Go to Jeff Salisbury LWGate Home Page.From: "Jeff Salisbury" <jeff@csd.sdl.usu.edu>
Subject: Look for ways to boost deposits into 401(k) plan
Date: Wed, 28 Apr 1999 10:43:13 -0600
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Persfin'ers, On Sunday, I read an article in our local paper titled "Look for ways to boost deposits into 401(k) plan". The article is terrific. It points points out various situations where we can increase our savings rate with almost no impact on our current spending. I found it insightful and wanted to pass it along to you. For the past 10 years, my wife and I have adopted some of the concepts in this article. I've been amazed at the results -- both in terms of account balances and at how painless the savings has been for us. Best Regards, Jeff ======== www.deseretnews.com Headline: Look for ways to boost deposits into 401(k) plan Subhead: Try to avoid borrowing from the tax shelter Author: By Kiplinger's Magazine Date: April 25, 1999 A great thing about a 401(k) is that you can sign up and forget about it. The money you set aside disappears from your paycheck before you get your hands on it. Although this autopilot approach is relatively painless, don't be lulled into complacency. Keep your eyes open for ways to slip more cash into this tax shelter. Plans set contributions at a maximum percentage of your salary, up to 15 percent, and federal law caps annual contributions at $10,000 in 1999. A lower limit may apply if you earn more than $80,000 or are among the 20 percent of your company's highest-paid employees. If you're not maxed out already, don't overlook these opportunities: - -- Maxed out on Social Security taxes? This 6.2 percent levy stops when earnings pass $72,600 this year. If you cross the threshold, boost your contributions so your 401(k) gets the cash the government used to take. - -- Refinanced your mortgage? Sock some of your savings from the lower rate into your 401(k). - -- Locked out of a new employer's plan for a year? Do a little payroll deducting on your own, saving the money in a taxable account until the doors of the 401(k) open. Then double up your contributions for a while, using the money you set aside to make up for the shortfall in your paycheck. This lets you retroactively capture both the tax savings and the employer match. - -- End-of-year bonus? Ask if you can deposit part of it in your 401(k). Rules vary. - -- Are you overwithholding? If you got a $1,500 tax refund this spring -- about average for the 70 percent of taxpayers who got checks from the government -- file a new W-4 form with your employer to cut your withholding, then boost your 401(k) contribution by the same amount. Once you've hit the 401(k) ceiling, try not to undo all your hard work by borrowing. Although most plans offer loans of up to half of your vested balance (with a $50,000 limit), these deals might not be as sweet as they seem. Plan loans usually charge the prime rate plus one or two percentage points -- these days, 8.75 percent or 9.75 percent. That interest goes right back into your 401(k) account, but that doesn't mean the loan is free. Say you borrow money from your 401(k) at 9.75 percent interest, but the money you pulled out of the account had been earning 15 percent in a stock fund. That 15 percent is the real cost of your loan. And remember, you also lose all future compounding on the lost earnings. - ---------- Copyright 1999, Deseret News Publishing Co. - -
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