The right move on 401 (ks)


Good afternoon,

Last week, I wrote about DuPont turning over its pension plan over to spin-off ag company Cortera.

The decision brought concerns about the future of the defined-benefit plan that pays out a monthly check to thousands of retirees in Delaware.

As I noted in this space, the longer term issue involves the 401(k) plans that have been in place for decades.

DuPont was late to the game, but put an employee-employee match 401 (k) plan in place a decade ago. The DuPont 401 (k) plan gets high ratings, according to Glassdoor.

The question for DuPont and other companies going forward is whether this system is creating a retirement time bomb in coming decades.

Under a 401 (k) anindividual can pile up a nice nest egg by maxing out the tax-sheltered employee-employer match and kicking in some extra money.

The problem comes in the regulations, such as job changes and human behavior. Other problems come with personal decisions. Too many opt for either ultra-conservative or bet the house investment styles that are equally risky.

One story that made the rounds at a former employer involved a staffer who switched funds regularly and somehow ended up losing a lot of moneyduring the tech bubble nearly two decades ago. Another area employer saw too many workers investing in money market accounts with tiny returns.

Another pitfall – It is not always easy to roll over an IRA to your next employer. I always turned it over to a broker, but one mistake has tax consequences.

Confronted with that hassle, many people simply pocket the money from the 401 (K), even with the tax consequences. For younger people in particular, the lack of early seed money can lead to tens and even hundreds of thousands less at retirement.

Make a down payment on that home with a 401 (k) and you could be sitting at home when retirement rolls around.

The Trump Administration is making the right move in working to makeit easier to move IRAs over to new employers.

The next move should allow employees to “opt out” of 401 (ks).In other words, an individual would be automatically signed up for a 401 (k) and would have to sign out of a plan. At present, you are presented with a sometimes bewildering array of forms often with little instruction. It is all too easy to do nothing.

The newsletter takes a break tomorrow but will return for “Black Friday.” Have a wonderful Thanksgiving. – Doug Rainey, publisher.

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