In the grand scheme of personal finance, your 401(k) is like a hidden treasure chest waiting to be discovered. It's not just a retirement account; it's your key to financial freedom and security. While you may have heard the term "401(k)" thrown around in conversations about the future, have you ever really dug deep to understand what it's all about?

Let’s unravel the mysteries of the 401(k) mysteries and unveil the top five things you need to know to make the most of this powerful tool. Whether you're a nurse at Advocate Lutheran General Hospital looking to maximize your 401k contributions or a seasoned professional nearing retirement looking for tax-efficient savings strategies, understanding your 401(k) is the roadmap to a more secure and prosperous retirement.

First, let's clarify what a 401(k) is. Simply put, a 401(k) is a tax-advantaged retirement account offered by many employers, allowing you to set aside a portion of your income for the golden years.

1. Types of 401(k) Plans and Their Tax Benefits:

There are two basic types of 401(k) plans that exist: a Traditional 401(k) and a Roth 401(k). These two options have different tax implications - that impact you both now and in the future. Both have their advantages and disadvantages. Whether you choose a traditional 401(k) or Roth 401(k) plan, both have annual contribution limits that are set by the IRS. For 2023, the limit is $22,500 for individuals under 50, with an additional $7,500 catch-up contribution allowed for those 50 and older. 

With a Traditional 401(k), your contributions are made from pre-tax income and lower your current year’s taxable income, potentially even putting you in a lower tax bracket, thereby saving you money. This reduces your taxes today and allows your 401k to grow without worrying about paying the taxes as you go. However, when you withdraw the money in retirement, you will be taxed on a larger total sum of money as you take distributions, assuming your investments have performed well.

In contrast, a Roth 401(k) is funded with after-tax income, meaning you won't get a tax break today, but your withdrawals in retirement are tax-free.

The choice between the two depends on your current and future financial situation and tax expectations. Because of the trade-offs between these two options, it’s crucial to analyze your own personal situation to determine which will be optimal for you. If you’re having trouble calculating which is best for you, you should consult a Certified Financial Planner, like Outside the Box Financial Planning, to help you understand how to maximize your retirement accounts.

2. Matching Contributions from your Employer:

Many employers offer a valuable benefit – the 401(k) match. This means that your employer contributes a certain percentage, usually 3%, of your total salary to your 401(k) account. Some employers may offer more than 3%, which can be a huge perk since that obviously means more money will be matched to your contributions.

It's essentially “free money” contributions made to your retirement savings account that you’ll want to make sure you do not miss out on. Make sure you fully understand your employer's matching policy and strive to contribute at least the same percentage that your employer offers to maximize their match. It's one of the easiest ways to boost your retirement savings.

3. An Automated Savings Mechanism:

By its very nature, a 401(k) is an automated savings mechanism, and its power lies in its seamless, set-it-and-forget-it approach. It’s deducted from your salary before it ever reaches your bank account, making it easy and hassle-free. It's deducted automatically from your paycheck before you ever have a chance to spend it!

This is a lifesaver for many people, as it helps them establish good savings habits. The automated nature of this savings mechanism simplifies your journey toward a comfortable retirement, making it easy to save and invest for the future, even with a busy life. So, embrace your 401(k) as your diligent financial partner, and let it work its magic in the background, growing your wealth while you focus on the present. Your future self will thank you for it.

4. Investment Options:

Your 401(k) typically offers a menu of 20 or so investment options, typically in the form of mutual funds, exchange-traded funds (ETFs), and other investment vehicles. Most of these are the standard options that have to be suitable for all of the participants but, as a result, may not be optimal for you. This is why working with a finance professional to build a comprehensive investment strategy incorporating all your accounts and using strategies to mitigate the 401k limited options risk is essential to a sound investment portfolio.

At Outside The Box Financial Planning, we offer Comprehensive Financial Planning and Wealth Management services and work closely with our clients to coordinate all of their investments, custom tailoring their portfolios to meet their retirement goals and objectives.

5. Early Withdrawal Penalties, Vesting and Leaving Your Job:

While your 401(k) is designed for retirement savings, emergencies can sometimes lead to you needing to withdraw some of the funds in your 401k prior to retirement. However, early withdrawals before the age of 59½ are fully taxable and subject to an additional 10% early withdrawal penalty. There are some exceptions to te rule; however, understanding the rules and potential consequences is vital to making an informed financial decision.

If you change jobs or retire, you may have an option of either keeping your 401k with your former employer or transferring it either to your new employer or into an Individual Retirement Account (IRA). Each option can have its own advantages and disadvantages.

Vesting is a critical concept in 401(k) plans. It refers to your ownership of employer-contributed funds over time. If you leave your job before you're fully vested, you may forfeit a portion of your employer's contributions. Each 401k plan has its own vesting schedule; understanding yours is crucial to making sure you don’t forfeit any contributions. When switching jobs, it may be a good idea to review your vesting schedule to make sure you make the right decision.

In conclusion, your 401(k) is an invaluable tool for securing your financial future. Understanding its ins and outs is crucial for making the most of this retirement savings vehicle. From the automated savings mechanism it offers to the nuances of contribution limits, tax implications, and the impact of legislation like the SECURE Act 2.0, there are numerous factors to consider.

Working with a fee-only, Certified Financial Planner can result in personalized guidance and custom-tailored financial plan to your unique goals.

Your 401(k) is a significant part of your financial picture, and making informed decisions about it will set you up for a comfortable and prosperous retirement. Remember, your future self will thank you for the diligence and care you put into understanding and managing your 401(k).

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Partnering with Outside The Box Financial Planning offers numerous benefits for individuals seeking college planning, retirement planning, small business support, wealth management, and beyond.  As a fee-only fiduciary with a comprehensive approach, unbiased advice, and transparent fee structure, OTBFP acts as a trusted advisor who prioritizes your best interests. Click here to schedule a complimentary “Fit” meeting to determine if we would make a good mutual fit.

Remember, financial decisions have long-lasting implications, and working with a professional can provide the expertise and guidance necessary to make informed choices that align with your financial aspirations. However, if you would like to take a shot at building a financial plan on your own, we offer our financial planning software, RightCapital, free of charge. Click here to get started.

Markets Have Rotten Third Quarter

Global equity markets had a rotten third quarter – especially the smaller-cap and tech names. And the month of September was especially difficult, as volatility increased, oil jumped and the S&P 500 closed out September with 4 consecutive losing weeks.

For the third quarter of 2023:

• The DJIA retreated 2.6%;

• The S&P 500 lost 3.7%;

• NASDAQ declined 4.3%; and

• The Russell 2000 dropped 5.9%.

While there was not a lot to celebrate when the third quarter closed, investors are still somewhat encouraged by the YTD numbers as the major equity markets are still in positive territory, albeit barely for the smaller-caps and the mega-caps as:

• The DJIA up 1.1% YTD%;

• The S&P 500 up 11.7% YTD;

• NASDAQ up 26.3% YTD; and

• The Russell 2000 up 1.4% YTD.

The themes that drove market performance in the third quarter continued to center around inflation, the Fed, the housing market, and the labor market, as recent numbers suggested that inflation is easing as the Fed paused its rate-hiking trend (at least for now). There was also a lot of encouraging economic data received this quarter as well, including hopeful GDP numbers and consumer sentiment levels.

Further, we saw that:

• Volatility, as measured by the VIX, trended up this quarter, beginning the quarter at 13.5 and ending at 17.5, with most of the increase beginning at the end of September.

• West Texas Intermediate crude trended up significantly for the third quarter, jumping over $20/barrel from about $70 to over $90, peaking at $93.68/barrel and stoking inflation.

Market Performance Around the World

Investors were unhappy with the quarterly performance around the world too, as all 36 developed markets tracked by MSCI were negative for the third quarter of 2023, with 18 losing more than 6%. And for the 40 developing markets tracked by MSCI, only 4 of those were positive, with a great many losing more than 5%.

Sector Performance Rotated in 3Q2023

The overall performance for sector performance for the third quarter was poor. In fact, only two sectors advanced as the other 9 sectors declined markedly. Contrast that with the overall performance for sector performance for the second quarter of 2023, which was very good, as 9 of the 11 sectors advanced, with 3 jumping more than 15% .

And interestingly, with the exception of the Energy sector, the other 10 sectors saw relative performance decline from the second quarter to the third quarter, with a few sizable declines – like Information Technology going from +20% to -6% in just a quarter.

Here are the sector returns for the third and second quarters of 2023:

Reviewing the sector returns for just the 3rd quarter of 2023, we saw that:

• 9 of the 11 sectors were painted red, with the Energy sector making a big leap, driven by rising oil prices;

• The defensive-sectors (think Utilities and Real Estate) really struggled during the quarter;

• Information Technology saw an especially huge swing and half of the sectors lost more than 5%; and

• The differences between the best (+12%) performing and worst (-9%) performing sectors in the first quarter was massive.

2Q2023 GDP Up 2.1%

The Bureau of Economic Analysis Real reported that Gross Domestic Product increased at an annual rate of 2.1% in the second quarter of 2023. In the first quarter, real GDP increased 2.2%.

“The increase in real GDP reflected increases in nonresidential fixed investment, consumer spending, and state and local government spending that were partly offset by a decrease in exports. Imports decreased.

Compared to the first quarter, the deceleration in real GDP in the second quarter primarily reflected a deceleration in consumer spending, a downturn in exports, and a deceleration in federal government spending that were partly offset by an upturn in private inventory investment, an acceleration in nonresidential fixed investment, and a smaller decrease in residential investment. Imports turned down.”

Fed Holds Rates Steady – For Now

Wall Street and Main Street toggled between hope that the Fed might be done with its rate-hiking and worry from the Fed’s recent and very hawkish comments from its last meeting. And as expected, the big news on the quarter was that the Fed decided to leave its fed funds rate (its short-term lending benchmark) at a target range of 5.25% to 5.50%, the same level established at its July meeting.

But confounding Wall Street was the Fed’s updated Summary of Economic Predictions where another rate hike this year was very much on the table. In addition, the Fed surprised many with an outlook for rates next year that were notably higher than expected as were their 2025 rate predictions.

Inflation Still High

The Consumer Price Index for All Urban Consumers rose 0.6% in August on a seasonally adjusted basis, after increasing 0.2% in July, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 3.7% before seasonal adjustment.

• The index for gasoline was the largest contributor to the monthly all items increase, accounting for over half of the increase.

• Also contributing to the August monthly increase was continued advancement in the shelter index, which rose for the 40th consecutive month.

• The energy index rose 5.6% in August as all the major energy component indexes increased.

• The food index increased 0.2% in August, as it did in July.

• The index for food at home increased 0.2% over the month while the index for food away from home rose 0.3% in August.

• The index for all items less food and energy rose 0.3% in August, following a 0.2% increase in July.

• Indexes which increased in August include rent, owners’ equivalent rent, motor vehicle insurance, medical care, and personal care.

• The indexes for lodging away from home, used cars and trucks, and recreation were among those that decreased over the month.

• The all items index increased 3.7% for the 12 months ending August, a larger increase than the 3.2% increase for the 12 months ending in July.

• The all items less food and energy index rose 4.3% over the last 12 months.

The energy index decreased 3.6% for the 12 months ending August, and the food index increased 4.3% over the last year.

Consumer Confidence Declines Again

The Conference Board Consumer Confidence Index declined again in September to 103.0 (1985=100), down from an upwardly revised 108.7 in August. In addition:

• The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – rose slightly to 147.1 (1985=100) from 146.7.

• The Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – declined to 73.7 (1985=100) in September, after falling to 83.3 in August.

• Expectations fell back below 80 – the level that historically signals a recession within the next year. Consumer fears of an impending recession also ticked back up, consistent with the short and shallow economic contraction we anticipate for the first half of 2024.

“Consumer confidence fell again in September 2023, marking two consecutive months of decline. September’s disappointing headline number reflected another decline in the Expectations Index, as the Present Situation Index was little changed. Write-in responses showed that consumers continued to be preoccupied with rising prices in general, and for groceries and gasoline in particular. Consumers also expressed concerns about the political situation and higher interest rates. The decline in consumer confidence was evident across all age groups, and notably among consumers with household incomes of $50,000 or more.”

Assessment of Family’s Current Finances

Consumers’ assessment of their Family’s Current Financial Situation turned more negative in September.

Existing Home Sales Drop

“NAR released a summary of existing-home sales data showing that housing market activity this August declined 0.7% from July 2023. August’s existing-home sales reached a 4.04 million seasonally adjusted annual rate. August’s sales of existing homes weakened by 15.3% from August 2022.

The national median existing-home price for all housing types reached $407,100 in August, up 3.9% from a year ago.

Regionally, all four regions showed price growth from a year ago in August. The Midwest had the most significant gain of 6.8%, followed by the Northeast with an increase of 5.8%. The South increased 3.2%, while the West region rose 1.0%.

August’s inventory of unsold listings as of the end of the month was down 0.9% from last month, standing at 1,100,000 homes for sale. Compared with August of 2022, inventory levels were down 14.1%. It will take 3.3 months to move the current inventory level at the current sales pace, well below the desired pace of 6 months. Inventory conditions continue to be a challenge for potential home buyers.  

It takes approximately 20 days for a home to go from listing to a contract in the current housing market. A year ago, it took 16 days.

From a year ago, all four regions had double-digit declines in sales in August. The Northeast had the most significant dip of 22.6%, followed by the Midwest, which fell 16.4%. The West decreased 15.7%, followed by the South, down 12.4%.   

Compared to July 2023, two of the four regions showed declines in sales. Only the Midwest had an incline of 1.0%. The West region had the biggest drop in sales of 2.6%, followed by the South with a dip of 1.1%. The Northeast region was flat from last month.  

The South led all regions in percentage of national sales, accounting for 45.5% of the total, while the

In August, single-family sales decreased 1.4%, and condominium sales were down 4.8% compared to last month. Single-family home sales were down 15.3%, while condominium sales fell 15.4% compared to a year ago. The median sales price of single-family homes rose 3.7% to $413,500 from August 2022, while the median sales price of condominiums increased by 6.2% to $333,900.”

Builder Confidence Wanes

This is on the heels of the National Association of Home Builders reporting that: “builder confidence in the market for newly built single-family homes in September fell five points to 45, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index. This follows a six-point drop in August.

From the NAHB release: “As mortgage rates stayed above 7% over the last month, more builders are reducing home prices again to bolster sales. In September, 32% of builders reported cutting home prices, compared to 25% in August. That’s the largest share of builders cutting prices since December 2022 (35%). The average price discount remains at 6%. Meanwhile, 59% of builders provided sales incentives of all forms in September, more than any month since April 2023.”

Durable Goods Orders Up

New Orders New orders for manufactured durable goods in August, up five of the last six months, increased $0.5 billion or 0.2 percent to $284.7 billion, the U.S. Census Bureau announced. This followed a 5.6 percent July decrease.

• Excluding transportation, new orders increased 0.4 percent.

• Excluding defense, new orders decreased 0.7 percent.

• Machinery, up four of the last five months, led the increase, $0.2 billion or 0.5 percent to $37.8 billion.

Investor Confidence Index Inches Up

State Street Global Markets released the results of the State Street Investor Confidence Index for September 2023.

“The Global Investor Confidence Index increased to 108.7, up 0.9 points from August’s revised reading of 107.8. The increase in Investor confidence was driven by a 11.0 point jump in Asian ICI to 112.6, and, to a lesser extent, a 0.8 point rise in North American ICI to 104.7. European ICI, meanwhile, declined 6.2 points to 97.5.”

Sources: conference-board.org; nar.realtor; census.gov; bls.gov; nahb.org; statestreet.com; msci.com;  fidelity.com;  nasdaq.com; wsj.com; morningstar.com; census.gov

Copyright © 2023 Financial Media Exchange LLC. All rights reserved.

Distributed by Financial Media Exchange.

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In today's fast-paced world, where financial stability and security are paramount, your job isn't just a source of income; it's a treasure chest filled with valuable benefits waiting to be discovered. 

Of course the main thing we all look for in a job is a good salary, but a salary with minimal benefits is not worth too much when you consider the additional costs you’ll have for things like health insurance, life insurance, retirement, etc. Those costs will really start to add up, and your salary doesn’t stretch as far as you’d hope. That’s why it’s imperative to choose an employer that can offer benefits that help to save you money in the long run. 

As you navigate the intricacies of your career, it's essential to understand and harness the top five benefits commonly offered by your employer: health insurance, 401k plans, life insurance, flexible spending accounts (FSA) and health savings accounts (HSA), and miscellaneous perks like commute reimbursement and education funding. 

These benefits can be your secret weapons for a more secure and prosperous future. Join us on a journey to uncover the hidden gems in your employment package and discover why collaborating with a certified financial planner is the key to unlocking their full potential.

1. Comparing and Contrasting Health Benefits

When it comes to health insurance, vision, and dental insurance, the choices you make can significantly impact your financial well-being. Comparing and contrasting health insurance plans offered by your employer and your spouse's employer is a smart first step. 

Take a closer look at the coverage, premiums and deductibles, and out-of-pocket expenses. When deciding which plan to choose, consider factors like the size of the network, the quality of care provided, whether an HMO or PPO plan is offered, and any additional perks or wellness programs. Not to mention, you always want to consider how much of the premiums are covered by the employer. In some cases, it might be more advantageous to choose one employer's plan over the other, or you may find that combining coverage from both plans offers the best solution for your family's needs. 

Alternatively, if you are single and don’t have any dependents and your employer offers several health insurance plans to choose from, it's a good idea to weigh all the options before making your selection final. Remember, your health insurance isn't just about medical expenses; it's a vital financial tool that can safeguard your savings in times of need.

2. 401k: What it is and Why You Should Have One

Your 401k plan is the cornerstone of your retirement strategy, and understanding how it works can make a world of difference. Aside from working with a Certified Financial Planner, like Outside The Box Financial Planning where we offer Comprehensive Retirement Planning, it is crucial to understand and take advantage of the retirement benefits that are offered by your employer. 

One of the most significant advantages offered by employers is company matching. When your employer matches your contributions, it's like getting free money for your retirement. It's essential to contribute enough to maximize this benefit. 

Additionally, you'll need to decide between a Roth 401k and a traditional 401k. The key difference lies in when you pay taxes: Roth contributions are made with after-tax dollars, while traditional contributions are made with pre-tax dollars. Your financial planner can help you weigh the tax implications and make an informed decision that aligns with your long-term goals. Building your nest egg has never been more accessible.

3. Life Insurance: A Safety Net That Saves You Money

Life insurance is often overlooked as an employee benefit, but it can provide significant value. Many employers offer group life insurance policies, which can be more cost-effective than purchasing a policy on your own. 

While the coverage amount may be modest, it can be a crucial safety net for your loved ones, offering 2x your yearly salary, or even more. Even if you already have a personal life insurance policy, the employer-sponsored one can serve as an additional layer of protection. 

The premiums for group policies are typically lower, and some plans allow you to take the coverage with you if you leave the company. It's a financial win-win that shouldn't be missed.

4. FSA vs. HSA: The Power of Tax-Advantaged Savings

Flexible spending accounts (FSA) and health savings accounts (HSA) are powerful tools for managing healthcare expenses and saving on taxes. FSAs allow you to set aside pre-tax dollars to cover eligible medical expenses, reducing your taxable income. However, the funds are usually "use it or lose it" at the end of the year. 

In contrast, HSAs offer a triple tax advantage—contributions are pre-tax, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. HSAs also roll over from year to year, making them an attractive long-term savings option. Your financial planner can help you assess your healthcare needs and determine which account aligns best with your financial goals. To better understand how to take advantage of your HSA benefits, check out this blog post!

5. The Miscellaneous Employee Benefits

Beyond the core benefits, many employers offer miscellaneous perks that can have a significant impact on your financial well-being. Reimbursing any expenses incurred for your commute to work, for instance, can help you save on transportation costs, reduce your taxable income, and contribute to a more sustainable lifestyle if you opt for public transportation, like taking the train to work. 

Another benefit that some employers offer that can be a huge perk - funding further education, whether through tuition assistance or professional development programs. This can open doors to career advancement and increased earning potential. 

These benefits are more than just workplace conveniences—they are financial opportunities that can boost your overall quality of life. These are benefits that you should absolutely take advantage of, whether or not you are planning on going back to school for another degree, or simply if you want to learn more about the field that you’re in - one is never done learning! 

The Power of Partnership: Your Certified Financial Planner

In conclusion, your employee benefits package is a goldmine of opportunities waiting to be explored. Maximizing these benefits requires a comprehensive understanding of your options and a strategic approach to align them with your financial goals. 

This is where a certified financial planner becomes your greatest ally. With their expertise, you can make informed decisions about health insurance, optimize your 401k contributions, leverage life insurance policies, navigate the complexities of FSAs and HSAs, and harness the full potential of miscellaneous benefits. 

Together, you can unlock the hidden value of your employment package and build a more secure and prosperous future. Don't leave your financial success to chance—partner with a certified financial planner today and embark on a journey to financial wellness and peace of mind. Your future self will thank you for it.

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Partnering with Outside The Box Financial Planning offers numerous benefits for individuals seeking college planning, retirement planning, small business support, wealth management, and beyond.  As a fee-only fiduciary with a comprehensive approach, unbiased advice, and transparent fee structure, OTBFP acts as a trusted advisor who prioritizes your best interests. Click here to schedule a complimentary “Fit” meeting to determine if we would make a good mutual fit.

Remember, financial decisions have long-lasting implications, and working with a professional can provide the expertise and guidance necessary to make informed choices that align with your financial aspirations. However, if you would like to take a shot at building a financial plan on your own, we offer our financial planning software, RightCapital, free of charge. Click here to get started.