Note: FutureAdvisor does not manage your 401(k), except in the case of an SDBA with Fidelity NetBenefits, as described below. Investors are encouraged to consult with their plan sponsor with any specific questions.
How does FutureAdvisor help with 401(k)s?
The first step is to link your 401(k) to your FutureAdvisor account so that we can see and analyze your 401(k). To link your 401(k), or any additional accounts, log in to your FutureAdvisor account, click on the My Accounts tab, then select Link another account.
When you return to your retirement dashboard, you should see your second to last best practice, of your “9 Best Practices,” go from a red X to a green check box. Since each of these nine best practices is expandable, click on the expander arrow and you will see a link to get personalized advice on your 401(k).
Do you make adjustments in my managed accounts if I link my 401(k)?
No, linking your 401(k) does not impact the trades in your managed accounts.
What kind of Advice for my 401(k) can I expect?
As you will see in the free advice tool, our advice can provide you with a detailed 7 position portfolio, a simple 3 position portfolio, or the simplest of all options, a target date fund (TDF) recommendation. The 3 and 7 position portfolios are more aligned with our investment philosophy and how we manage your other investments. Since every plan has different options, take a look at your available funds to find ones that match with our recommended asset classes. We list some common examples to make this easier.
Like your IRA or taxable account, this advice is tailored to your risk tolerance and years until retirement. Therefore, as your age and years until retirement change, so will the 401(k) allocation recommendations.
It is important to keep in mind that the 3 and 7 position portfolios require regular rebalancing. We recommend setting a recurring calendar reminder to rebalance at least annually, or better yet, quarterly. Or, If you are fortunate enough to have an auto-rebalancing feature in your plan, you could match our target allocations to your plan options. Just remember to update the target allocations yearly, as those will change each year as you approach retirement.
For many investors, regular rebalancing can simply be too much work. If this work is not done, your asset allocation, and thus performance, could stray from our recommendations. For these investors, a TDF can be a suitable alternative, as there is little to no maintenance involved with a TDF. You would simply choose the TDF that most closely matches your projected retirement year and the rest of the work is done for you.
If your 401(k) plan only offer mutual funds that have high expense ratios, consider looking for a TDF. Some TDFs, such as those offered by Vanguard, are typically inexpensive. TDFs do have limitations though. Namely, many TDFs exclude certain asset classes, such as REITs, TIPS, international bonds, and emerging markets. However, if you really don’t want to think about your 401(k) and/or don’t want to rebalance your 401(k) regularly, then a TDF may be a suitable alternative to a 3 or 7 fund portfolio.
Click Here to See Step-By-Step Instructions
From your main retirement dashboard, click on your retirement account, or the “View Details” button to get into your retirement portfolio.
On the nine best practices page, scroll down to the bottom of the page, and click on the second to last drop-down labeled “Save into an employer-sponsored retirement plan to save on taxes”.
Click on the link at the bottom of the drop down to get personalized advice.
Our 401(k) recommendations are made in-line with the same retirement age and risk tolerance settings you selected for your retirement portfolio.
If you would like to adjust your retirement age or risk tolerance settings, please go to your “Edit Plan” tab and make any necessary adjustments.
Can FutureAdvisor manage my 401(k) for me?
Sometimes we can! If your 401(k) is held at Fidelity NetBenefits and your plan allows for a BrokerageLink (BL) account, sometimes also referred to as a self-directed brokerage account (SDBA), then we may be able to directly manage, trade and rebalance your 401(k) for you - without any management fees! Link your Fidelity NetBenefits 401(k) to your FutureAdvisor account and then email us -- we’ll check to see if your plan administrator allows third party management. If it does, we’ll email you the instructions on how to open and fund an SDBA at Fidelity. In addition to having your monthly 401(k) contributions automatically invested and rebalanced for you, this would allow your 401(k) to work in tandem with your existing accounts. This means you’ll benefit from tax-efficient asset placement. If we can manage your 401(k) for you, we’ll build you one, comprehensive, portfolio.
If your 401(k) is not held at Fidelity NetBenefits, or your administrator does not allow third party management, we can help you construct a well-balanced and well-diversified account using the self-help tools described above. Meaning, you would have two independent portfolios, each well-balanced and well-diversified.
Is my 401(k) included in my retirement projections?
By default, we do not include your 401(k) value when calculating your total amount at retirement or yearly income in retirement. If you’d like to include your 401(k) in these projections, just email us and we’ll make the adjustment. Remember, you are only billed our management fee on the accounts we directly manage / trade for you. So you will not be billed on your 401(k) assets, even if included in your retirement projections.
If we manage your Fidelity NetBenefits SDBA as described above, the value will automatically be included in your retirement projections.
How much should I save into my 401(k)?
Though there are a lot of other considerations an individual saver or a family should consider before making this decision, generally we advise that our clients should contribute the maximum each year to their 401(k). Since the annual maximums change regularly as do the over age 50 catch-up contributions, please check the IRS.gov website to see what this year’s 401(k) maximums are as well as what the amount is for catchup contributions for 401(k) savers 50 and over. The 2016 limits are $18,000 for those under 50 years old, with an additional $6,000 “catch-up” contribution for those age 50 or older.
If you can’t max-out (a term meaning to make the maximum deferral amount per year allowable by law) your 401(k), then we will typically advise clients to at least contribute the minimum amount of money necessary to receive your company’s full matching amount. If you have questions about what the matching amount is or how it works and is paid, please contact your plan administrator for your company and/or custodian. Their number is typically listed on their website or at the top of your 401(k) statement.
What is the deadline for 401(k) contributions?
401(k) contributions are what’s called “salary-deferred contributions” which means they come directly out of your weekly, bi-weekly, or monthly paycheck. Because they do not, and cannot, come from after-tax account contributions, and because they come from your paychecks for that specific contribution year, your deadline to “max-out” your 401(k) is the calendar-year-end, December 31st. Note that some plans have caps on the percent of your salary you can contribute to your 401(k), so it may not be possible to “catch-up” and contribute the full amount the last two months of the year, for example. Bottom line: don’t wait until mid-year or the end of the year to start contributing. As with saving in general, try to save early and often!
Should I Front-Load my 401(k)?
Front-end loading a 401(k) simply means trying to max-out your annual 401(k) contributions as early in the year as possible. There are two main considerations when thinking about front-loading your 401(k):
1) How and when does your company pay its matching portion of 401(k) contribution?
2) Can you afford to forego a large portion of your income for the first few months of the year?
The rationale behind front-end loading your 401(k) is actually simple reasoning. If you can invest the maximum in your 401(k) early, then those savings have all year to potentially grow for you and collect dividends. From a pure investment standpoint, it makes sense to try and max-out your 401(k) as early as possible (saving earlier is generally better than saving later). (Of course, as with any investment, there is a potential to lose value.)
However, some employers have set up their 401(k) plans so that you must make a contribution every paycheck throughout the entire year in order to receive the maximum company match. This could be especially true if your company 401(k) plan doesn’t have what’s called a “true-up” contribution whereby the company takes a look at your total contributed dollars to your 401(k) for the year and determines if you are eligible for the maximum company match amount. If you are eligible, but the company didn’t pay the full match to your 401(k), then they may make an additional “true-up” matching contribution early the following year.
Example: if you only made 10 paycheck deferrals to your 401(k) in a calendar year, but you contributed the maximum amount required to receive the maximum company match, some companies will make you whole and give you a true-up contribution early the following year. Keep in mind that some don't, so be careful because that is free money that you have left on the table because you didn’t understand how the nuances of your company 401(k) plan. For plans without a true-up contribution, you will most likely want to spread out your 401(k) deferrals across every paycheck for the calendar year so as to obtain the maximum amount of your eligible company match. Check with your 401(k) plan admin by calling your custodian or the number at the top of your 401(k) statement to find out how your your company 401(k) plan handles and pays its company match.
Should I save into my IRA or 401(k) first?
The deadline for most people to max-out their Traditional or Roth IRA is prior to filing their income tax returns, which generally means most people have until April 15th of the following year to make their previous year IRA contributions. For this reason, it can “buy you more time” if you first contribute as much as possible to your 401(k) for the year until December 31st, and then continue to save as much as you can from January to April so that you can then contribute those savings to your IRA for the previous year. Ideally you want to get ahead of this savings power curve, however, especially when savers are first starting out, this tip can help maximize your tax-deferred and tax-exempt savings when dollars to save might be difficult and scarce.
How will distributions from my 401(k) be taxed?
Generally, all pre-tax 401(k) assets that are distributed after age 59 1/2 will be subject to federal and state taxes at your income tax rate. And remember, some states (such as Florida or Nevada) do not have a state income tax, hence why many retirees decided to relocate there. The reason that your 401(k) is not subject to other taxes, specifically the FICA (Federal Insurance Contributions Act) tax which includes Social Security and Medicare, is because your 401(k) contributions were subject to FICA taxes before they were deposited into your 401(k). To avoid double-taxation, your 401(k) withdrawals are not (again) subject to FICA withholdings. Roth 401(k) distributions typically do not incur a tax liability. (Investors are encouraged to consult with their tax advisors to answer specific tax-related questions. FutureAdvisor does not provide tax advice.)
We hope this helps explain more details about your retirement plan options and how they fit into your FutureAdvisor portfolio!
The views expressed are for informational purposes only and are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor. All expressions of opinion are subject to change without notice in reaction to shifting market, economic, or political conditions. The investment strategies mentioned are not personalized to your financial circumstances or investment objectives, and differences in account size, the timing of transactions and market conditions prevailing at the time of investment may lead to different results. Clients may lose money. Past performance is not indicative of future results. Investments in securities involve the risk of loss. Any tax strategies discussed should not be interpreted as tax advice and do not represent in any manner that the tax consequences detailed will be obtained. Clients should consult with their personal tax advisors regarding the tax consequences of investing.