Ready to dive into the confusing world of 401Ks? Join Tiffany Grant in this must-listen podcast episode as she shares her conversation with a phlebotomist who sparked the topic.

Tiffany discusses why 401Ks are essential to your total rewards package and how to utilize employer-matching contributions to build retirement savings. She decodes the tricky language of 401Ks, clears up misconceptions about vesting schedules, and offers valuable advice on whether to roll over your 401K or leave it with your previous employer.

Don't miss out on this informative and eye-opening discussion to help you make the best decisions for your financial future!

Every Tuesday, Tiffany answers one of your submitted questions. To submit a question for an upcoming episode, visit https://www.moneytalkwitht.com/asktiffany.

Connect with Tiffany

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Additional Links & Resources

• Retirement Planning Articles
• Investing In Employee Benefits: How Employee Benefits Packages Boost Performance And Morale
• Employee Benefits Articles
• Capitalize - 401(k) Rollovers Made Easy

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Copyright 2023 Money Talk With Tiff

Intro/Outro: You know what it is. That's right. It's time to talk

money with your money nerd and financial coach.

Now tighten those purse strings and open those ears.

It's the money talk with Tiff. podcast.

Hey, hey. And welcome to another episode of Tiffany's take,

where I answer your questions right here on the

podcast. Now, if you want your question answered, just go

to

Tiffany, and I will be more than happy

to answer for you. Also on the website, I have a

lot more information. So I have a whole bunch

of blog articles and things, and especially on the

topic that I plan on talking about today. So, first

and foremost, let me just say, y'all, I apologize for

last Tuesday's episode. It sounded

horrible, and I realized after the fact

that I didn't have my good mic on. So hopefully this

week sounds better. But I felt so bad that your

listening experience wasn't optimal last week,

so I apologize for that, but let's go ahead and

hop in. So, this morning, I actually had a

doctor's appointment. And as I was

sitting in the chair, I'm recording this on

Monday, to get my blood drawn,

the phlebotomist asked me, what do you do for a

living? So, of course, when I said, oh, I do financial

counseling, everybody always hits me with their money

questions, right? So he

started asking me as he was drawing my blood, and you're probably like,

well, Tiffany, it doesn't take long to draw your blood. They had to

draw, like, 15 vials. I kid you not. It was a

lot, because they're trying to figure out what's going on. But

anyway, as he was drawing my blood,

he was like, well, Tiffany, what do you think about

401 ks? And so I thought that this would

be a great conversation to have on the podcast, because

as I was telling him some information

about his specific situation, he was just

like, okay. So I figured it was good

information. So, anyway, let's get right into it. When

you are thinking about your four hundred and one k at your

job, first of all, keep in

mind that any of your

employee benefits are included in your total

rewards, what we in HR call total

rewards. So that means that is your entire

benefits package. So your total rewards

encompasses your salary. It, also

encompasses all of the benefits that you get

as an employee of that company.

So if you don't take advantage of benefits,

then you're kind of leaving part of your

compensation package on the table. So that's one way

to look at it. The other way is if you

have a 401K available at your job

if your company matches,

there's some circumstances where maybe you

really can't afford to, but most

of the time, you want to take advantage

of that benefit up to the match. Okay,

so that's what I was explaining to the guy. I was like,

definitely invest in your four hundred and one k. A lot of

the people that I know that are millionaires

got there from their 401,

honestly. and when you

read about the millionaires next door,

a lot of times they gain their riches

from 401 or iras or just

investing for the long haul. So 401K is a

great way to get into the market, and do

so with a pretty low barrier to entry.

Right. you can get

your deductions, and so they just take it automatically

out your check. You don't have to really think any extra about

it. Just put your money in there, invest

it, and it does its thing. So I always recommend,

if people are wanting to get started in investing in the

market, to go ahead and start with their

401K, right. And up to the match.

So if your company does a match, the match

works in a few different ways. And this is what I was

explaining to him as well, because he was kind of confused about

how matches work and all that

stuff. So usually you'll

hear, and I'll just throw an, example

one out there, we'll match

50%, up to

6% of your

income. Okay, so what does that

mean? That means that they will

match 50 cent on every

dollar that you put in,

but only up to

6% of your annual income. So like, let's

say, for instance, and I'm, pull up my calculator here.

Let's say that your annual

income is, let's just use a whole number,

$100,000, right, a year. So

that means that up to

$6,000, they will put in

50% of that. So if you put

in $6,000, they'll put in

$3,000 for the entire year. Okay,

so that's what that means when it says

50% up to 6%, or sometimes you can see

100% up to 6% or 50%

up to 5%. That's what all of that means. It

means that they will match the first

percentage amount up to the second

percentage amount, which is your annual income, a

percentage of your annual income. So now that you know

that, definitely look at your employee benefits and

see where you stand, because every company is different,

and I can't stress that enough. Don't think when you

go and you're investing in your 401k in one

company, that it'll be the same exact thing at the next

company, because, honestly, I have

never been at a company where it was exactly

the same. Okay. and I've had quite

a bit of jobs over the years, so definitely check over your employee

benefits and see what you are

offered. Now, once we get past the

match. Right. We also have to look at the vesting

schedule. So what is vesting? Vesting

is when a company says, you have to be

with us for x amount of years before

what we put in is completely yours.

So let's take the same example. We've put in

6000 for the year. The company has put in

3000 for the year. And let's say that the

vesting schedule is

25% by year,

350 percent by

year five, and then 100% by year

six. And that's very dramatic, y'all, but I'm just

trying to get an example out. Okay? So keep with

me. If you leave

the company before year three,

then you may not get access to

that $3,000 that they put in.

Right. If you leave the

company after year three, you

get access to 25% of the

$3,000 that they put in. Now,

mind you, the vesting schedule does not

affect anything that you put in. Whatever you

put in is yours to keep, okay? This

only affects whatever the company has put in

on your behalf. So also, keep that in mind.

They're not going to take your money, because that's

another, narrative I hear out

there, with people, typically, that want to sell you life

insurance, but they'll say, oh, if you leave the

company, they'll take your money. Well, really,

honestly, if you look at the vesting schedule,

you'll know, when you should leave

the company, if you're planning on leaving,

and how that would affect your

retirement dollars. Now, they're not taking your

money that you put in. They're taking

their money that they put in. So it's kind of

misleading when they say that, because it doesn't

affect your money at all. They're not taking, let's say,

25% of your money that you put in. It's

only what they match. So keep that in mind, too.

Another thing to keep in mind when it comes to

401 is when

you leave a company. Okay? Let's say

you've been investing in a company. They have a

401. When you leave a company,

depending on m, what your income is. So

I will say, get with a financial professional to

discuss your options in your specific case.

But most of the time, it's more

beneficial to roll it over into an

IRA versus keeping it into

that. Reason I say that is

because when you're at a company, like I

said, this is part of your benefits, right? And

so they are taking the hit on

fees for you. So once you leave

the company, you no longer have that benefit. So

guess what? Your fees may go up. So that means

a portion of your investments, a bigger

portion of your investments go to the

manager of the 401K, right?

Not the manager at the company, but where they

house the, So

when you leave the company, your management fees may go

up when you leave a company. Also,

the broader market, which you could find in the

IRA, has more options than the

workplace. Four hundred and one k. The workplace

401, they choose what you can

and cannot invest in. So that's why you only

see, typically it's, like target

date funds or lifecycle funds, and then you

may see a few other types of funds

that you can sign up for, what have you. But your options

are limited. When you go over to an

IRA, which is an individual retirement account,

you have access to the entire market, and so you

can invest in whatever it is your heart desires.

You're not limited to those options.

Also, a lot of times, people forget about

their 401 ks, honestly. And

so if you leave the, your previous

employer, it may be way down the line, and

you're like, oh, I forgot I had a 401k over

there. I get that all the time. where you

forgot that you even had a there

somewhere. And so that's why I say, most of the

time, it's in your best interest to roll it over to a

rollover IRa. Now, when you do that, and this could

be a whole other episode, but I want to make sure I mention it

here. You want to make sure that you do a direct

transfer rollover. You do not want the type of

rollover where they actually give you a check,

and they count it as you cashing it out

because that also will hurt

you because then you'll be taxed on

it. You'll be penalized because nine times out of ten,

you haven't met retirement age yet. And so you

want to make sure you request a direct transfer rollover.

Those are the keywords. Okay. So you shouldn't get anything

in your hand that you're not directly

putting over into another account.

Okay? So keep that in mind.

So those are just some things

about 401 ks that I wanted to get out there that I

had the conversation about this morning, and I figured it would be helpful to

get it out to a broader audience. If you have

any questions about 401, I'll be more than happy to

answer for you. Benefits are my jam, so please

shoot those questions over if you want a little one on one help.

I also take one on one counseling clients. And

if you need help with rolling over 401

ks or finding 401 ks, I have

a resource that I'm going to put in the show notes as well

that can help you do just that. I've had a couple of clients use

them, and they were satisfied, with the

ease of doing that process, and it was

helpful for them. So I'll share that with you all as well.

But in the meantime, in between time, I hope that cleared up some

information about 401, and

it is a great investment to use. Like I said,

there's a lot of people that make their

millions from 401. Of course,

over time, we're talking a whole career's worth

of putting in money, but it's

a great benefit to have, and honestly, one that

I truly missed with being an

employee. as an entrepreneur, I do not have

that luxury. There are ways that entrepreneurs

can do that, but it's, something that I'll go over in

another episode because this one's getting a little too long.

But, I really miss

that as a benefit. So if you

do have access, please make sure that you're investing in

your 401 up to the match. If you want to

do anything over the match,

you can do an IRA, you can do something

different. It's completely up to you. Get with your financial

professional, but that's just the route that I go. and

this is not investment advice. This is for entertainment and

educational purposes only. So please do not say,

well, Tiffany said I should not

do my IR. so

please do not say, Tiffany said I shouldn't invest

in my four hundred and one k past match or I should do

an IRA. Tiffany is just telling you the options that

are out there, okay? Everybody's

situation is different. And, oh, speaking of, that's

where I was going with the 401K. Leaving it at your

employer. If you are a high earner, it's best

if you leave it, because then you can do a backdoor

IRA later on and I'll do another episode with that.

But that's just a little tidbit. So if you make a lot of money,

you might want to keep the whatever

employer is at because it may be more beneficial.

So that's why I say personal finance is personal,

because it just varies by the individual

situation. Anywho, all right, y'all, y'all have a

wonderful rest of your day and I will see you

next week. Bye.

Intro/Outro: Thank you for listening, joining and being a part of the Money

talk with TIFF podcast this week. You can check Tiff

out every Thursday for a new Money talk podcast,

but if you just can't wait until next week, you can listen

to previous podcast

episodes@moneytalkwitht.com

or follow TIFf on all social media

platforms at Moneytalkwith.

Until next time, spend wise by

spending less than you make a word to the moneywise

is always sufficient.