Hello, and welcome to the retire. Once show the showdesigned to help you get to retirement, but most importantly, stay retired. I'myour host, Johnathan Rankin. And I'm the founder and CEO of theorem wealthmanagement. I'm joined today by my lovely cohost. Hi, I'm Melissa Rankin.Thanks for joining us. We have a lot to get to today.

There's been a lot going on in the markets, obviously withall the volatility. I mean, this is what the seventh straight week the Dow hasbeen doing. And, uh, that's the longest run in the past 20 years. So a lotgoing on out there, we completely understand. Um, but today we're going to betalking all about 401k.

We saved up what, a couple of questions, a few questions,and we've got a lot to go over. So if you have questions for the show, makesure you had to retire once show.com. You could submit all of your questionsthere. Uh, we'll link to that in the show. Um, but before we get to that, whatdo we want people to do?

We want you to subscribe. We want you to like us. We wantyou to rate us five stars and we want you to tell everybody, you know, allabout this amazing show. That's right. Because. It's volatility out there.There's a conflict in war in Ukraine with Russia here. This is retirementparadise. So it's it's, this is a safe place.

So tell all of your friends to all of your friends to comehere to our safe Haven for retirement, which is the retire, want show, uh, hitthat little share button. It's the arrow, the arrow that goes, what are youdoing here is doing the arrow that, uh, that goes to the side. So share. Yeah,that's the, that's the technical definition or the technical, you know, signlanguage there for the share button.

So, uh, with that, let's go ahead and get to the firstquestion that we got. Okay. So our first question comes from Sally. She says,hi, Jonathan and Melissa. I have to say that I absolutely love your show. AndMelissa, don't listen to Johnathan about canceling your carwash membership. Ihave a number of subscriptions that my husband doesn't understand why I keepthem, but they make me happy.

Thank you so much. I was never going to cancel. I just wantto make sure everybody knows that, but I appreciate the feedback. Is it, isthis the reason why you added this question into here because of this? Yes.Number one. Yes. Yeah. I needed that. I needed him to know that. So thank you,Sally. Well, thank you, Sally.

So her actual question is how much should I be contributingto my 401k? My company does have a match. Should I just do that amount or more?Thanks for your help. Thank you for the question, Sally. Thank you for thequestion, Sally. So Sally's question. She's asking. Um, how much she should becontributing to for her 401k.

Should she just do the company match or more? What are yourthoughts on that? So, absolutely. Sally, you want to make sure you're takingfull advantage of that match that is free money that you would be giving up. Ifyou don't contribute to that, don't leave any money on the table. Not at all,especially in a market like this.

You want every nickel that a, that you can get. So save asmuch as you can up to that match. If you can just do that. Uh, if once you're,once you get up to that match level, then you have some decisions to make, andthat's where you want to look at your life and figure out, okay, do you have a,an emergency fund of three to six months of just cash in the bank in caseanything happens?

So, you know, I would say, do up to the match and then afterthat, make sure you've got that emergency fund, that's there for you. And thenonce you have that, that's where. You can start looking at different savingsvehicles you can look at. Do you go back to the 401k? Do you continue to savein a traditional brokerage account, or maybe you look at a Roth IRA.

And there was actually an interesting article that I ranacross by a, uh, a financial writer. His name is Nick muh, Julie, and the titleof the article was why you shouldn't max out your 401k. You should not why youshould not interesting. So what Nick did in the article was he evaluated thedifferences between saving and.

A brokerage account and in the 401k. And what he looked atfirst was comparing a Roth to a brokerage account because that's both after taxdollars that you're saving. So in the comparison, what he did was he had thebrokerage account be a complete buy-in hold straight. Because that way, there'sno capital gains tax.

So for 30 years he ran this, uh, this simulation to say,okay, 30 years you invest and you don't sell or make any changes. So you're notactively trading the brokerage account, this compare. And so what you ended upwith was the Roth ended up with $114,000 more in this illustration, which wasworked out to about 73 basis points.

Which yes, $114,000 more, obviously that's a good amount ofmoney that is a lot more money than you had in the brokerage account. But thequestion you have to ask yourself, as you know, is it worth tying your money upuntil you're 59 and a half? You know, because traditionally you're not goingto, you're saving in a retirement account for retired.

So you don't want to tap in that early, but by putting thatinto a Roth know, you're at least tying up those funds for a long period oftime. Whereas with a brokerage account, you have more flexibility. So that wasa, that was one thing to look at. And then, uh, he also looked at a traditional401k. So going back into the 401k versus that taxable brokerage account.

Okay. So he points out that if your tax rates the same, whenyou're working as it is in retirement, a Roth versus traditional doesn'tmatter. And we're going to go into more Roth conversations next week. In nextweek's episode, one thing he points out is tax policy risk, you know, in atraditional 401k you're saving the money and it's eventually going to be taxed.

Well, we might think that down in, you know, 25 years or 20years from now, you might be in a lower tax bracket in retirement. You know,the odds are that taxes are likely to go up at some point, because how are wegoing to pay off all this government debt if someone's got to pay for it. Sothere is that risk that no one knows what's going to happen with tax rates downthe road.

So thinking about going back on the 401k, if tax rates do goup and you're in a higher tax bracket than when you were with. Being at all ona 401k is actually putting you at a disadvantage is you're going to be taxedwhen you need those funds. You're gonna be taxed when you use funds and it'sgoing to be at a higher rate and you could have just invested in a brokerageaccount or a Roth.

And so, uh, from the after tax, both after tax, but from abehavioral standpoint, the 401k is the easiest place to save. I mean, it'sautomatic. You don't have to think about it. I mean, it's just there and ifyou're already contributing up to the max. Then you could just move the little,dial a few more percentage points and you get up to a higher amount.

Whereas if you're setting up, let's say an outside of yourcompany doesn't offer a Roth 401k and you have to set up an outside Roth IRA.Well, you've got to set it up. You got to set up the ongoing contributions thatcome from your bank. Same thing in you actually see the money going out. I feellike that's a lot different for people from like a behavioral standpoint, likeyou were saying.

I mean, if you never see the money, it's a whole lot easierfor it to just kind of go to the 401k. Yeah. It's out of sight out of mind. Andso it's, it is more of a difficult task for a lot of savers to have to takemoney out of their savings every single month or out of their paycheck every singlemonth and direct it.

You know, once it's in their bank account to a brokerageaccount or that Roth. So the 401k is easier. It goes to your bank account.You're kind of like, that's already my money. It's already there. That's true.So, you know, our advice is save up to the match, get all of that salad, makesure you, you know, fully commit to that.

Get your three to six month emergency fund and then go backto your individual retirement plan and make sure that you have. The best fitfor you. I would say having some account diversity does make sense. So if youdon't have a Roth or a brokerage account, you want to have that tax diversity,you know, so you have flexibility in retirement because we don't know what taxrates are going to be.

So if you have a Roth, you have a brokerage account and thenyou have this 401k, then you have the option down the road to, uh, to makechoices. So, um, you know, and also analyze your business. You know, spendingand saving. So really what you're saying is it kind of depends on eachindividual situation. I mean, you should try to have some diversity, but itreally does depend on you personally and how you save and kind of where you'rethinking, things are going to end up.

It is. And it's a lot different than what most people said.10 15, 20 years was just max out your 401k. That's what we always heard. Pileeverything as much as you can in there and get up to the max. And then afterthat save elsewhere. But in reality, we don't know what taxes are going to be.Like. We don't know if you know, when you're retired, you're going to be at amuch higher tax rate than you are now.

And then you look back. Well, that's great. I have this pileof money, but I would've been much better off if I saved in a different taxaccount. So, you know, I think having that diversity is going to be veryimportant in retirement. Okay. Thank you for that question, Sally. Our nextquestion comes from Armando and he says, hi, Melissa.

And Jonathan loved the show and appreciate your helpanswering this. Thank you for writing it. Thank you for watching. I want to dosome home renovations and was thinking of taking a loan from my 401k this way.I'm paying myself back. So I'm making the 5% interest on my money. Do you thinkthis is a good idea?

So I think the main question here is, is a 401k loan. Agood. And, you know, just a reminder. So some plans allow you to take a loanfrom yourself essentially, and your pay your, your own bank. And you're payingyourself back at the bank of you. Now, this helps avoid taxes and potentialpenalties as if you're just, if you need funds and you're going to take anormal distribution for under 59 and a half, you have to pay a 10% penalty plusincome taxes.

So this avoids that giving you that access to. But let'slook at the first part, you know, you're paying yourself back at a 5% interestrate. And so what else could you have saved in that could have gotten you moreof a rate of return than just that 5%? So that's one thing that you're stillhaving to make those payments back to yourself.

So you're limiting the funds performance that you are takingfrom the 401k, and you're capping it at 500. And so I think you're, you'relimiting your rate of return on that aspect of it. But then you're also doubletaxing that interest because for one, the interest isn't tax deductible. So youhave that, but you're making payments on an after tax basis.

So when you make those payments, they go into the 401k. Andwhen you go to take distributions later in retirement, you're also payingincome tax on that. So you have that double taxation of those. Which, I mean,nobody wants to be taxed twice. No, at all. I think a lot of people don't evenlike being touched once.

I'm one of those people. So that is that's one thing toconsider is that, you know, paying yourself back that 5%, it's not all it'scracked up to be because of those things that I think a lot of people don'tthink. Um, and they also say that, I mean, some plans they vary greatly, but alot of plans, if you take a loan, you can't continue contributing until that'spaid back.

I mean, that's, so then you're also missing out on thoseearnings or that contribution that, and some plans, they take the match awayfrom you. So there's, you really want to make sure you're checking on yourspecific plan because that's a very good point. If you're not able tocontribute while you're paying that loan back, let's say you're paying thatloan back over four or five years.

That's a long time to either be missing out on a match ornot being allowed to contribute. So those are two things that I think youreally want to analyze your individual plan, but I think most importantly, thebiggest issue about taking a loan from a 401k is you're saving this money forretirement.

You're saving it for long-term compounded growth by takingit and putting it into the loan fund of your 401k. You're taking those dollarsout of any potential long-term compounded growth. Yeah. Yeah, all you're doingis you're, you're stunting the growth that could possibly happen in the 401k.Now I know right now, a lot of people watching this are going, but Jonathan,the market's down, uh, and you know, wouldn't it be better just to put it inthis safe 5% loan fund because I'm not seeing it just go away.

Well, the reality is we don't know how long this is goingto. We don't know how fast it's going to snap back. Let's look at just the lastcouple, you know, corrections that we had, whether it was the end of 2018. Whenthe market was down close to 20% in the fourth quarter, quickly rebounded tonew highs. We had the pandemic corrections.

Obviously quickly rebounded to new highs. And I don't knowif this one's going to be as quick or V-shaped like the last ones were, but wedon't know. So you're, you're, once again, you're putting that money insomewhere that you're not going to be able to see any sort of long-term growthfor what could be a couple of years.

So in summary on that, it should really be what the lastresort. I mean, the loan of last resort, especially for, I mean, Armando forhome renovations. I mean, that seems like there should be. Options. Yeah, youcan look at a hilar or, you know, I would try to exhaust any other source offunds as how much home equity line of credit.

So just if you can tap into that or any other, any otherloan or source of funds, especially for something like a home renovation. Now,if the home renovation is a necessity, that's one thing. If it's just. You wantnew floors, a new bathroom and some different countertops. He's listing all thethings that I actually want.

Then maybe it might be able to wait for just a little bit tobe able to use other funds to, to pay for that. Because the last thing you wantto do is stunt your long-term growth or that long-term growth potential by justtaking out something for cosmetic reasons. So really make sure that it is thatloan, a last resort that is a definite necessity.

On why you're taking that out. But, uh, thank you again forwatching Armando. Thank you for the question. We really appreciate it. And ournext question comes from Linda. She says, hello, Rankins. Um, I have a questionfor the show. I work in the engineering field and I've worked at about fivedifferent companies in 25 years.

I have all these different 401k accounts out there. Whatshould I do with them? We get this question a lot. This is a very big one. Wedo. And so the main. What should you do with your old 401k accounts? And therewas actually a study that, uh, that I saw that said they're estimatingsomewhere around 24 million forgotten about account or forgotten about 400.

Forgotten about, can you imagine saving well, first of all,working, saving your money, doing everything you're supposed to and thenforgetting about it. That just sounds crazy. So here's the other stat littleshocking in those 24 accounts, 24 million accounts, $1.35 trillion of assets inthose accounts and every single year, another 2.8 million accounts get leftevery year.

So old 401k don't leave your money anywhere. So old 401k is.They're there. A lot of people forget about them. And so you wouldn't bury yourmoney in the backyard and forget where you buried it. And then just be like,oh, that's okay. At least it's there somewhere. I'll take it up when I need it.Yeah. It doesn't rain.

You definitely want to make sure that you know where yourmoney's at. So there are five different things that you can do with your old401k. So the first thing you. You would just do nothing just because they'reall over the place. And you've got five different accounts. Doesn't mean youhave to do anything.

Now this option, it is harder to manage because you gothence all the people who've forgotten about them. You've got to figure out whereall these five are. I think the hardest part for me is you got to figure outthe logins for each one of these. I mean, just remembering the username andpassword for two or three different sites is difficult.

Now you got to remember it for five additional ones,terrible memory. I do. And now my guess is because you don't log into them thatoften every single time you log in, you got to convince the machine. You're nota machine. You got to go through that whole deal. So, yeah, it's just a littlebit more challenging.

Just even access the account. Uh, you still have limitedinvestment options in those plans, and now it is the easiest thing to dobecause. You're doing nothing. Of course, people by nature, I think aregenerally path of least resistance. I do think when looking at markets likewe're in today, where we're seeing volatile markets and you think that yourasset allocation might be one, you know, one percentage, whether it's 60%stocks, 40% bonds.

And then all of a sudden you look at one-year-old old 401ksfrom when you were earlier in your career. And let's say that was, you know, ahundred percent in stocks. So your, your total asset allocation. Might be a lotdifferent. So it's harder to control how much risk you're really taking ifyou've got everything spread out.

So it is a lot harder to get a grasp on what is your trueinvestment allocation and how is that working towards that one goal of yourretirement? So I think that is the harder part to manage when you haveeverything just spread out and so doing nothing well, not to mention that. Imean, that's, if all the 401ks stayed with that same plan, I mean, Companieschange all the time.

So if you're no longer an employee, you're probably notgetting those notices. I mean, that's another thing to consider. I mean, itmakes sense. How many accounts have been forgotten about, you know, the, theland of forgotten 401ks, I guess, but you never want to leave your money outthere. No. And that brings us to option number two, which is you can consolidateall of those plans into your new employer.

So this makes it a little easier to manage because now youhave one. But you're still limiting yourself to the investment choices of thatplant. You know, like to equate this, like you're going on a diet, but you wantto go out to eat. So you go to a restaurant, you don't have to cook, but you'reordering from the salad.

Nobody wants to go out to eat, to do that. You know, youdon't go out to a restaurant just to be limited in what you can get. You wantto go out and enjoy it? No, no. Ooh. Ah, Ooh, this looks good. That looks good.You don't want to ever be like, ah, I've got these two choices dressing on theside. Yeah, you're exactly right.

That's exactly how it is when consolidating everything intoyour 401k is that yes, it is easier, but now you you're just limited to whatyou're doing. So that is an option. And I think that is a better option thanjust doing. Uh, or forgetting about it or forgetting about it. That is that'sthe worst option, but that leads us to option number three, which is you canroll all those old 401ks into a single.

Now, this is not a taxable event. Uh, it's there's, it'sgoing to stay tax deferred just as it is in your 401ks. But now you can investin almost anything you want. You get the opportunity to consolidate all of youraccounts, if you want to. So your Roth IRAs, your brokerage account, maybe youhave some five 20 nines.

You can consolidate all those at one institution. You canwork with a professional advisor like ourself, uh, who helped with activemanagement, comprehensive financial planning, and you can really tie it in towhere it's not just looking at your 401k is in a vacuum. It's looking at yourentire financial.

So a little bit more diversity, but maybe all in one placeit is, but you get tremendous diversity in the investment choices you have atyour disposal, because you can really invest in anything now. So the downsideis that you're not likely to get the lower expenses that you would in employersponsored plans.

You know, 401ks are typically a little bit less expensivethan working with. But it's the value that you're getting from that advisorand, you know, looking at your entire picture. I think we'll, you know, ourhope is that it pays off for a long period of time. Um, but that's the thirdoption that you can do now.

The fourth is you can actually convert your 401ks into aRoth IRA. Now, this is something that we're going to go over in detail nextweek on our Roth account, uh, episode. But this is where you'll pay the taxesnow. Uh, all future growth and distributions are tax-free and it might makesense depending on your tax bracket.

But like I said, we're going to go into that all nextepisode. So stay tuned for that one, but that is an option that you can chooseand our last, and I actually think this is probably worse than just forgettingabout it. Um, taking a distribution and just cashing it out. Uh, especiallydepending on your age, you can have taxes and possible penalties.

If you're under 59 and a half, uh, this, you know, alsotakes all of those dollars out of your retirement savings. You know, you'respending them in one year, uh, adds it to your adjusted gross income. So now itmight push you to a higher tax bracket than you are usually in. So I thinkthere's a lot of. You know, if we talked about the 401k loan, being the loan oflast resort, this option should be the, the option of last resort.

It should be. So now everybody is different depending on,you know, what makes sense for you and your family? I would say, you know,Linda, you want to make sure that you want. At least analyzing all thedifferent options. You know, working with an advisor can help you puttingtogether a detailed retirement plan can help determine which of these optionsmake sense for you.

But, uh, those are different options you have with your old401ks. So just to recap, 401k, great place to save some, have the ability toborrow against. We hope that you do that as a last resort and exhaust all ouroptions before you do. Uh, you've got a lot of options for saving after thematch. So maxing out your 401k isn't necessarily the right default answer foreverybody.

It might be for certain people, but for most they want tolook at, you know, where can they save to be a little bit more tax? I would saydiversified, um, a lot of options, what to do with your old accounts, you know,as we talked about forgetting them, hopefully it's not one of them. And then,uh, you know, Most importantly, see what is right for you on all these differentthings, you know, work with an advisor.

If you don't have one or you're just interested in a secondopinion, we'd be happy to put together. Free retirement assessment for you.We're going to link to that in the show description in show notes. So that wayyou can schedule that. I will be happy to put that together for you, but beforeeverybody gets out of here now, what do we want people to do?

We want you to subscribe. We want you to like us. We wantyou to rate us five stars. We want you to now share it. Um, All those goodthings. Oh, I tell everybody, you know, about the shop. Absolutely. We're goingto link to everything we talked about today in the show description. And with that, I am Johnathan Rankin and I'm Melissa Rankin.

Thank you for joining.

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