. This minimum can be met via transfer of an existing account or with new funds.
ANNUAL FEE
1.00% of assets under management ($100 per $10,000 managed). Debited from your account(s).
FINANCIAL PLANNING
Strategy:FOCO financial planning services are ongoing, and include unlimited phone, email, web and in-person meeting and consultation time. Pricing is based on the unique circumstances of each client situation. Generally, there is a one-time plan development fee ranging from $500 - $2,000 and a monthly fee of $150 - $500; cancel anytime. Clients utilizing investment management services with portfolios of $500,000 or more will typically receive financial planning services for no additional fee.
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Assets Under Management (AUM)Annual fee as a % of AUM or flat-dollar
$0 - $249,999(See Invest:FOCO)
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 - $2,999,9990.50%
$3,000,000 - $3,999,999$15,000
$4,000,000 - $4,999,999$20,000
$5,000,000 or more$25,000 + $2,000 per additional $1mm
MINIMUM ACCOUNT SIZE
There is a minimum initial investment of $100,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. A client household may generally include accounts for a head of household, a significant other, dependents, and any controlled organizations or entities.

Minimums do not apply to inStream proactive financial planning as a stand-alone service.
ANNUAL FEE
Assets Under ManagementFee as a % of AUM
$100,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%

inStream proactive financial planning as a stand-alone service: $1,000/year or $100/month
MINIMUM ACCOUNT SIZE
There is a minimum initial investment of $100,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. A client household may generally include accounts for a head of household, a significant other, dependents, and any controlled organizations or entities.

Minimums do not apply to inStream proactive financial planning as a stand-alone service.
ANNUAL FEE
Assets Under ManagementFee as a % of AUM
$100,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%

inStream proactive financial planning as a stand-alone service: $1,000/year or $100/month
MINIMUM ACCOUNT SIZE
The minimum initial investment for the Invest:FOCO platform is only $5,000 per account. This minimum can be met via transfer of an existing account or with new funds. Invest:FOCO is currently available for Individual, Joint, Traditional IRA, and Roth IRA registrations.
ANNUAL FEE
0.65% of assets under management ($65 per $10,000 managed)
MINIMUM ACCOUNT SIZE
The minimum initial investment for the Invest:FOCO platform is only $5,000 per account. This minimum can be met via transfer of an existing account or with new funds.
ANNUAL FEE
0.65% of assets under management ($65 per $10,000 managed)
TAX PREPARATION
Invest:FOCO clients are eligible for a 10% discount on income tax preparation services offered through Fort Collins Tax Service, LLC. This discount applies to the base cost for return preparation as well as Schedules B & D. More details can be found here.
MINIMUM RELATIONSHIP SIZE
There are no minimums when utilizing inStream proactive financial planning as a stand-alone service.

When investment management services are desired, there is a minimum initial investment of $125,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. A client household may generally include accounts for a head of household, a significant other, dependents, and any controlled organizations or entities. inStream proactive financial planning is then included at no additional cost.
ANNUAL FEE
inStream proactive financial planning as a stand-alone service: $1,250/year or $125/month

Assets Under ManagementFee as a % of AUM
$125,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%
TAX PREPARATION
Strategy:FOCO clients are eligible for a 50% or 100% discount on income tax preparation services offered through Fort Collins Tax Service, LLC. This discount applies to the base cost for return preparation as well as Schedules B & D. More details can be found here.
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Monthly Economic Update
Stay in the loop with our Monthly Economic Update. It's a great way to catch up on the things effecting your financial plan in an easy to read and relatable format.

We promise to only use your name and email address for sending our Monthly Economic Update. We will not sell, rent, lease, loan, or use your name or email address for any other purpose, internally or externally. You can easily unsubscribe at any time.
MINIMUM ACCOUNT SIZE
Minimums do not apply to always-on, real-time financial planning as a stand-alone service.

For investment management services there is a minimum initial investment of $125,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. Investment management fees are generally debited from the accounts to which they apply. Financial planning services are included for Strategy:FOCO investment management clients at no additional charge.
ANNUAL FEE
Always-on, real-time financial planning as a stand-alone service:  $125/month or $1,250/year

Assets Under ManagementFee as a % of AUM
$125,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%
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FINANCIAL PLANNING
Financial planning services are ongoing, and include unlimited phone, email, web and in-person meeting and consultation time. Pricing is based on the unique circumstances of each client situation. Generally, there is a one-time plan development fee ranging from $500 - $2,000 and a monthly fee of $150 - $500; cancel anytime. Clients utilizing investment management services with portfolios of $500,000 or more will typically receive financial planning services for no additional fee.
INVESTMENT MANAGEMENT
Assets Under Management (AUM)Annual fee as % of AUM or flat-dollar
$0 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 - $2,999,9990.50%
$3,000,000 - $3,999,999$15,000
$4,000,000 - $4,999,999$20,000
$5,000,000 or more$25,000 + $2,000 per additional $1mm
ESTIMATE YOUR FEE
Your fee is determined by the complexity of your needs and situation. The primary proxy we use for complexity is your investable net worth, which is generally your total net worth, excluding your primary residence. Your investable net worth includes the value of cash, bonds, stocks, mutual funds, rental real estate, and other business or financial interests. This aligns with the holistic nature of our comprehensive services. You can use the chart below to estimate your fee based on your investable net worth. In some circumstances, your fee may be more than the minimums in the chart below.
Annual Fee Investable Net Worth (INW)
$4,000 (minimum for an individual)Up to $500,000
$6,000 (minimum for couples)Up to $1,000,000
$8,000Up to $1,500,000
$10,000Up to $2,000,000
$11,000Up to $2,500,000
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Need some tips to help you tackle your next critical money moment? Stay in the loop with our weekly(ish) email!

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ESTIMATE YOUR FEE
Your fee is determined by the complexity of your needs and situation. The primary proxy we use for complexity is your investable net worth, which is generally your total net worth, excluding your primary residence. Your investable net worth includes the value of cash, bonds, stocks, mutual funds, rental real estate, and other business or financial interests. Our transparent pricing aligns with the holistic nature and value of our comprehensive services. You can use the chart below to estimate your fee based on your investable net worth. In some circumstances, your fee may be more than the minimums in the chart below.
Annual Fee Investable Net Worth (INW)
$4,000 (minimum for an individual)Up to $500,000
$6,000 (minimum for couples)Up to $1,000,000
$8,000 - $12,000$1,000,000 - $3,000,000
+ $1,000per additional $1,000,000 of INW