401k Articles

401(k) Changes in 2013 – Contribution Limits

The IRS has announced changes affecting 401(k) plans that are set to go into effect January 1, 2013. Among the changes are increases to the contribution limit, as well as mandatory fee disclosure that will be sent quarterly and annually.

2013 401(k) Contribution Limit

Among the changes that are set to go into effect in 2013 is an increase in the contribution limit. Prior to 2013, the contribution limit for a 401(k) was $17,000. The contribution limit will increase to $17,500 in 2013. The contribution limit changes annually and is based on inflation and increased in $500 increments every few years.

2013 401(k) Catch-Up Contribution Limit

The catch-up contribution limit applies to employees who are over the age of 50-years-old. Employees who are over the age of 50 have the ability to make an extra contribution to their 401(k). Unfortunately, the catch-up contribution limit has not increased and will remain the same.… Read More »

Simple Explanation of a 401(k)

In basic terms, what is a 401(k)?

A 401k is a type of retirement account that is set up by your employer. The term 401k refers to the section of the IRS code which sets the rules for these types of retirement plans.

The employer takes the money out of your paycheck and puts the funds into the 401k prior to calculating income taxes for your income. In other words, 401k contributions reduce your taxable income. The money in the 401K is tax deferred, not tax exempt. This means that when you withdraw the money, you will have to pay tax on it.

Some employers will also match a portion of your 401k contribution. The IRS sets rules for how much the employer can contribute and the employer also has some rules for how much the company is willing to contribute.

The 401k is a vehicle for investment. In other words, it is not a specific investment.… Read More »

Maximum 401k Contribution For 2012 & 2013

Every year, the IRS announces 401k contribution limits.  This past October on October 20, 2011, the IRS announced 401k contribution limits for the tax year 2012.  Prior to 2012, the maximum 401k contribution was $16,500. Beginning in 2012, the maximum pre-tax 401k contribution is $17,000. 2012 was the first year the IRS announced an increase to 401k contribution limits since 2008.

Please keep in mind that maximum pre-tax contribution limit is indexed to inflation and typically will increase in increments of $500.  However, the amount can also increase by $1,000 as it did from 2004 to 2005. For 2013, the maximum 401k contribution may be able to increase to $17,500 or it can stay the same as 2012 at $17,000. Expect an announcement from the IRS around October.

With inflation remaining relatively stable, I don’t expect another increase in the maximum 401k contribution for 2013. However, with all the money printing that is going on by The Federal Reserve, I expect that inflation will eventually be forced to pick up thus resulting in an increase in the 401k contribution limits.… Read More »

Should you put Facebook in your 401(k)?

With Facebook (NASDAQ:FB) going public on May 17 and actively trading on May 18, should you put Facebook into your 401(k)? Facebook has a market cap of $104 billion making it the 22nd most valuable company. In comparison to Apple, Apple’s market cap is $495 billion, making it the world’s most valuable company. Google has a market cap of $195 billion and Microsoft has a market cap of $245 billion.

Most 401(k) investors can obtain instant diversification by simply buying the S&P 500 index fund. One would think that they would gain some exposure to Facebook by picking up an S&P 500 index fund. However, Facebook will not be added to the S&P index until the Standard and Poor’s board decides to admit the stock into the index, which would result in another stock getting the boot.

You can also gain some Facebook exposure by buying a broader market fund such as Vanguard Total U.S.… Read More »

Lessons Learned: Jamie Dimon and JP Morgan’s Disaster Regarding 401k Investments

Unless you’ve been living under a rock for the past two days, you have heard about the massive debacle at JP Morgan where the bank lost $2 billion dollars, without even realizing it until it was too late. So angry were shareholders and members of the public and the government about this risk-taking behavior, especially in light of the 2008 bailout, that the bank’s Chief Investment Officer, Ina Drew, was fired immediately.  Further, there was outrage and ire directed at Chief Executive Officer Jamie Dimon because Dimon has been one of the most outspoken advocates for the necessity and importance of banking reform and regulation.  The primary problem cited as the reason the bank, widely regarded as one of the best and most well-respected economic institutions in the world, lost the $2 billion??? The investments were TOO COMPLICATED that even Dimon, who graduated from Harvard Business School, did not know what was going on!!!… Read More »