401(k) changes coming in 2021

6 Ways That May Increase Retirement Savings in 2021

401(k) changes coming in 2021
In Financial Health, Retirement Savings

Another year around the sun means another year closer to retirement. For 401(k) investors who are behind on retirement savings and for those looking to get ahead in 2021, here are 6 ways that may jumpstart retirement savings in 2021. 

#1 Contribute as Much to Retirement Savings as Possible 

The IRS has new retirement plan contribution limits for 2021, and while most limits remain the same as last year, some plans will see a limit increase.

Employee 401(k) contribution limits for 2021 will stay the same as 2020 — at $19,500. This applies to 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan. 

For those age 50 and older, the 401(k) catch-up contribution is $6,500. 

If you’re 50 or older and need to catch up on your 401(k) retirement savings, the amount you’re able to save remains unchanged at $26,000. 

If you turn 50 anytime during December of 2021, you’re still eligible to contribute the additional $6,500. 

Click here for the full list of retirement plan contribution limits for 2021.

#2 Fund an IRA in Addition to Your 401(k)

Whether you have a 401(k) or similar workplace retirement plan or not, consider opening an Individual Retirement Account (IRA) to diversify your investment portfolio while reducing your taxable income. 

If you’ve changed employers in the past and had a 401(k) with them, it’s ly you have some retirement savings accumulated. 

If the balance is over $5,000, you can take your 401(k) plan(s) from previous employers and roll them over into an IRA. This will make tracking retirement spending much easier. 

If your old plan balance is between $1,000 and $5,000 and the company is forcing you out, they must help you set up an IRA. 

However, if your balance is under $1,000, the company can issue you a check and force you their plan.

If you decide to fund an IRA or roll over an older 401(k) into an IRA, make sure you select a plan with the lowest fees. Or seek third-party advice to make the best rollover decision possible. 

Before you make your move, make sure to check out these 5 Costly 401(k) Rollover Pitfalls.

#3 Invest Stimulus Checks and Tax Refunds 

If you’re eligible for this latest round (or any future stimulus that might end up in your bank account) and/or get a tax refund this spring, set all or part of it aside for retirement. 

This is an easy way to boost retirement savings without cutting your budget or reducing the amount you can spend each month. 

Avoiding the temptation to spend all or part of it now may help increase retirement savings more than you think. 

#4 Rebalance Investments Quarterly 

If you’re a 401(k) investor and have been told a set-it-and-forget-it strategy is best when it comes to 401(k)s, we encourage you to rethink this advice. 

Saving for retirement is a long-term game. 

However, this buy-and-hold strategy often causes investors to potentially miss out on earning more and keeping more of their hard-earned retirement savings

The investments you initially chose to help you meet your retirement goals–whether that was 3 years ago or 5 months ago–may no longer be the best alternatives for you now.

When you take into consideration changes in market conditions, trade policy, and consumer sentiment, investments that were right for you in the past may not be now. 

Morningstar conducted a study that monitored the top 100 best-performing mutual funds between January 1, 1998, and December 31, 2013. 

This study revealed that, in any given year of top best-performing 100 mutual funds in any of those years, in the next year, about half of the time, 8 100 remained in the top 100 the very next year.¹ 

This is why we recommend you rebalance your 401(k) quarterly, or four times a year. 

Rebalancing is the process of realigning the weightings of the assets (your investments) in the portfolio

This can involve periodically buying and/or selling assets in the portfolio in order to maintain the initial desired level of asset allocation. 

Maintaining an even distribution of assets–such as 50% stocks and 50% bonds–is also a key objective. This is why rebalancing your portfolio may need to take place from time to time throughout each year.  
Discover why account balancing and allocation may affect 401(k) performance.

#5 Avoid Target Date Funds 

Average investors are told the set-it-and-forget-it strategy is their best option for growing their retirement savings.  

Which is why target date funds have risen in popularity over the years. However, according to Rob Arnott, chairman of the board of Research Affiliates, target date funds are “a trillion-dollar industry ideas that were never tested.”²

Target date funds, also referred to as lifestyle funds and retirement date funds (you may know them as 2030, 2040, and 2050 funds), are structured to automatically reallocate as you move through different life stages. 

So as you age toward retirement, the funds shift toward more conservative investments.

On the surface, target date funds take the pain how to choose the right investments for investors. You simply choose a single target date fund, set it, and forget it. 

Investing in target date funds and sitting back and not actively managing your retirement account is saying there’s a one-size-fits-all investment strategy that works for everyone. 

Target date funds fail to take into consideration that not all investors are created equal

Individual investors are placed into the same asset allocation regardless of their salary and savings history, risk tolerance, past investment performance, lifestyle, and goals.

Secondly, the reality is that target date funds will often underperform, and do not do a good job of managing downside risk during tough markets

According to Morningstar analyst Jeffrey Holt in March 2018, “In the long run, the biggest risk in target-date funds is that they won’t meet investor expectations for avoiding losses.”³

If you are currently in a target date fund, we recommend you rethink this strategy. 

Or, at least look inside your fund’s portfolio and make sure the portion of stocks to bonds is at a level you’re comfortable with, and you’re comfortable with the level of risk you’re taking. 

If you aren’t sure what you’ve invested in, open up your statement and check, or reach out to your plan representative. In either case, we recommend seeking expert third-party advice on how to best allocate your assets. 

Download our guide 5 Ways Target Date Funds Fail to Live Up to Their Promise.

#6 Seek Professional Help as Soon as Possible 

Although you might have basic investment knowledge, utilizing an expert to do the in-depth market research could change the performance of your retirement savings accounts from good to great. 

In fact, David Blanchett, Head of Retirement, CFP, CFA of Morningstar reported that participants that received expert guidance had as much as 40% more income during retirement versus those who received no help at all.⁴

Even though your 401(k) is employer-sponsored, it does not mean they’re taking care of your 401(k) for you. 

It’s your money, and you’re responsible for your financial future

If you’re hesitant to reach out for advice because you think your account balance is too small and you need more money saved, don’t let that stop you from getting help.

This is your future we’re talking about. 

The sooner you seek expert advice, the higher the probability you’ll be better off in retirement.

401(k) Maneuver provides independent, professional account management to help employees, just you, grow and protect their 401(k) accounts.

Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that are hurting your retirement account performance. 

With 401(k) Maneuver, you can go about your life doing what you love with confidence, knowing we are handling the changes for you. 

If you’d to see how professional account management may improve your 401(k) account performance, check out our calculator. 

Have questions or concerns about your 401(k) performance? Book a complimentary 15-minute 401(k) strategy session with one of our advisors. 

Book a 401(k) Strategy Session

Sources: 

  1. The Impact of Expert Guidance on Participant Savings and Investment Behaviors. David Blanchett, Morningstar Investment Management Group, 2014.
  2. MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
  3. Special Report: Fidelity puts 6 million savers on risky path to retirement, Reuters.com March 5, 2018
  4. David Blanchet, Morningstar Analyst 2014, “The Impact of Expert Guidance on Participant Savings and Investment Behaviors”

Источник: https://www.401kmaneuver.com/6-ways-that-may-increase-retirement-savings-in-2021/

401(k) changes coming in 2021

According to Plan Sponsor Council of America, 11.5% of small companies suspended or reduced their employer match in 2020. That's just another bad milestone for a year that brought a pandemic, social unrest, and massive unemployment.

But as the year comes to a close, there's some good news. A new survey by global-advisory firm Willis Towers Watson concludes that most employers that cut their matching contributions in the COVID-19 era are planning to reinstate them in 2021.

Any changes to your employer match should signal you to run some numbers and find out how those changes affect your savings plan. An increasing employer match might allow you to shoot for more aggressive savings goals.

But if your employer match is decreasing, you'll have to lower your savings target or raise your own contributions to cover the shortfall. Putting a value on your employer match is also incredibly motivating — you're less ly to skimp on your own contributions if you know it could mean an extra $100,000 in your retirement account when you retire.

Read on for three easy steps to quantify the cumulative value of those employer-funded deposits.

Image source: Getty Images.

1. Check your matching rules

As a starting point, locate your plan's matching rules or ask your plan administrator to send them to you. If your employer match has been paused, there's no guarantee the rules will remain the same when the match is reinstated. The Willis Towers Watson survey found that 60% intended to reinstate the match at its previous level. Hopefully, your employer falls into that group.

If you can't locate your matching rules, plan for 3% if you work for a smaller company or 5% if you work for a larger company. The average employer match rate, according to Fidelity, is 4.7%.

2. Estimate the annual employer contribution in dollars

Next, multiply the employer match rate by your annual salary. If you make $55,000, a 3% match equates to $1,650 in annual contributions or $137.50 in monthly contributions.

3. Project the investment growth

For this next step, you'll need an investment calculator. The SEC has a reliable one that's easy to use. You'll input the monthly contribution amount of $137.

50, the number of years you plan to save, and your estimated interest rate. For the years you plan to save, use the number of years between now and your planned retirement date.

That way, you'll see how much those matching contributions will be worth when you retire.

The estimated interest rate is a tougher nut to crack. This should be how your retirement account is invested. But it's usually not appropriate to use the actual growth rate in your account over the last couple of years because a two-year time frame isn't representative of long-term growth — and that's true whether the market's been up or down.

The past two years have been unusually profitable for stock market investors. The S&P 500, an index that's considered a benchmark for the entire market, grew nearly 29% in 2019 and about 14% so far in 2020. Those high growth rates aren't sustainable long term.

If you're mostly invested in stocks, you could use the market's long-term average rate of 7%, which is adjusted for inflation. If you have a more conservative portfolio because you're closer to retirement, you should use a lower interest rate, say 5% or 6%.

As the calculator will tell you, $137.50 in monthly-match contributions invested at 7% for 25 years grows to more than $100,000 — a sizable sum. When your timeline is shorter, the ending balance is somewhat less impressive. Invested at 5% for five years, those same contributions grow to about $9,000. It's not six figures, but it's still free money. 

Commit to maxing out your employer match

That huge range in value, from $9,000 to $100,000, speaks to three practical lessons about saving for retirement. One, don't overlook that employer match. Whether you have five years to save or 25, it still adds up.

Two, don't waste any time saving. You can create far more wealth in 25 years than you can in 10 or 15. And three, increasing your total monthly contribution by a few hundred dollars can add thousands to your retirement balance over time. That's true whether the increase comes from your own contributions or your employer match.

Hopefully, your employer reinstates or raises your match in 2021. It's definitely easier to amass a large retirement balance with a match — though it's possible to do it on your own, too. If the match outlook looks bleak, find a way to raise your own contributions. As the numbers above show, even one or two hundred dollars a month will help.

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Источник: https://www.fool.com/retirement/2020/12/31/this-popular-401k-perk-may-be-back-in-2021-and-it/

Big Changes May Be Coming To 401(k), IRA And Other Retirement Plans

401(k) changes coming in 2021

UNITED STATES – OCTOBER 31: Senate Minority Leader Chuck Schumer, D-N.Y., holds a news conference to … [+] unveil a plan to protect and expand retirement savings on Tuesday, Oct. 31, 2017. (Photo By Bill Clark/CQ Roll Call)

CQ-Roll Call, Inc via Getty Images

A bipartisan bill has been introduced in the House that would make significant changes to 401(k), 403(b), IRAs and other retirement plans. From increasing the required minimum distribution (RMD) and catch-up contributions to expanding automatic enrollment and the Saver’s Credit, the legislation is poised to expand retirement savings options for millions of individuals.

Ways and Means Committee Chairman Richard Neal (D-Mass.) and Ranking Member Kevin Brady, (R-Texas) today introduced The Securing a Strong Retirement Act of 2020. Referred to as the Secure Act 2, it follows the Secure Act that was passed into law last year.

Here are some of the key changes proposed in the legislation.

Expanded Automatic Enrollment

Regulations have permitted employers to automatically enroll employees in retirement plans since 1998.

Automatic enrollment, which employees can opt , has boosted employee participation, particularly for Black, Latinx, and lower-wage employees, according to the House Ways and Means Committee.

One study even found that automatic enrollment nearly eliminated the racial gap in enrollment rates among employees.

The Secure Act 2 would require 401(k), 403(b) and SIMPLE plans to automatically enroll employees once they are eligible to participate in the plan. The initial enrollment amount must be at least three percent, but no more than ten percent. Each year thereafter the amount is increased by one percent until it reaches the 10 percent limit.

Increase in Saver’s Credit

The Saver’s Credit currently provides a credit of up to $1,000 for low and middle-income individuals. The new legislation would simplify the rate structure by implementing a single rate of 50%. It would also increase the credit to $1,500 per person and increase the maximum income eligibility amount.

RMD Age Increased to 75

The Secure Act generally increased the age when required minimum distributions (RMD) must be taken from 70.5 to 72. The Secure Act 2 would further increase the age when RMDs must begin to 75. The RMD would be waived for those with less than $100,000 in retirement plans and IRAs on December 31 of the year before they turn 75.

IRA Catch-Up Limit Would Rise

The current IRA catch-up limit allows those 50 or older to save an extra $1,000 a year in an IRA. Because the amount is not indexed to inflation, it never changes. Under the new law, the IRA catch-up contribution would be indexed to inflation beginning in 2022.

401(k) Catch-Up Limits Would Rise

Those 50 or older can make catch-up contributions to workplace retirement plans. The current limits for 2020 are $6,500, except that the limit is $3,000 for SIMPLE plans. The legislation would increase these limits to $10,000 ($5,000 for SIMPLE plans) for individuals who are 60 or older.

Student Loan Payments Would Qualify for Matching Contributions

Many employer retirement plans offer matching contributions. While the rules can vary from plan to plan, many match some level of the contributions employees make to the retirement plan. For many young workers, however, the cost of repaying student loans prevents them from contributing to their employer’s retirement plan and therefore taking advantage of the match.

The legislation would change this. It would allow employers to make matching contributions under a 401(k), 403(b) or SIMPLE IRA “qualified student loan payments.” Thus, employees could receive matching contributions by repaying their student loans.

Other Retirement Savings Changes

The legislation provides for a number of other changes:

  • Increases the credit for small employer pension plan startup costs increased;
  • Eliminates additional barriers to multiple employer plans that help small businesses manage the cost of 403(b) plans;
  • Offers additional tax credits to employers who, among other things, make military spouses eligible to participate in their retirement plans within two months of hire;
  • Enables employers to offer small financial incentives to employees who contribute to a retirement plan;
  • Eases the penalties for corrections of employee elective deferral failures;
  • Removes certain limitations on qualified longevity annuity contracts (QLACs) that have prevented the growth of QLACs.
  • Creates an online registry designed to make it easier for individuals to locate retirement savings from employers who have moved, changed names or merged with a different company.

Источник: https://www.forbes.com/sites/robertberger/2020/10/27/big-changes-may-be-coming-to-401k-ira-and-other-retirement-accounts/

Changes Retirement Savers Need to Know About 2021

401(k) changes coming in 2021

iStock / Getty Images

En español | Most people will miss 2020 about as much as they miss mosquito season. For many retirees and retirement savers, the year had a few benefits, such as some COVID-19 relief measures. Even without those, however, most of the retirement changes in 2021 are for the better. Here's a look at some of the most important you need to know.

Retirement savings plans

The Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act, gave some big breaks to retirement savers. They are deader than Marley's ghost in 2021.

  • Required minimum distributions (RMDs). The CARES Act gave savers the ability to skip RMDs in 2020. An 80-year-old man who had $50,000 in his individual retirement account (IRA) at the end of 2019, for example, would have normally been required to withdraw $2,673.80 in 2020 and pay income tax on that withdrawal. He didn't have to do that in 2020, but he will have to restart taking RMDs in 2021.
  • Retirement plan withdrawals. The CARES Act also allowed people younger than 59 1/2 to take up to $100,000 from their retirement accounts in 2020 without the usual 10 percent penalty. Furthermore, it allowed people to spread out the tax on their retirement plan withdrawal over three years — and to replace that money in their accounts if they wanted to. (The withdrawals had to be COVID-related.) The early withdrawal penalty is back in 2021, and income on withdrawals will count as income for the 2021 tax year. However, the COVID-Related Tax Relief Act of 2020 (COVIDTRA) allows for the same treatment of retirement plan withdrawals made because of qualified disasters. To qualify, taxpayers must have lived in a qualified disaster area and suffered financial loss because of that disaster.
  • Retirement plan loans. The CARES Act allowed savers in 401(k) plans to borrow as much as $100,000 from their accounts, up from $50,000 in 2019, and to defer payments on those loans for a year. That change has been expanded into 2021, but you must meet the qualified disaster requirements listed above.

The amount you can contribute to retirement plans won't change in 2021.

IRA investors can sock away $6,000 a year in 2021, and those 50 or older can add another $1,000, for a total annual contribution of $7,000.

Investors in 401(k) plans and other similar workplace retirement plans, such as 403(b) plans, can invest $19,500 in 2021, also the same as 2020, with an additional $6,500 for those 50 and older.

Is there any good news for savers in 2021? A bit. Although the amount you can contribute to an IRA is unchanged, the income limits on deducting a traditional IRA or contributing to a Roth IRA have risen modestly. 

Filing status: Single

  • 100% deductible income limit = $66,000  
  • Not deductible for incomes above $76,000
  • Those with incomes between upper and lower limits may make partially deductible contributions

Filing status: Married filing jointly (contributor has work retirement plan, spouse doesn't)

  • 100% deductible income limit = $105,000
  • Not deductible for incomes above $125,000
  • Those with incomes between upper and lower limits may make partially deductible contributions

Filing status: Married filing jointly (contributor does not have a work retirement plan, spouse does)

  • 100% deductible income limit = $198,000
  • Not deductible for incomes above $208,000
  • Those with incomes between upper and lower limits may make partially deductible contributions

If you, (or you and your spouse if filing jointly) don’t have a retirement plan at work, 100% of your contribution to a traditional IRA is deductible regardless of income.

Roth IRA contributions are not tax deductible, but withdrawals are tax free in retirement. Annual contributions are limited by income:

Filing status: Single

  • Full contribution below = $125,000  
  • No contribution above $140,000
  • Those with incomes between upper and lower limits may make partial contributions

Filing status: Married filing jointly

  • Full contribution below = $198,000
  • No contribution for incomes above $208,000
  • Those with incomes between upper and lower limits may make partial contributions

 

Most Social Security beneficiaries will get a modest cost-of-living adjustment (COLA) in 2021.

In October, the Social Security Administration (SSA) announced a 1.3 percent COLA for Social Security and Supplementary Security Income (SSI) beneficiaries starting in January 2021.

The average monthly Social Security retirement payment is up $20 to $1,543 from $1,523 in 2020. The maximum monthly Social Security benefit for a worker at full retirement age has risen $137 to $3,148 from $3,011 in 2020.

Full retirement age is 66 years and 2 months for people born in 1955, and gradually rises to 67 for those born in 1960 or later.

The COLA affects other parts of Social Security as well.

If you are receiving benefits before full retirement age and you work, you'll have $1 withheld from your benefits for every $2 you earn above $18,960 a year in 2021, up from $18,240 a year in 2020.

Beginning at full retirement age, your benefits won't be reduced, no matter how much you earn, and your monthly check will be adjusted to compensate for any benefits withheld previously.

Even with the COLA, however, some see slightly lower increases in their monthly checks, because Medicare premiums are usually deducted from Social Security checks. Standard monthly premiums for Part B costs $3.90 more, rising to $148.50 in 2021, up from $144.60 in 2020.

Taxes

Taxes, too, will be different in 2021. Unfortunately, “different” doesn't mean “lower.”

  • Social Security payroll taxes. Start with the taxes for Social Security's Old-Age, Survivors, and Disability Insurance (OASDI). The payroll tax to fund the program is set at 6.2 percent for employers and 6.2 percent for employees. The self-employed pay the whole freight: 12.4 percent. The rate won't change in 2021. What will change, however, is the maximum amount of income to which that tax applies. In 2021, you pay OASDI tax on income up to $142,800, up from $137,700 in 2020. The rate for Medicare's Hospital Insurance (HI) program remains at 1.45 percent for employees and 1.45 percent for employers (2.9 percent for the self-employed). It applies to all income.
  • Standard deduction. The standard deduction for couples filing joint federal income taxes in 2021 will rise to $25,100, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,550 for 2021, up $150, and for heads of households, the standard deduction will be $18,800 for tax year 2021, up $150. Are you at least 65 years old or blind? If so there's an additional standard deduction of $1,350 apiece for married couples, up $50 from 2020. It's $1,700 for filers who are single or heads of households. The amounts double if you are both 65 or older and blind.
  • Medical expense deduction. For those who have heavy medical expenses, there's good news: Congress made permanent a temporary reduction in the income floor for deducting medical expenses. In 2020 and following tax years, you'll need to have medical expenses of at least 7.5 percent of adjusted gross income (AGI) to claim the deduction (vs. 10 percent in the past). If your AGI is $50,000, for example, you'll be able to deduct the amount that's above $3,750 from your federal income taxes. (And that's only if your total deductions are higher than the standard deduction.)
  • Federal estate tax. The basic exclusion amount on the estates of people who die in 2021 is $11.7 million. That's up from $11.58 million for estates of people who died in 2020. It's double for couples. Keep in mind, however, that some states impose their own estate and inheritance taxes on top of the federal estate tax.

Источник: https://www.aarp.org/retirement/planning-for-retirement/info-2021/what-every-retirement-saver-needs-to-know.html

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