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Should you roll over your retirement savings to a new employer’s 401K or a rollover IRA?

Congratulations, after working your way up the career ladder, you’ve landed your dream job at a great new company.

Hopefully, they will provide you with a shiny new defined contribution retirement savings plan, such as a 401K, 403(b), or 457(b).

However, this isn’t your first job (or perhaps, even your fifth job). You have one (or several) 401K account(s) from your old employer(s).

So, what do you do with that 401K savings when you change jobs?

You have three choices:

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Taxable savings, tax-deferred savings, or tax-exempt savings?

You’ve done it! No more rat race. Let’s start planning your long-overdue trip to the Caribbean. The beach beckons…

But after you get back from the warm sands (and the ski slopes) you realize you have a good 35–40 years of this. You need to optimize your savings so that you’re getting the most out of it.

Part of that is how you invest that savings, but part is the sequence that you take your money out.

You have three buckets of money:

  1. Your taxable savings. This could be sitting in a brokerage account, or savings account.
  • Depending on how this money is invested, it may generate either taxable income or taxable capital…

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Your end-of-year financial checklist

[updated December 25, 2019]

Yes, I know, you’re not doing your taxes until the eleventh hour, in early April of next year. (Or even later for those who love filing extensions.) However, before you ring in the New Year there are a few items you should probably put in order first.

1. Maximize contributions to your 401K or other employer retirement plan

In 2020 you may contribute up to $19,500 to your 401K, or $26,000 if you’re age 50 and above.

Usually, you tell your employer to take a percentage out of your paycheck and hope you’ve done the math right. Now may be a good time to double-check the math.

At a minimum, contribute enough to get your employer match if they provide one. That’s free money. …

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A case study in risk trade-offs

When I googled the title above, the number one article that came up was titled “Cancer WARNING: Do NOT sleep with this next to your head or in your bed”.

As a trained scientist, I’m the biggest skeptic. My mantra is “show me the data.”

So, I started digging.

Spoiler alert:

At present, there is no data to suggest a connection between the electromagnetic radiation from your phone and any health issues. However, studies are ongoing.

That scary article cites the California Department of Public Health (CDPH), a reputable government organization.

However, according to the CPHD, “there are concerns among health professionals…”, however, “… the scientific community has not reached a consensus on the risks of cell phone use.” …

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Image by Theodor Moise from Pixabay

How to Add More Tax-advantaged Retirement Savings

[updated December 24, 2019]

Congratulations. Your career is going well and FINALLY, you are making some real money.

But up to this point perhaps you’ve been a bit lax when it comes to saving for your retirement. There were those student loan debts, then a home purchase with a hefty mortgage. And all your kids needed braces.

You’re playing catch-up. You’ve managed to contribute the maximum allowed to your 401K, which is $19,500 in 2020.

But you’ve run the math and that won’t be enough.

You can save more, but taxes will eat into your return. If you’re making REAL money, then you’re subject to REAL taxes in the higher tax brackets. …

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Check These First Before Racing to the Exit

[updated December 24, 2019]

You are outta here! Gone is the soul-crushing commute and office politics. You are moving on!

Perhaps this is your last stint in the work world, and you have planned quality time laying around in the backyard. Or perhaps you are moving on to another exciting step in your career.

Before you pack up your desk, here’s a checklist of things to consider. If you are flexible, you may wish to time your exit to optimize all your benefits.

  • Annual bonus
  • Vesting schedule
  • Vested stock options
  • Loans from your Retirement plan
  • Rollovers
  • Required Minimum Distributions (RMDs) — if ≥ age…

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Short answer: No. And here’s why

In my early days as an investor, I followed a strategy advocated by financial guru Jeremy Siegel, in his classic book “Stocks for the Long Run”. Based on the historical data available at the time, he showed that investing in a portfolio of 10–20 dividend-producing stocks could beat the market.

I was using one of his variations: from the largest large-caps of the S&P500, I invested in the top ten dividend-producing stocks.

Three of those stocks were Bristol-Myers Squibb (BMY), AT&T (T), and Verizon (VZ). The other seven were all financial stocks.

Did I mention this was back in 2007?

In 2008 the market imploded in the “Great Recession”. Financial stocks led the way. …

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Don’t forget about maintaining diversification in your invested savings

You work at a great company that’s going places. In addition to a generous 401K, you have additional opportunities to receive more company stock. Should you buy more?

Usually, it’s best to maintain diversity in your portfolio and NOT purchase additional stock from the company you work for

Your paycheck represents a significant income stream. You may also have additional stock in the form of stock grants and stock options. By buying more stock you are overinvesting in your company.

If things go south, not only is the company stock value in jeopardy but your job, and the income stream it represents may also be in jeopardy. …

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Image by skeeze from Pixabay

Redefining “Work”

Are you counting down the years until you can leave your soul-crushing job?

The one with the useless boss? Or the one that requires you to work long hours, travel, or simply be available 24/7? Or, the one where you must endure a long commute every day in order to “be present” in the office?

But alas, your finances aren’t in good shape.

No doubt you felt the need to compensate for your painful employment by spending more: including meals out, a nicer home to relax in, and taking exotic vacations far far far away…

I could go on about how you need to save more and readjust your lifestyle, blah blah blah. But you already know that. …

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Photo credit: Tom Levold on Unsplash

An easy to implement retirement strategy optimizing your social security while drawing down your savings at a reasonable rate

[Updated December 24, 2019]

In a previous post, I reviewed how to calculate how much you need to save to retire.

There were clear limitations to those methods. One used a lot of math and was overly sensitive to assumed future return rates. Another method relied on the 4% withdrawal “rule” which may no longer apply in our low-interest-rate environment.

Indeed, we may need to focus on a 2.5% — 3% withdrawal rate instead.

Retirement experts, Wade Pfau, Joe Tomlinson, and Steve Vernon, in conjunction with the Stanford Center on Longevity, have recently developed a different methodology for “safe spending” during retirement: “Viability of the Spend Safely in Retirement Strategy” or SSiRS (2019). …


Liz Baker

Scientist nerd, and champion of medicine, personal finance, innovation, and working smarter.

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