How much should I invest in my retirement plans?

SITUATION: Some people say I should invest in my retirement plans and some say I should use that money to pay off debt and create an emergency fund. Which one is better?

All of America wants a one size fits all answer for all their financial needs. To be blunt, to answer your question would require a financial plan built on your unique financial circumstance and compares the outcome of various strategies. To be simpler, the primary benefit of investing in retirement plans is to avoid paying tax at your current rate with the assumption you will distribute at a lower rate in the future. There is no benefit to tax deferral if the future tax rate is equal to or greater than the current tax rate. It’s just math, and math always wins.

The other consideration is with regards to matching amounts offered by your employer. It is a common recommendation to invest at least the minimum amount required to get the employers maximum matching amount. Even this argument could fail if future tax rates are much greater than your current tax rate.

As a basic principle, we recommend the elimination of debt. Many people promote taking on debt during periods of low interest rates and investing in growth assets. However, the future of employment can result in liquidation of assets to pay debt at the worst possible time. Being debt free provides maximum freedom of choice while employed in retirement.

Should I keep my 401k or move it to an IRA?


SITUATION: I changed jobs and still have my 401k with my former employer. Some people say I should keep it in the 401k and some people say I should move it into an IRA. What is the benefit of each?

Until early in 2016, moving to an IRA may have resulted in owning unsuitable and inappropriate investments within an IRA. The new DOL rules provide protection to employees who want to move their money out of their former employer’s retirement plans.

  • The 401k provides more protection from creditors than an IRA.  However, some 401k plans may offer limited investment choices.
  • An IRA provides almost unlimited access to investments available.  The IRA is limited by law to what investments you cannot invest in such as collectibles, Life Insurance, Real Estate that provides benefit directly to owner (Rental Property), and types of derivatives.   While you are typically responsible to choose the investment in a 401k, advisors who act as a fiduciary are readily available to manage an IRA.

I heard there are new rules for advisor firms who manage Retirement Plans, what are they?


SITUATION: I had been investing my IRAs and rollovers in annuities offered by my financial advisor. He told me he cannot sell me this product anymore due to the new DOL rules. What are these rules and what should I do?

The DOL implemented new rules that require anyone who manages retirement including IRAs to act at a fiduciary capacity to be compliant. Many financial products such as some annuities that are so costly and pay such high commission that they may not meet the rules laid out by the DOL. In addition, contractual restrictions defined in the contracts may render the annuities unsuitable for retirement plans. In addition, some retirement plans and IRA accounts are heavily latent with these and may offer incentives to the advisor or employer that conflict with the interests of the investor and employee.

When it is in the best interest of the client we typically recommend investors to rollover their 401k to an IRA and to seek out professional advisors to assist theme with investment selections with their goals and objectives.