Beautifully Frugal: Investing

Investing: It Doesn’t Have To Be Complicated

If you are anything like I was when I first learned about investing, I thought it was only for the “rich,” “smart,” and “successful” people – labels with which I didn’t identify. The truth is, I was too intimidated by investing and I was willing to let it jeopardize my future because of my unwillingness to learn. Investing is not complicated and when you have the right people in your life to help guide you along the way, it becomes exciting – as it should be! So, in this month’s edition of Beautifully Frugal, I would like to break down what some different investing options are, what they are used for, and how to keep it simple.

Employer Sponsored Plans

401(k)’s, 403(b)’s, 457’s, Simple, & SEP

These plans are probably the most widely known tools for retirement investing. The majority of employers utilize these simple investment tools because their employees can "set it and forget it," while knowing their investments are being taken care of throughout the year. Many employers offer to match your contributions up to a certain amount, which is free money they are willing to give you if you are contributing. Traditional plans use pre-tax dollars to invest, and therefore can be a deduction on your taxes, andthe earnings from these retirement plans are also tax-deferred. If you’re interested in investing, yet you really don’t want to learn much about the topic, you can stick to Target Date Fund options most employees use.

What is a Target Date Fund? A Target Date Fund (TDF) utilizes your age to determine how much you should be investing. When you are young, it can be more aggressive, and as you get older it becomes more conservative for safety. It’s professionally managed and rebalances so you don’t have to think about it. If you really enjoy choosing specific funds, you can utilize your plan and be your own “advisor” by choosing which funds you want to invest in; or maybe you are somewhere in the middle of these two types of investors. If you want to become confident in your investing habits, ask your Plan Advisor for guidance!

Roth Options

More and more companies are providing Roth options to their employees and this really excites someone like me who loves anything providing tax-free investment! Utilizing this option is very similar to traditional plans except when you choose the Roth option, it is using after-tax dollars. Since you’re using after-tax dollars to contribute, all the growth and distributions are completely tax-free.

Have an Old Employer Sponsored Plan?

Since we are on the topics of Employer Sponsored Plans, I feel it’s important to talk about what your options are if you left a previous employer where you invested in a plan. This is actually very common. According to Capitalize, there is $1.35 trillion in assets and more than 24 million forgotten 401(k)s in 2021 alone. This means a significant amount of people had job changes, and instead of taking their 401(k) with them, they left it with their old employer. If you have changed jobs, what can you do with your 401(k)?

Rollover your previous employer sponsored plan into your new employer 401(k) if your new employer permits rollovers

Rollover the 401(k) into a Traditional or Roth IRA, depending on what type of 401(k) it is
Simply leave the money behind in the former employer’s 401(k) Plan
Cash it out; however, keep in mind this option has taxes and potential penalties

The first two options are what I suggest, and they are not as complicated as they seem. By simply calling your previous HR director and having your most recent statement handy, you should be able to ask them for help on how to get the process started. Most of the time, you won’t even have to see or touch this money, they can simply do a direct transfer of assets.

Traditional & Roth IRA’s

Traditional IRA’s

A traditional IRA is another type of retirement account and can be a great addition if you want to contribute more, on top of taking advantage of your 401(k). This is also a retirement account which uses pre-tax dollars to invest and therefore can be a deduction on your taxes come tax season (current contribution limits for 2023 are $6,500, and $7,500 if you are over 50). If you are a high-income earner and want to utilize tax deductions, this is a great option for you. Unlike the 401(k) where you are limited to what funds you can choose from, most IRAs have a wider variety of funds, which really appeals to the more sophisticated investors, although you can also put a simple target date fund in here as well.

Roth IRA’s

I have truly saved the best for last here, as Roth IRAs are by far my favorite retirement account to invest in. You can choose to invest in a Roth IRA instead of the Traditional IRA and the same rules apply with contribution limits for 2023 at $6,500, or $7,500 if you are over 50. Unlike the traditional IRA which uses pre-tax dollars, this account uses after-tax dollars, and thus the growth and distributions are completely tax-free! If you were to only contribute the maximum contribution out of this account and nothing else over the course of 30 years, you would be a millionaire! I personally invest in a Roth IRA and encourage all of our clients to do the same!

There are so many ways to invest your money. So many, I can’t fit them all here, which is why I decided to breakdown only the most widely known. I have met people who are close to retirement and have saved nothing because they thought investing was too complicated, for the “rich,” or didn’t want to ask even these simple questions in fear they would be looked down upon. This truly breaks my heart and is why I really wanted to create this blog. I want you to understand I am an average investor just like you and want to help you achieve your dreams.

If you are ready to start creating a plan for what you want your retirement to look like or if you have any questions, the KerberRose Wealth Management team is here for you. Every person on our team has a passion for financial planning and we want to help as many people achieve their dreams as possible. So what are you waiting for? Reach out to a member of my team now at https://www.kerberrose401k.com/schedule-a-meeting

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