Would you be wary of someone promising you a 50% return on a twelve month investment? How about a one month investment? I assume (hope) your early warning antennas are blaring in your head as well they should be. But there might be a way to actually make this happen for a number of really smart people. To determine if you are one of the lucky ones, take a moment to determine how much you have contributed to your company 401k plan as compared to the amount of company matching contribution. For example, let’s assume your company matches fifty cents on the dollar up to 6% of your compensation. If your salary is $100,000, your company would provide matching funds on up to $6,000 of contributions for this calendar year ($3,000 match). If you’re already having the company deduct $200 per month, you’re on schedule to invest $2,400 this year (with matching contributions of another $1,200). But you’re leaving $3,600 of potential ‘unmatched’ contributions on the table.
Are you really interested in earning a 50% return in one month? If so, have your human resources department up your 401k contribution by $3,600 from your December paycheck(s). Your $3,600 investment will yield a 50% return based on the $1,800 employer matching contribution! In many cases, you can increase your payroll deduction directly through your company’s 401k website.
Ok, I admit that I used a little bit of trickery to get you to think about the importance of fully capturing your company’s matching contribution, but failing to do so is like turning your back on a portion of your compensation package…you’re just leaving money on the table. And, for many people, it never occurs to them that they could significantly adjust their payroll deduction in the last month of the year.
Another barrier I often hear is, “I need all of my paycheck to pay my bills!” Look for ways you can get a bit creative:
- Use personal Savings. Use personal savings or money from a personal investment account to help cover your December bills.
- Use year-end bonus money. If you are expecting a year-end bonus, consider paying some of your December bills through whatever means necessary (savings, credit cards, etc.) to handle your cash flow needs until your bonus comes in.
- Use a home equity line of credit. If you are using a HELOC or other forms of debt, be sure you have a sure source of repayment such as a bonus, significant pay raise, savings or investments.
Even if you’re already investing enough in your 401k to capture your company’s matching contribution, this is a strategy worth considering since you obviously will benefit from an income tax deduction and long-term tax-deferred growth.
For 2015, the maximum allowed contribution (your part) to a 401k is $18,000. If you are age 50 or older you’re allowed an additional ‘catch-up’ contribution of $6,000 for a total of $24,000.
Remember, it’s never too late to start saving for your retirement and I hope a guaranteed 50% return in one month is just the incentive you need!
Clarification: My article on State of Alabama property tax exemption created a bit of confusion regarding who actually qualifies for the exemption. If you, or a joint deed holder, are age 65 or older, you qualify for a homestead property tax exemption on the state portion of your property tax. If your annual income is $12,000 or greater, you are still responsible for the county portion (and school/municipality if applicable) of the property tax. Generally, the state portion of the tax is equal to about $65 per $100,000 of property value. Further, a deed holder is 100% exempt from the property tax if he or she is permanently and totally disabled.
If you’d like to have me answer your financial question email me at email@example.com and place AL.com in the subject line. Consult your own professional legal, tax or financial advisor before acting upon this advice.