The Real Value of a 401(k) Plan


We all know putting money aside in a tax deferred account is a good idea. Businesses should offer these to employees for many reasons, not the least of which is that an employee that saves is a good employee. However, the cost of administering retirement plans can be daunting. SIMPLE’s are the cheapest and Defined Contribution plans tend to be the most expensive. The traditional 401(k) plan isn’t always the best bang for the buck-however, these plans pack a punch that often go overlooked by the small business owner. A great reason to consider a traditional 401(k) is the extra $10,000:

  • In 2016, an employee may contribute up to $18,000 toward their retirement. But, if your plan is so designed, they may then be able to contribute an additional $10,000 as an after tax in-plan IRA contribution. This additional contribution is without regard to discrimination testing so the business owner can also make this contribution! So, a business owner who is also an employee participating in the Company 401(k) plan can contribute up to $40,500 to a retirement plan without having to set up pension and profit sharing plans and be subject to discrimination testing. Here’s the math for an owner/employee older than 50:
    • Traditional 401(k) contribution: $18,000
    • Catch-up 401(k): $6,000
    • After tax in-plan contribution: $10,000
    • Total 401(k) plan contributions: $34,000
    • Traditional self-directed IRA contribution: $5,500
    • Catch-up IRA: $1,000
    • Total IRA contribution: $6,500
    • Total retirement account contributions: $40,500

PLANNING NOTE: Roll the $10,000 and the $6,500 contributions to a Roth immediately for a $16,500 Roth contribution in spite of earnings limits.

If you have any questions please call our office, 314-993-4285.

Tips For Stacking Your Retirement Plans

twojobsIf you receive side income from a second job, now is the time to start adding to your retirement nest egg! Of course, this can get a bit tricky: based on the type of side work you perform, you need to evaluate which plan you need to open (if any) and how much money you can put into it.

The team at Hauk Kruse & Associates is here to give you a few pointers.

Types of retirement plans:

If both of your jobs are through employers that sponsor 401(k)s, you probably don’t need to open another retirement account, but it is important to check that you’re coordinating your contributions to the two plans.

If you receive side income from a consulting job or self-employment, you can either fund a solo 401(k) or a SEP-IRA. *It is important to know that just because a solo 401(k) is the best option for one year, it does not necessarily mean it is the best option for the next year.

How to determine how much money you can put into each of your plans:

For your 401(k) offered by your day-job or for a solo 401(k), you can put away $18,000 (or $24,000 if you are 50+ years old) in 2015, with a maximum of $53,000 for 2015.

The SEP-IRA is typically the best option for someone who has already maxed out a 401(k). For a SEP-IRA, you can put up to 20% of your net earnings, after subtracting the 1/2 of your Social Security and Medicare taxes that are deductible, with a maximum of $53,000 in 2015.

This marks the last Retirement Tuesday post! Please feel free to  please contact our office at 314-993-4285 and talk to one of our CPAs if you have any questions on retirement!


5 Ways to Make Your 401(k) Work For You

401kA 401(k) is an employer-sponsored retirement savings plan which allows you to save a portion of your paycheck before taxes are taken out.

You most likely already have a 401(k)… one that you set up a while ago, automatically put the same percent of your salary to every pay period, and rarely think about. Hopefully, the fact that you are reading this means that you wish your 401(k) could be better for you.

Hauk Kruse & Associates is here to tell you that it can!

Here are 5 ways to make your 401(k) work for you:

  1. Ignore the “recommended salary percentage” you’ve seen during all your research. Instead, contribute what works for you.Most people will recommend that you put 10% of your salary in your 401(k), but in reality you should contribute as much as you can. The annual contribution limit is $17,500 for 2014 and $18,000 for 2015. Your goal should be getting as close to those caps as possible while still being able to pay all your living expenses.**hint: If you get a raise, raise your contribution amount. Unless you have a major life event, your living expenses will be the same as before your raise. Therefore, you can put all that extra money straight into your 401(k). Most plans even have an “auto-pilot” setup that will boost your contributions for you.
  2. Take risks that match you.When it comes to putting your money in stocks and bonds, you need to make sure that you have a mix which reflects:
    Your industry: Think: If the market goes south, how at risk is your career? If it’s low, you may be able to take more risks with stocks. If it’s high, you need to take less risk and go with more bonds.
    Your age: Keep this rule of thumb in mind: The closer you are to retirement, the less stocks you should have.
    Your risk tolerance: If you aren’t a huge risk taker, you shouldn’t stress yourself out with too many individual stocks (consider mutual funds!)…. but you need to be careful about taking no risk at all. The opposite goes for the big risk takers…. it goes without saying that taking too much risk can lead to bad turnouts.** hint: Never have all stocks or all bonds! A properly weighted portfolio leverages stocks and mutual funds to spread risk equal to your age and risk tolerance.
  3. Don’t touch your money until you actually retire. Any money you withdraw from your 401(k) before you turn 59 1/2 is subject to a 10% penalty plus income tax. (See Tip #5 below for the one exception to this rule).** hint: Contribute what works for you. If you feel that you are contributing too much causing you to have to withdraw from your 401(k), you can lower your payments… and even stop them all together if you must. Each company has their own rules on how often you can change your contribution amounts (it can be monthly, quarterly, semi-annually, or annually). Contact your HR department to find out your company’s rules.
  4. Always, ALWAYS take the match.No matter what percent your employer is offering you… take the match! Whether it is 3% or 15%, it is still FREE MONEY.
  5. Lastly…. If you leave your employer before retirement age, rollover your 401(k).If you leave your employer before the age of 59.5, you can transfer (or rollover) your 401(k) plan to an IRA without being tax or penalized. You can even rollover multiple 401(k)s to a single IRA… so if you have left other employers before, you can rollover those 401(k)s too.There is only one exception to this rule: if you retire between 55 and 59.5, you should not rollover your 401(k). There is a special provision in 401(k) plans that allow those who retire between the ages of 55 and 59.5 to withdraw from their 401(k) without the penalty tax. You will be immediately disqualified if you rollover your 401(k) to an IRA.

As always, the team at Hauk Kruse & Associates hopes that this information has given you something to think about. If you have any questions regarding your 401(k) and how you can make it work for YOU, feel free to call our office at (314) 993-4285 or e-mail us at