Roger H. Ely

Over funding your 401k above the match? NOT a good idea! Find out why.

Are you overfunding your 401k beyond the match.  Why?  All your doing is increasing your risk on money your trying to save for retirement and you get nothing for it.  Find out a better way!

INSTEAD WHAT IF YOU COULD GET 10% ON ALL NEW MONEY YOU ADD FOR SEVEN YEARS?! READ ON!

Why did you sign up for a 401k? Probably because when you started your job there was a 401k line they told you to get and you obeyed without questioning what you were getting into. All you heard was the company was going to MATCH the amount you put in (up to 3-6% of income) AND you didn't have to pay any taxes..........till later! Good for you? Maybe not!

But you were probably never told the down side:

* NO CONTROL except for selection of which account you may not lose as much in
* NO ACCESS till after age 59 1/2
* 10% PENALTY if you take money before that age (with few exceptions)
* NO GUARANTEES FOR GROWTH OR PRINCIPAL - it's a savings bucket with holes in it
* LIMITATIONS ON CONTRIBUTIONS - you can only put in $16,500/yr (Plus $5500 if you're over 50 for catch up - that's a "generous" way of saying the Fed's will let you try to catch up on all your losses or the that you started to late saving for retirement; shame, shame!)
* At age 59 1/2 you can now access the money and probably don't want to because you'll pay income tax on dollar one
* But at age 70 1/2, if you haven't started taking money out the Fed's force you to begin taking Required Minimum Distributions (fondly called RMD's) WHY? So they can get their tax before you die!
* But if you do die before you pay all the tax, your heirs get the honor! (Just what you had planned for your life savings right?!) But the really bad news here is they don't just pay the tax at your bracket, they pay the tax at their tax bracket PLUS ANY ESTATE TAX OWED! That means your heirs could lose up to 80% of what you had hoped they would inherit.
* Typically their only going to match 3-6% of you income up to what you put in so anything you put in over the match does get you anything but heart aches later.

Great plan huh? But I digress. I was dealing with over funding your 401k and a better way to do it. You see you're not getting any benefit for the amount you put in over the match. All you're doing is putting more of your hard earned money at risk for loss. There IS a better.

FIRST NEVER START A 401K IN THE FIRST PLACE!! But if you're reading this it's too late for that. (Tell your kids and grand-kids not to make the same mistake. There's a better way.) And here's a better way for you to save for your golden years.

* Take the excess over the match and begin to fund a Fixed Indexed BONUS Annuity. One company offers a 10% bonus on all NEW money added for a full SEVEN YEARS! This will also give you some STRONG WRITTEN GUARANTEES:

* NEVER LOSE PRINCIPAL DUE TO MARKET FLUCTUATIONS!
* INCOME FOR LIFE
* 100% liquid for nursing home, terminal illness, death
* Heirs will inherit balance and be able to take RMD's maximizing tax savings
* 10% available with no surrender fees after the first year for the life of contract
* Tie to an index for interest earnings above the 10% (100% participation, no fees, caps at 6% now)
* Annual reset. ONCE INTEREST IS CREDITED YOU CAN'T LOSE IT! Interest credited annually and change index or combination of indexes annually.

A Roth conversion might also be worked into this scenario but that's another article.  There's there's always more that could be said but that's probably enough to chew on for now. 

Safe Savings
Roger

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