Carrying on a legacy of offering the best in student loan repayment, personal finance, and career information, Inceptia’s free e-guide is a timely resource for newly graduating college students of all ages. In collaboration with the personal finance experts at NerdWallet, this year’s Great Advice for Grads blends the practical and personal to provide a holistic look at post-college finances.
GREAT ADVICE FOR GRADS 2023
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Congratulations Class of 2023!
Though we all may take wildly different paths to reach the end goal, getting the degree is never an easy journey. Luckily, you’ve likely had a whole cast of characters — friends, family, educators, advisors, mentors, role models, etc — who have helped you get to this point: a college grad, at last. Inceptia salutes you, as well as all those who assisted you, in achieving your goals. Congrats, class of 2023! Now, let’s be honest, the last thing you probably want to do now is more reading. And if I were you, I don’t know that I would be all that interested in reading about money, in particular. After all, when I was graduating college, I had already spent years pinching pennies and budgeting just to get by; I already knew how to manage money and that was enough, right? Turns out, I was wrong. As I finally embarked on my career rather than just a string of part-time jobs, money questions (and opportunities!) became bigger. And more complex. Suddenly, I was supposed to understand the difference between a 401(k) and a Roth IRA. Decide if I wanted a flex spending account, or a health savings account. Know the right way to negotiate for my worth, or ask for a raise. I realized I didn’t know even half of what I thought I knew. Knowing how to manage daily cash was an entirely different beast than making smart money moves for the future. I learned a lot, and sometimes the hard way. With that in mind, I hope that you give Great Advice for Grads a fair read. You never know what you can learn, or what you might be able to share with others. And since I always choose articles from the perspective of “gee, these are things I wish I had known way back when…,” I hope these topics will resonate with you, too. In any case, whether you read the guide now, or keep it bookmarked for a future time when it is needed most, Great Advice is Inceptia’s gift to you: the gift of financial empowerment. So read it, share it, and go boldly into the future…or, at least know how to spot a great 401(k).
Wishing you the best from all of us here at Inceptia.
Carissa Uhlman Vice President of Student Success Inceptia
TABLE OF CONTENTS
Letter from the Vice President of Student Success
Student Loan Repayment Federal Student Loan Repayment Checklist 5 6 Ways to Prepare for Student Loan Repayment to Begin Again . . . . 9 The New Income-Driven Repayment Plan: How It Works 14
Work & Career Smart Ways to Negotiate Your Salary in an Uncertain Economy You Got a Better Job. Now, How Do You Handle the Benefits?
18 21 25
How to Spot a Great 401(k)
Life, Health & Other Advice Just Starting Out? Learn From Our Mistakes Are You and Your Partner Financially Compatible?
29 32 35
Student Debt Can Make You Sick: 3 Ways to Deal With the Stress
More to Explore
NerdWallet Bonus Content
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STUDENT LOAN REPAYMENT
Student Loan Repayment Checklist INFORMATION FROM THE U.S. DEPARTMENT OF EDUCATION
Be an informed borrower by learning about your loans and what to do for a smooth repayment experience. As you work through this checklist, you’ll find out how to make payments and figure out which repayment plan is best for you; and you’ll know what to do if you’re having trouble making payments or think you might be eligible for loan forgiveness. Remember: You never have to pay for help with your student loans!
BEFORE YOU GRADUATE OR LEAVE SCHOOL
Review your federal loan history. Get your loan history by logging in to «My Federal Student Aid» — you’ll need to create an FSA ID if you don’t already have one. As you review your information, note the following: • The current loan balance and interest rate for each loan • The loan type (depending on when you went to school and what loan programs your school participated in, you may have loans from different federal student loan programs; the types of loans you received can affect what benefits are available to you) • The name of the loan servicer for each loan (a loan servicer is a company that handles the billing and other services on your loans; generally, you’ll have one servicer for all your federal student loans, but there is a chance you could have more than one) Get to know your loan servicer. Your servicer helps you with your student loans — for FREE! It’s important that you know who your loan servicer is and how to contact them because you will eventually be making your loan payments to your servicer. Take this opportunity to save your servicer’s phone number in your phone. Create an online account on your servicer’s website. You can find the most detailed and up-to-date information about your loans, make your payments, and manage your loans (for example, change repayment plans or apply for a deferment) on your loan servicer’s website. When you create your account, be sure your contact information is correct.
Complete mandatory exit counseling. All federal student loan borrowers must complete exit counseling. Exit counseling provides important information you need to help you prepare for repayment of your loans. Check with your school to find out how they want you to complete exit counseling. Schools have different requirements. If you can afford it, make loan payments while you’re in school, especially if your loans are accruing interest. Making payments early can reduce the interest you pay and the cost of your loan over time.
AFTER YOU GRADUATE OR LEAVE SCHOOL
Know when you have to start making payments. For most loans, you’ll have six months — or nine months for Federal Perkins Loans — after you graduate, leave school, or drop below half-time enrollment before you must begin making your loan payments. Take this time to make a plan for repayment. Create a budget. Create a budget to determine how much you can realistically afford to pay monthly toward your student loans. Get help creating a budget. Consider loan consolidation. A Direct Consolidation Loan allows you to combine all of your federal student loans into one loan with one monthly payment. Loan consolidation can be helpful if you have multiple servicers, loans from the Federal Family Education Loan (FFEL) Program, or Federal Perkins Loans. Loan consolidation can increase your chances of qualifying for an affordable repayment plan and loan forgiveness options, but it may not be the best option for you. Learn more about loan consolidation. Set a goal for repayment. After you know how much you can afford to pay each month, set a goal for repaying your loans. To begin setting your goal, ask and answer this question: “Do I want to repay my loans quickly, or do I want to pay as little as possible per month?” You can’t choose both options. Any time you lower your payment, you’ll be in repayment for a longer time and you’ll pay more interest on your loans. If your financial situation changes, you can change your repayment plan at any time. If you have questions about your loan repayment options or the process, contact your loan servicer.
Select an affordable repayment plan. Now that you’ve set a goal for repayment, you can find a repayment plan that fits your goal using Loan Simulator . • If you want to pay your loans off quickly and you can afford to do it, select the Standard Repayment Plan. Unless you consolidate, your loans will be paid off after 10 years of payments. • If you want to have the lowest monthly payment or can’t afford to make payments under the Standard Repayment Plan, select an income-driven repayment (IDR) plan. Under an IDR plan, payments are based on your income and family size. You will usually have lower monthly payments than other plans and may have payments as low as $0 per month. With these plans, you’ll be in repayment for up to 20 or 25 years. If your loans are not repaid in full after 20 or 25 years, the remaining balance will be forgiven. Learn more about income- driven repayment plans.
Teachers! You may qualify for both forgiveness programs (PSLF and TLF) – but
If you don’t select a specific repayment plan, your loan will be put on the Standard Repayment Plan. You can switch to a different plan at any time by contacting your loan servicer. Know whether you are eligible for loan forgiveness based on your employer or your job. • Public Service Loan Forgiveness (PSLF) Program: You may qualify for this loan forgiveness program if you are employed by a government or a not-for-profit organization. • You must make 120 qualifying payments under an income- driven plan to qualify. Learn more about PSLF. Teacher Loan Forgiveness Program: You may qualify for this program if you (a) teach full-time for five complete and consecutive academic years in certain elementary and secondary schools and educational service agencies that serve low-income families, and (b) meet other qualifications. Get the details of the Teacher Loan Forgiveness (TLF) Program. Find out more about forgiveness, cancellation, and discharge.
not for the same time period.
WHEN IT’S TIME TO START MAKING PAYMENTS
Make on-time payments to your loan servicer. Your loan servicer will provide you with a loan repayment schedule that tells you when your first payment is due, the number and frequency of payments, and the amount of each payment. Contact your loan servicer if you haven’t received this information. Make repayment simple and save on interest — enroll in automatic debit. Once you enroll, your payments will be automatically taken from your bank account each month. This will help you to stay on track with your payments, and as an added bonus, you may get a 0.25% interest rate deduction if you have Direct Loans. Check your servicer’s website for details. Know your options if you can’t make your loan payment. If you don’t pay the full amount due on time or if you start missing payments — even one — your loan will be considered delinquent, and late fees may be charged to you. If you can’t make your payments, contact your loan servicer immediately for help. Your servicer can offer you temporary or long-term options, such as changing repayment plans, deferment, forbearance, or loan consolidation. Get details about what to do if you are having trouble making your payments. Reduce your federal income taxes. You may be eligible to deduct a portion of the student loan interest you paid on your federal tax return. Student loan interest payments are reported both to the IRS and to you on IRS Form 1098-E, Student Loan Interest Statement . Check with the IRS or a tax advisor to see if you qualify for this deduction.
For a comprehensive guide to Federal Student Loan Repayment, complete online Exit Counseling, utilize the Loan Simulator, or download the Repaying Your Loans guide.
6 Ways to Prepare for Student Loan Repayment to Begin Again
INFORMATION FROM THE U.S. DEPARTMENT OF EDUCATION
Your monthly student loan payments will begin again once the COVID-19 emergency relief ends. Here are six things you can do to prepare — and to make payments more affordable if need be.
Update your contact info. Make sure your contact information is up to date in your profile on your loan servicer's website and in your StudentAid.gov profile. Wrong contact information could make you miss important updates. Get info about your next payment. Once the payment pause ends, your loan servicer(s) will send you a billing statement or other notice. This notice will include your • payment due date, • upcoming interest, and • payment amount. Your payment will be due no sooner than 21 days after your servicer sends the billing statement. To find out your upcoming payment amount, log in to your loan servicer’s website. If your servicer doesn’t provide this info online, you can call or email your servicer. If you don’t know who your servicer is or how to contact them, follow these steps: 1. Visit your dashboard. 2. Find the “My Aid” section. 3. Select “View loan servicer details.” If you can’t log in, call us at 1-800-4-FED-AID (1-800-433-3243) for loan servicer info.
Great Lakes Educational Loan Services, Inc.
Default Resolution Group (also known as Maximus Federal Services, Inc.)
Enrolled in Auto-Debit? If you plan to repay your student loans by auto-debit, check to make sure you are enrolled. Watch for news from your loan servicer before your payments start again.
Make sure you’re on the best repayment plan for you.
Changing your repayment plan may reduce how much you pay each month.
Your situation may have changed during the COVID-19 emergency. Now is a great time to think about whether you’re on the best repayment plan for you. Use Loan Simulator to explore your repayment options. Find info and tips on how to use Loan Simulator . Even if you change your repayment plan now, you can always change your plan again later.
The U.S. Department of Education offers a variety of repayment plans. For example, an income-driven repayment (IDR) plan is based on how much money you make. Under an IDR plan, payments may be as low as $0 per month.
A Revised Pay As You Earn (REPAYE) Repayment Plan could save you money.
Take action if you want to lower your monthly payment. After understanding all your repayment options, you may choose to apply for a specific plan. Or you can ask to be placed on the plan that results in the lowest monthly payment amount. Are you already on an IDR plan, but your income changed recently? You can update (recertify) your info to see if you can get a new, lower payment amount. Recertify by following these steps.
Take steps to recertify your IDR plan.
Consolidating your federal student loans may also lower your monthly payments. However, you should consider the pros and cons of consolidation to decide if consolidation is right for you.
Consolidation combines your loans and may result in a lower monthly payment.
As a last resort, contact your loan servicer to ask for short-term relief. If you can’t find a repayment plan that works for you right now, you can request to temporarily pause or lower your payments through short-term relief (deferment or forbearance). Before you make a request, use Loan Simulator to learn how this short-term relief affects your loans and loan payments. Then contact your loan servicer to request a deferment or forbearance. Remember, a normal deferment or forbearance is different from the COVID-19 emergency payment pause. Interest can still accrue (add up) during deferment or forbearance. Deferment and forbearance also affect loan forgiveness options, such as Public Service Loan Forgiveness or IDR plan forgiveness.
Understand what happens if you don’t repay your loan. If you miss a payment, your loan becomes delinquent.
If your loan is delinquent for 90 days or more, your loan servicer will report the delinquency to the three major national credit bureaus. Delinquency will affect your credit score, making it harder to get credit.
After 270 days, your delinquent loan goes into default. When you default on a loan, here’s what happens:
• You can lose your access to more student aid. • The default status will damage your credit score. • The government can take – your tax refund, – part of your Social Security benefits, or – up to 15% of your paycheck
As you can see, becoming delinquent or defaulting on your federal student loans can wreak havoc on your finances. Use the tips in this article and, most importantly, stay in contact with your student loan servicer to avoid falling behind on repayment.
The New Income-Driven Repayment Plan: How It Works BY CECILIA CLARK AND ELIZA HAVERSTOCK
The Education Department on January 10 unveiled the details of its revised income-driven repayment plan.
The draft rules, now out for public comment, illustrate the most generous undergraduate student loan repayment plan yet: • Borrowers earning less than about $32,800 individually, or less than $67,500 for a family of four, would see $0 monthly bills. • Most other borrowers would see their payments cut by at least half. • Students who borrow less than $12,000 would see their remaining balances wiped away after 10 years of payments, instead of 20 to 25 years. A sketch of the new plan was released in August, along with many other provisions of the Biden administration’s sweeping student loan relief effort. Since then, attention has been focused mostly on the legal fate of student debt cancellation — as much as $20,000 erased from the balances of millions of borrowers. But while Biden’s debt cancellation plan would give a one-time boost to existing borrowers, this revised IDR could help current and future college students for years to come. People who earn the least stand to benefit the most. Borrowers with the lowest projected lifetime earnings would see total payments per dollar that are 83% less, while the highest earners would only see a 5% cut, the Education Department said. Across all borrowers, average lifetime payments would shrink by about 40% compared to existing IDR plans. Some details remain unclear. The Education Department hasn’t said when the new plan will become an option for borrowers, though it’s expected to be finalized later this year. And the cost of implementing the plan faces a squeeze in Congress. Budget battle aside, the new plan should reduce borrower confusion considerably. It’s going to be a direct replacement for one of the five current IDR plans and eventually replace three others as well.
The new plan should reduce borrower confusion considerably. It’s going to be a direct replacement for one of the five current IDR plans and eventually replace three others as well.
HOW EXISTING INCOME-DRIVEN REPAYMENT PLANS WORK Income-driven repayment plans are based on a borrower’s income, not the amount borrowed. Payments typically do not cover all the interest that accrues. After a certain number of payments, the remaining balance is forgiven. That unpaid interest grows over time and, after certain qualifying events, is added to the borrower's balance with penalties. Borrowers who take a month of forbearance — say they lose their job and need to skip a payment — see not only the skipped payment added back to their principal, but also every penny of interest that accumulated over the years. That interest accrual is the key trigger that can lead to balances many times larger than the original debt, even after decades of payments. “Current IDR programs are not optimal from the borrower perspective,” said Daniel Collier, a University of Memphis assistant professor whose research focuses on student loan debt and income-driven repayment and tuition-free policy, in September. “It seems like people are still massively struggling even being enrolled in IDR.”
HOW THE NEW IDR PLAN DIFFERS
Repayment choices are simpler The proposal reduces option overload for borrowers.
The government currently offers five different IDR plans, because past iterations were not retired when new ones rolled out. This IDR plan is a revision of the widely used Revised Pay As You Earn plan, known as REPAYE. The department will also phase out or limit new enrollments in three other repayment plans. More income is sheltered Right now, the Education Department calculates IDR payments based on discretionary income — your household income minus 150% of the federal poverty guideline for your family size and location. If your household income is $75,000 for a family of four in Virginia, your non-discretionary income is $45,000 and your discretionary income is $30,000, based on 2023 U.S. federal poverty guidelines. Payments under current IDR plans are a percentage of that $30,000. The new plan places the threshold for discretionary income at 225% of the federal poverty guideline. That same $75,000 household would see payments based on just $7,500 of discretionary income. Required payment is cut in half Current IDR plans require borrowers to pay at least 10% of their discretionary income each month. Under the new plan, income-driven repayment for undergraduate loans would be set at 5% of discretionary income. This means, on top of the lowered repayment amount based on the change in discretionary income calculations, borrowers with undergraduate loans will pay much less.
For the family with $75,000 in household income, that’s the difference between a $250 monthly payment and a $31 payment. Borrowers with only graduate school loans still would pay 10%. Borrowers with both undergraduate and graduate loans would pay a weighted average between 5% and 10%. “A borrower who has $20,000 in loans from their undergraduate education and $60,000 in loans from their graduate study would pay 8.75% of their income,” explained the Education Department. “A borrower who has $30,000 in loans from each would pay 7.5%.” Forgiveness comes sooner Currently, borrowers are eligible for forgiveness of their remaining student loan balance after 20 or 25 years under current IDR plans, regardless of how much money they took out for school. However, the new plan would cut that down to 10 years for borrowers with original loan balances of $12,000 or less. With the new plan, the Education Department projects that 85% of all community college borrowers will be debt-free within 10 years. Unpaid interest is cancelled Currently, REPAYE payments do not cover all of the interest on a loan each month. The government covers half of the unpaid interest and the rest mounts over time. Under the revised plan, any interest unpaid each month would be covered by the government, so long as the borrower keeps up with their monthly payments. This leftover interest would not accrue. WHO CAN SIGN UP FOR THE NEW IDR? Borrowers with federal student loans will be able to sign up. Private student loans are not eligible for IDR or any other student debt forgiveness options from the government, like Public Service Loan Forgiveness. Parents who took out parent PLUS loans to help their child pay for school also cannot sign up for the revised IDR plan. They are only eligible for the government’s income-contingent plan, under which they pay 20% of discretionary income for 25 years before the remaining amount is forgiven. Parent PLUS borrowers can also take advantage of PSLF forgiveness under the recent IDR waiver if they qualify.
This article The New Income-Driven Repayment Plan: How It Works was originally published on NerdWallet on January 30, 2023.
CECILIA CLARK and ELIZA HAVERSTOCK are writers at NerdWallet.
Student loan scammers have a brand-new hook: “Biden student loan forgiveness” or “stimulus forgiveness.” Behind the pitch is the same old fraudster playbook, one that persuades federal student loan borrowers to pay for services they could get for free or to share personal account information in exchange for forgiveness. The extended pause on federal student loan payments and revived talk in Congress of debt forgiveness make such deceptions easier to believe. WORK & CAREER “Debt relief scams proliferate when there is a large amount of financial suffering or a lot of confusion, and we have both going on right now,” says Persis Yu, a staff attorney at the National Consumer Law Center and director of its Student Loan Borrower Assistance Project.
Smart Ways to Negotiate Your Salary in an Uncertain Economy
BY MELISSA LAMBERENA
The pandemic-related recession altered many job descriptions. For Haley Jones, a 24-year-old resident of Michigan, the coronavirus changed the needs of her company, and as she adapted to meet them, her responsibilities were no longer confined to her marketing specialist role. “I graduated with a marketing degree, no medical experience at all, and I ended up having to scrub in at our surgery center and help patients get prepped for anesthesia,” Jones says. After adding those kinds of new hats, Jones felt that her responsibilities had outgrown her entry-level salary and position, so she requested more compensation. Your role may also merit a salary discussion, even in uncertain times. Here are some strategies to help you achieve the ideal salary. RESEARCH THE MARKET Understanding the market for your job is critical, according to Lindsey Pollak, author of the upcoming book “Recalculating: Navigate Your Career Through the Changing World of Work.” “You can look at websites like Glassdoor, Salary.com and PayScale and see what’s standard,” she says. These websites offer a minimum and maximum salary range that you can reference to give your boss a realistic request. Pollak also suggests networking with professional associations in your industry and asking about the appropriate salary range for the job in your particular city.
TALLY UP YOUR CONTRIBUTIONS If you’re working remotely, Pollak suggests being more self-promotional about big wins. With many distractions in the pandemic, your boss may not know the extent of your contributions. Jones created a slideshow presentation with links to her work, a list of tasks completed and her overall impact on the company. Her boss shared the presentation with others weighing in on her salary request.
Dive as far back into your contributions as is necessary or gather evidence up to the last annual or midyear review. And be as specific as possible.
If you want someone to do something for you, make it as easy as you can for them to say yes. - Haley Jones
LAY THE GROUNDWORK FOR THE CONVERSATION Be strategic as you plan the conversation. Gauge your level of confidence at every step. • Put it on your supervisor’s radar. Give your boss a general but serious reason for the meeting. Pollak suggests saying that you want to have a “career conversation” about your role and future at the company. • Time it right. Don’t plan such a conversation after the company announces a terrible quarter or when your boss is in a bad mood, says Joel Garfinkle, executive coach and author of the book “Get Paid What You’re Worth.” • Practice until you’re confident. Jones built confidence by rehearsing in front of her mirror and loved ones.
• Be intentional with your environment. If it’s a video call, use sticky notes to remember key points. In an office environment, Jones leaned on slides and hard copies to move the conversation along. If you need further guidance, Pollak suggests connecting with a college’s career center for advice, whether that’s your alma mater or a community college. Even if you never attended college, your local community college may offer resources.
MAINTAIN CONTROL OF THE CONVERSATION Don’t allow emotions or nerves to steer the conversation away from your goal. Remember three key points for your discussion: • Lead with gratitude. Jones began by thanking her employer for many learning opportunities, then pivoted to her excitement about the company’s future and her role in it. • Know when to stop talking. Get comfortable with silence. “Say the amount you want and then stop talking,” Pollak says. Don’t negotiate against yourself by saying that you’d like a $15,000 increase, but you’re willing to settle for $8,000. • Focus on the value for your employer. Don’t phrase your request around reasons why you need a raise or promotion. Be aware of economic impacts to your company and its priorities, and keep the focus on how you’re saving the company money or contributing to its bottom line. BE PREPARED FOR THE RESPONSE If your employer can’t meet your request this time, all isn’t lost. You have promoted your work and carved out the path for the next conversation, according to Garfinkle. You can also consider negotiating for non-monetary benefits. “Maybe it’s a title change, or they’ll pay for an executive coach, or they’ll provide some training, or additional benefits or retirement contributions,” Garfinkle says. “There are other things you can get that might be beneficial for you.” If your employer is willing to offer a pay increase or an alternative, get it in writing. Send a thankful email to your boss summarizing the conversation and alert them that you’ll be following up on the next steps. In the case of a firm “no” or “not right now,” let your boss know that you would greatly appreciate the chance to revisit the conversation in the future. Following up is key with any response. Jones followed up twice in a month, once via email and another time in person. Eventually, she was promoted to marketing director and received $5,000 more than the maximum amount she requested.
The article Smart Ways to Negotiate Your Salary in an Uncertain Economy was written by NerdWallet on February 26, 2021 and originally published by The Associated Press.
MELISSA LAMBARENA is a writer at NerdWallet.
You Got a Better Job. Now, How Do You Handle the Benefits? BY ALANA BENSON
You sat through the interviews, you picked the perfect “worst quality” to highlight, and you psyched yourself up enough to ask for what you deserve. Congratulations, you got the job! But now what? In the 12 months leading up to April 2022, 21% of Americans changed jobs, according to audit firm Grant Thornton’s survey “State of Work in America.” If you were among them, your new gig may come with new perks that it will pay to learn about. For people who are receiving new forms of company benefits, here are some common ones you may run into, and how you should prioritize them. 401(k)S: GETTING THE FULL MATCH “The place that I recommend starting would be to take advantage of any free money that you can,” says Frank McLaughlin, a certified financial planner and wealth advisor at Merriman Wealth Management in Seattle. “And usually that would mean looking at the company match, or the 401(k) match if you have one. A lot of people don’t realize that if you aren’t contributing enough to get the full match, the rest of that money just disappears and it’s off the table.” A match can mean different things depending on your employer, but often it means your employer will match the amount of money you contribute up to a certain percentage of your income. For example, if your plan offers a 4% match and you make $100,000 annually, as long as you put in 4% (which would be $4,000), your employer will kick in $4,000 as well. That means you get $8,000 total but pay only half that. Gaining free money through an employer match isn’t the only way to benefit from a 401(k). The more you contribute, the more you reduce your taxable income, which could potentially reduce how much you owe at the end of the year. And for tax year 2023, you can contribute up to $22,500. If you’re 50 or older, you can contribute up to $30,000.
HEALTH SAVINGS ACCOUNTS: THE TRIPLE THREAT When exploring any new medical benefits you may be offered, it’s worth considering a health savings account. Health savings accounts, or HSAs, function as bank accounts for health-related costs. You save up money in the HSA, and then when you have health-related expenses, you can use the funds in your HSA to pay for them. HSAs have a triple tax advantage: The money you put in reduces your taxable income; investment growth inside an HSA is tax-free; and qualified withdrawals (those used for medical expenses) are tax-free. And since the money in an HSA never expires, investing in an HSA — similar to how you would through a regular brokerage account or individual retirement account — can help you build wealth over time. “Consider [HSAs] a supercharged retirement account because you get the benefits of both a traditional IRA and a Roth IRA in terms of the tax deduction,” McLaughlin says. “When you make that contribution at the start, you get tax-free growth, and you can have tax-free withdrawals if it’s used for medical expenses, and if you ended up not using it for medical expenses, you can still spend it in retirement as if it was a traditional IRA or 401(k), and you just pay the income tax.” One potential downside of HSAs is that they’re paired with high-deductible health insurance plans, which means you’ll likely be paying out of pocket for your health expenses until you hit that high deductible. According to 2021 research from the Kaiser Family Foundation, the deductible can be pretty high: The average general annual deductible for single coverage is $2,454 for HSA-qualified high-deductible plans and $4,572 for families. EMPLOYEE EQUITY: A WAY TO BUILD WEALTH There were 13.9 million participants in employee stock ownership plans in the U.S., according to 2020 data, the most recent available, from the National Center for Employee Ownership. Employee equity can be a great vehicle for building wealth: In 2020, those employee stock ownership plans paid participants more than $149 billion. But equity can be confusing, and it can come in several forms. Employee stock options allow you to buy a certain number of company shares at a specified price during a specified time. Restricted stock units, or RSUs, are similar to stock options, but you don’t have to purchase them. The stock simply becomes yours when it vests. Some companies offer an employee stock purchase program, or ESPP, which allows employees to purchase shares at a discount, often via payroll deductions.
If you receive stock options, or would like to participate in an ESPP, you’ll need to think carefully about when to purchase your shares and how much of your paycheck you can afford to allocate to company stock. Buying stock options or reducing your take-home pay to participate in an ESPP can be expensive, and it’s worth budgeting for, to ensure you can afford to do so. Myah Moore Irick, founder of the Irick Group at Merrill Private Wealth Management in Pittsburgh, said in an email interview that it’s important to educate her clients about their compensation awards, and help incorporate those positions into their wealth plan. Ensuring your investment portfolio isn’t too heavily allocated in one stock is still important, even if it’s your own company’s stock. Investing in broad, low-cost index funds can help you avoid too much exposure to one company. Many 401(k)s invest in broad funds (often target-date funds), so even when there is market volatility, it’s likely you’re invested in a well-diversified portfolio. PUTTING IT ALL TOGETHER While determining exactly how much to contribute to each of your new employee benefits will be different for every person, there are a few guidelines that may be worth keeping in mind. You’ll also have to consider your personal budget. If contributing to your employee stock purchase plan will cut into your housing or grocery money, it might not be worth it right now. And just because you might not be able to participate in each benefit as much as you’d like right away, that doesn’t mean you won’t get there eventually. 1. Contribute enough to your 401(k) to receive your full company match. Read through your company’s benefit offering to make sure you’re getting every penny of free money. 2. Consider maxing out an HSA. This may be a difficult goal to balance (especially if you’re also investing in a non-work-related account, such as a Roth IRA), but because HSAs have additional tax benefits, it may be better to focus on maxing out an HSA over maxing out a 401(k), McLaughlin says. Maxing out an HSA (totaling $3,850 for individuals and $7,750 for families) also costs significantly less than maxing out a 401(k). 3. Look at your portfolio and assess. In order to know where best to invest the remainder of your available funds, it may be wise to look at your existing portfolio and think about your risk tolerance. If you’re confident your company will perform well in the future and you can tolerate taking a lot of risk, you may consider investing more heavily in an ESPP. If putting all your investing eggs into one company’s basket feels too risky, investing further in a well-diversified 401(k) may be a better option.
And if you’re not sure how to allocate any newfound funds, it may be worthwhile to speak with a financial advisor. “It can be overwhelming to sort out corporate benefits, understand your compensation and plan for financial success,” Irick said. “My advice is to look to experts.” The top two people Irick suggested consulting for advice and guidance are the benefits/human resources partner at your company and a wealth advisor. “The benefits and HR partner can help you navigate the offerings specific to your company and your role. A wealth advisor can help you choose which options offered are best for you based on a holistic understanding of your current needs and your future goals.”
The article You Got a Better Job. Now, How Do You Handle the Benefits? was written for NerdWallet on May 4, 2022.
ALANA BENSON is a writer at NerdWallet.
How to Spot a Great 401(k) BY LIZ WESTON, CFP
Any 401(k) can help you save for retirement. A great 401(k) allows you to save a whole lot more. The difference between a mediocre plan and a great one could translate into tens of thousands of dollars in future retirement money. Plus, a 401(k)’s quality can show how serious a company is about attracting and retaining good workers. That’s not to say you should leave or turn down a job if it doesn’t offer a great 401(k). But knowing how to spot a best-in-class retirement plan can help you evaluate job offers, negotiate a raise to compensate for what you’re missing and perhaps encourage your employer to make its plan better.
The investing information provided in this article is for educational purposes only. NerdWallet and Inceptia do not offer advisory or brokerage services, nor do they recommend or advise investors to buy or sell particular stocks, securities or other investments.
HERE ARE THREE FEATURES OF GREAT 401(k)S.
A great 401(k) doesn’t make you wait to start saving A good 401(k) comes with a company match, plenty of low-cost investment options and low fees. A great 401(k) doesn’t make you wait to take advantage of those features. Many plans now allow participants to begin contributions immediately, with no waiting period. Others have waiting periods of one to six months. Some require people to wait a full year — the maximum allowed under federal law — and that delay can be expensive for workers. Let’s say you’re 25, earning $50,000 a year and able to contribute 10% of your pay. The $5,000 you can’t contribute the first year, plus a typical $1,500 match you wouldn’t earn, could mean about $106,000 less in your retirement account by the time you’re 65, assuming 7% average annual returns. If you change jobs in the future — as you almost certainly will — every waiting period you encounter could compound the damage.
A great 401(k) lets you keep the match Plans offer a number of different matching formulas, with some of the most common being 50% of the first 6% of earnings and 100% of the first 3% to 6% of pay. The more generous the match, the better for participants — to a point. Many plans have long vesting periods for employer contributions. You might not have a right to any matching funds until you’ve worked for the company for three years, for example. After you hit the three-year mark, you would own 100% of any match you’ve earned and 100% of any future matches. Another common approach is a six-year “graded” vesting schedule. You might have to work two years before you get 20% of the match. You would get another 20% after each year of service until you were 100% invested in past and future matches after year six. But long vesting periods have come under fire because of their negative impact on today’s more mobile workers. A 2016 report by the U.S. Government Accountability Office found if a worker left two jobs before vesting, at ages 20 and 40, the matches they forfeit could be worth $81,743 at retirement. A growing number of plans give employees immediate ownership of matching funds — 44.2% in 2021, up from 38.5% in 2017, according to Hattie Greenan, director of research and communications for the Plan Sponsor Council of America. You’re always 100% vested in your own contributions, but it’s important to understand any restrictions imposed on your employer’s contributions — and perhaps push for shorter vesting periods. A great 401(k) gives you more ways to save Most plans today offer a Roth 401(k) option that allows participants to put away money that won’t be taxed in retirement. Contributions to a regular, pre-tax 401(k) give you an upfront tax break, but withdrawals are taxed as income. Contributions to a Roth 401(k) don’t reduce your current tax bill, but withdrawals in retirement are tax-free. Financial planners often suggest clients have money in both pre-tax and tax-free accounts to better manage their tax bill in retirement. The IRS limits pre-tax and Roth 401(k) contributions to $22,500 in 2023 for people under 50 and $30,000 for people 50 and older. But total contributions — by participants and their employers — can be up to $66,000 for people under 50 or $73,500 for those 50 and older, if the plan allows it. Some plans offer the option to make additional, after-tax contributions, which can help you stuff a whole lot more money into your retirement plan. Let’s say you’re under 50 and max out your pre-tax contributions. Your company contributes a $6,000 match, for a total of $28,500. If your plan allows, you could contribute as much as $37,500 to the after-tax option to meet the combined employer and participant contribution allowance.
Money in after-tax accounts can grow tax-deferred, which is a nice perk, but some plans offer something even better: “in plan” conversions that let you quickly move the money into Roth accounts, minimizing the potential tax bill. This combination of after-tax contributions followed by conversions is known as a “mega backdoor Roth,” and it can be mega-helpful in piling up future tax-free funds.
The article How to Spot a Great 401(k) was written by NerdWallet and originally published by The Associated Press on October 13, 2022.
LIZ WESTON is a writer at NerdWallet.
LIFE, HEALTH & OTHER ADVICE
Just Starting Out? Learn From Our Mistakes BY LIZ WESTON, CFP
Those of us who write and talk about money for a living tend to have our financial acts together. But that wasn’t always the case. I invited some personal finance experts to share what they wish they could have told their younger selves about money.
INVEST EARLY, EVEN IF IT’S SCARY If the stock market scares you, nationally syndicated Washington Post columnist Michelle Singletary can relate. Singletary says she avoided investing for many years because in her first job out of college, an older co-worker — one who was close to retirement age — warned her that stocks were too risky. Singletary later realized that someone in their 20s has decades to ride out stock market swings, and that she could have afforded to take much more risk with her investments. “The lesson I learned was to look at my own individual situation and invest based on my timeline and goals,” Singletary says. STUDENT LOAN DEBT CAN PAY OFF Darian Woods, a reporter and producer for “The Indicator from Planet Money” podcast, says he can no longer remember exactly how much he borrowed to get a master’s in public policy from the University of California, Berkeley — just that his balance was “in the tens of thousands of dollars” by the time he graduated. The debt felt enormous. Woods wishes he could reassure his anxious younger self that the loans were a solid investment in his future. Woods, a New Zealand native, landed a job as an analyst for his country’s treasury department and was able to pay off the loans in a year. “That debt wasn’t as much of an albatross as I’d feared,” Woods says. SAVING, SPENDING EARNING: THEY’RE ALL IMPORTANT Paco de Leon, author of the book “Finance for the People: Getting a Grip On Your Finances,” has two bits of advice for her younger self. The first is to save, no matter what. Saving can feel futile on a small income, but the amount you save is far less important than the habit of saving that you’ll develop, she says. The second piece of advice: Deal with your pain. de Leon graduated with a degree in finance and a minor in economics. But a head full of
knowledge about money concepts was no match for what de Leon calls “a deep-rooted scarcity mindset” and a profound sense of inferiority. de Leon says she didn’t earn enough for years because she wasn’t convinced of her own worth and bought expensive things she couldn’t afford, hoping to get validation from others. She wishes her younger self had spent time in self-reflection and therapy to work through her psychological issues. “Do the work to heal your pain, so you aren’t creating more unnecessary problems for yourself,” de Leon says. DON’T MAKE WORK YOUR LIFE Tess Vigeland is host and senior producer of The Wall Street Journal’s “As We Work” podcast. She, too, has both practical and philosophical advice for her younger self. The practical: Never, ever carry a credit card balance if you can help it. “I got myself in deep credit debt throughout my early and mid-20s, because I lived life like I had my parents’ bank account, when in fact I had a tiny fraction of that,” Vigeland says. The philosophical: Develop interests outside of your job. Vigeland loved her work in public radio — until she didn’t. In 2012, she abruptly quit her job as host of American Public Media’s “Marketplace Money,” a personal finance show, with no clue about what she wanted to do next. Part of that journey became a book, “Leap: Leaving a Job with No Plan B to Find the Career and Life You Really Want.” But Vigeland says life after public radio might have been easier if her work hadn’t been such a big part of her identity. “Have something you love to do outside of what you do for a living,” Vigeland says. “It will help down the line if you decide to leap to another career or go back to school — you won’t be stuck in just one idea of who you are and what you can do.” AND MY TWO CENTS Most of us can look back at our younger selves and see how much we’ve matured over time. But somehow we think our evolution has stopped. Whether we’re just starting our careers or have long since retired, the so-called “end of history illusion” convinces us that we won’t change much from the person we are today. If I’d known about this psychological quirk, maybe I would have worried less about getting it all figured out and making exactly the right career and money moves. Who I am and what I want won’t stay the same. I’d tell my younger self that the important thing is to do the best I can
today, and let tomorrow take care of itself. (Spoiler alert: It all works out.) Are You and Your
The article Just Starting Out? Learn From Our Mistakes was written by NerdWallet and was originally printed by The Associated Press on August 18, 2022.
LIZ WESTON is a writer at NerdWallet.
Partner Financially Compatible? BY LAUREN SCHWAHN
Having the same favorite TV shows or sharing a mutual love of tennis with a romantic partner is great and all. But being on the same page when it comes to values and behaviors around money can also be a crucial part of maintaining a healthy, lasting relationship. According to a 2017 Experian Credit and Divorce survey of 500 adults who had divorced in the past five years — the latest data available — 59% of divorcees said finances played a role in their divorce, and 53% said they were not financially compatible with their spouse. Achieving financial compatibility takes communication and understanding. Here’s how to know whether you’re in a financially compatible relationship and what you can do to make it stronger. WHAT DOES FINANCIAL COMPATIBILITY MEAN? Being financially compatible doesn’t mean that you and your partner earn the same amount of money or that you have to share all of the same financial behaviors. It’s OK to have your own money styles, opinions and roles. “Financial compatibility is really about do you both feel comfortable with the other person and how they are handling their money, dealing with their money and how you’re doing so as a couple?” says Aja Evans, a licensed mental health counselor and financial therapist in New York City. She adds that it also means understanding each other’s beliefs around money and how you use it, openly communicating and supporting your partner’s goals — whether they’re individual goals or ones you have as a couple. You should be willing to discuss what money was like during your respective upbringings, plus your current financial situation, habits and ambitions, experts say. That could include disclosing how much you make, if you haven’t already, as well as how much debt you have and your credit scores. Ask each other questions like, “Were there times when your parents didn’t have enough money
to pay the bills?” or “What are your thoughts about what retirement would look like for you?” says Sade Soares, a licensed clinical psychologist and certified financial therapist in Honolulu. Talking about money matters can stir up a lot of feelings. Make room in the conversation for emotions, Evans and Soares say, not just facts and figures. The more transparent you are, the better you can determine your level of compatibility. WATCH FOR RED FLAGS Minor differences don’t necessarily indicate financial incompatibility in a relationship. Your partner may track spending daily in a spreadsheet, while you prefer to use a budgeting app a few times a year. If that arrangement works for both of you, great. But if your partner wants you to get more involved and the two of you are unwilling to compromise, that’s when it can become problematic. Set priorities and expectations together so you’ll know what parts of your financial life are negotiable and what aren’t. “If you know that you are interested in buying a house or you want to plan a wedding together or plan a trip together and one part of the couple is really trying to make it happen and saving for that, or taking the financial steps to make that possible, and the other person isn’t, that’s kind of a signal that you’re not aligned,” Evans says. More serious issues may be relationship deal-breakers. Financial infidelity — hiding money, debt or large purchases from a partner — can harm a couple and their priorities, Evans says. Other signs of incompatibility include a lack of trust, avoiding discussing money, frequent arguments and controlling or abusive actions, such as your partner preventing you from accessing money. As you assess your compatibility with your partner, Evans says, consider whether you feel financially safe and stable with them. BUILD A STRONG FOUNDATION Having frequent, respectful conversations about money with your partner can help you forge a solid financial relationship. These conversations are especially important for couples who are married or live together and share finances. But even if you’re starting a relationship, early discussions about money goals and values can set you on the right path. “The biggest part is just the constant open communication because financial statuses change all the time,” Soares says. “Folks move into a higher socioeconomic bracket. Sometimes folks lose their jobs. I think there’s lots of transitions that occur around money, and that conversation needs to be open and ongoing.” Decide how often it makes sense for you to discuss money together, perhaps monthly or yearly.
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