Money Monday

posted by Brian Thomas - 




Topic A

Most of you will see an increase in take-home pay when employers adopt new payroll withholding tables that reduce the federal tax withheld from workers' pay.  Employers must comply by February 15th.

Exactly how much your take-home pay will increase depends on your withholding status, number of allowances and amount of your gross pay each pay period.

Some estimations: single making $50,000 = extra $55 per pay period

Married claiming two withholding allowances making $75,000 = extra $61 per pay period

But as a reminder: if your employer doesn't take out enough this year, you'll see a really nice boost to your paycheck... but you'll get hit with a big tax bill NEXT year. So save an extra money you get in a Roth IRA - you can use the contributions to pay for a tax bill since you don't pay tax or penalty on Roth contributions.

And speaking of Roth IRAs… once these lower tax brackets officially kick in, it could make a lot of sense for you to do what's called a "Roth conversion" with your traditional IRA.

What is this? It's basically changing your mind on when you want to pay taxes in that account. With your traditional IRA, all that money has been TAX-DEFERRED. This means you haven't paid taxes yet - but you will once you take the money out in retirement.

But with a Roth IRA, you pay taxes now and get tax-free growth. So, if you convert your traditional IRA to a Roth IRA, you'll have to pay taxes on that money you're converting… but then you've "locked in" these new, lower tax rates.

Because let's face it: tax rates are eventually going to have to go up at some point thanks to balloning federal debt (need revenue to pay that off)… so take advantage of these low rates.

However, if you don't have sufficient funds OUTSIDE of your traditional IRA to pay for the taxes, then it doesn't make sense to convert.

And make sure you're sure you want to convert to a Roth - the new tax law has taken away the "undo" option.


Having a Roth IRA in retirement will give your money more flexibility since the earnings will eventually come out TAX-FREE.



#2: Enquirer

Every Sunday, Simply Money is answering your money questions in the Cincinnati Enquirer.

Austin: I haven’t heard much about the bond market lately. Is it still safe to own bonds?



#3: 401(k)

Nearly 4 out of 10 of you are looking for a new job or plan to look for a new one in 2018. So if you do end up switching jobs, don't forget about your 401(k)! 

After more than 20 years of helping Simply Money clients with this exact decision we can tell you there is no one, absolute piece of advice But here are your options:

Leave your money in your old 401(k) plan: As long as your balance is over $5000, most 401(k)s let you keep it in the plan. This may be the best option for you, at least temporarily.

Transfer your old 401(k) to a self-directed IRA: This is the only option you will hear from some advisors because it’s also the only option that allows your advisor to be paid for working with you. However, in some cases this is the best choice of all since a self-directed IRA allows you to take full control.

Transfer your old 401(k) to your new employer’s plan: You would only want to do this if the new plan has better choices and lower costs

Cash out: Unfortunately, more than 40 percent of investors will take the worst option: cashing it out. This brings both current taxation and potential penalties in addition to all the lost long-term growth prior to retirement. Forget this one.

Uncle Sam's favorite option should be your least, least favorite

A huge mistake is made when cashing out a small account in the early stages of a career - because this early money is the most important! It has the longest time to compound and grow

During your working career you will change jobs about 11 times, so you’ll be faced with this decision on multiple occasions. Remember, you don’t have to be in a hurry to make a good decision. No clock is ticking.

Don't let your emotions dictate your decision -- especially if you've been let go


There is no one, overriding rule when it comes to rolling over your old 401(k)s. Find trusted financial planner who will actually take the time to figure out the best strategy for your and your specific situation. 



Brian Thomas

Brian Thomas

Based in Cincinnati, OH, the Brian Thomas Morning Show covers news and politics, both local and national, from a conservative point of view. Read more


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