01.24.25 Clark Answers His Critics on Clark Stinks / Job Change and Your 401(k)
Jan 24, 2025
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This installment dives into the funny and insightful 'Clark Stinks' segment, where listener feedback takes center stage. Clark also tackles the pitfalls of changing jobs and how it can lead to significant losses in 401(k) savings. Discover crucial tips on avoiding costly retirement mistakes, plus comparisons between Roth and traditional accounts. The episode touches on maximizing college savings through 529 plans, offering practical advice for parents. It's a blend of humor, personal stories, and valuable financial wisdom!
36:08
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Quick takeaways
Many individuals neglect to increase their 401(k) contributions after job changes, despite typically receiving a 10% pay raise, impacting their retirement savings.
Choosing between Roth and traditional retirement accounts hinges on understanding pre-tax versus post-tax contributions and anticipated tax brackets at retirement.
Deep dives
Job Changes Affect 401k Contributions
When changing jobs, many individuals fail to adjust their 401k contributions despite typically receiving a pay increase. Statistics reveal that new jobs often pay around 10% more than previous positions, yet new hires frequently contribute less to their new employer's 401k plans than they did with their former employer. This behavior is concerning because contributing a higher percentage to retirement savings after a job change can greatly enhance one's financial future. It is advised that individuals increase their 401k contributions in line with their pay raises to secure a more comfortable retirement and avoid relying solely on Social Security benefits.
Roth vs. Traditional Accounts Debate
The discussion surrounding the benefits of Roth versus traditional retirement accounts emphasizes the significance of pre-tax and post-tax contributions. While contributions to a traditional account lower taxable income in the present, the money withdrawn in retirement is subject to taxation. Conversely, Roth accounts allow for tax-free distributions during retirement, provided certain conditions are met. Ultimately, the choice between the two account types may depend on an individual’s tax strategy and their anticipated tax bracket upon retirement.
Importance of Timely Savings for Education
Starting a 529 plan late can still be beneficial for families looking to save for their children's college education, even if the child is nearing high school graduation. Contributions to a 529 plan provide tax-free growth and can be coupled with state tax deductions, making them an advantageous option compared to high-yield savings accounts. With high schoolers, investing in a 529 plan that aligns with their planning timeframe can provide a more favorable outcome for education-related expenses compared to typical savings methods. The strategy involves balancing the risk and potential rewards while considering the timeline for educational attainment.
Friday - Clark Stinks day! Christa shares Clark Stinks posts with Clark. Submit yours at Clark.com/ClarkStinks. Also in this episode, how people end up losing money when they change jobs and what you can do about it.