A recent survey found that only 23% of people were very confident about having enough money to live comfortably through their retirement years. At the same time, 33% were not confident.
Congress in 2001 passed a law that can help older workers make up for lost time. But few may understand how this generous offer can add up over time.
The “catch-up” provision allows workers who are over age 50 to make contributions to their qualified retirement plans in excess of the limits imposed on younger workers.
Contributions to a traditional 401(k) plan are limited to $19,500 in 2021. Those who are over age 50 – or who reach age 50 before the end of the year – may be eligible to set aside up to $26,000 in 2021.
Contributions to an IRA are limited to $6,000 and if you are over age 50 the limit is $7,000.
Setting aside an extra $1,000 or $6,500 each year into a tax-deferred retirement account has the potential to make a big difference in the eventual balance of the account. And by extension, in the eventual income the account may generate. Call us so we can show you how your personal situation can change by using catch-up contributions.
Should You Borrow from Your 401(k)?
The average household with credit card debt had a balance of $15,983 in 2017, nearly eclipsing the peak of $16,900 in 2008.¹ With the average credit card annual percentage rate sitting at 14.9%, it represents an expensive way to fund spending.²
Which leads many individuals to ask, “Does it make sense to borrow from my 401(k) to pay off debt or to make a major purchase?”³
Benefits of a 401(k) Loan
- No Credit Check—If you have trouble getting credit, borrowing from a 401(k) requires no credit check; so as long as your 401(k) permits loans, you should be able to borrow.
- More Convenient—Borrowing from your 401(k) usually requires less paperwork and is quicker than the alternative.
- Competitive Interest Rates—While the rate you pay depends upon the terms your 401(k) sets out, the rate is typically lower than the rate you will pay on personal loans or through a credit card. Plus, the interest you pay will be to yourself rather than to a finance company
Disadvantages of a 401(k) Loan
- Opportunity Cost—The money you borrow will not benefit from the potentially higher returns of your 401(k) investments. Additionally, many people who take loans also stop contributing. This means the further loss of potential earnings and any matching contributions.
- Risk of Job Loss—A 401(k) loan not paid is deemed a distribution, subject to income taxes and a 10% penalty tax if you are under age 59½. Should you switch jobs or get laid off, your 401(k) loan becomes immediately due. If you do not have the cash to pay the balance, it will have tax consequences.
- Red Flag Alert—Borrowing from retirement savings to fund current expenditures could be a red flag. It may be a sign of overspending. You may save money by paying off your high-interest credit-card balances, but if these balances get run up again, you will have done yourself more harm.
We caution against borrowing from your 401(k), but a loan may be a more appropriate alternative to an outright distribution, if the funds are absolutely needed.
Sources: 1.) NerdWallet, 2017 American Household Credit Card Debt Study 2.) NerdWallet, 2017 American Household Credit Card Debt Study 3.) Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.
LIFE AND DEATH OF A TWENTY DOLLAR BILL
Every year, the government prints millions of notes a day. Here’s a quick look at what goes into creating a $20 bill and what determines when a bill’s lifespan ends.
A $20 bill starts out life as part of a large sheet of paper. While most paper is made primarily from wood pulp, the paper used by the U.S. Bureau of Engraving and Printing doesn’t contain any wood at all. Currency paper is composed of a special blend of 75% cotton and 25% linen. It’s made with special watermarks and has blue and red fibers embedded in it along with a special security thread.
Each blank sheet is tracked from the time it leaves the mill until it is printed, and the entire shipment is continuously reconciled to make certain all are accounted for.
These blank sheets of cotton and linen paper get printed four times. Background images and colors are printed — both sides at once — using offset presses that are over 50 feet long and weigh over 70 tons. After drying for 72 hours, the portraits, vignettes, scrollwork, numerals, and letters are printed on the back using Intaglio presses that are a mere 40 feet long and weigh only 50 tons. After drying for another 72 hours — in special guarded cages — more portraits, vignettes, scrollwork, numerals, and letters are printed on the front using the Intaglio presses. Finally, the serial numbers, Federal Reserve seal, Treasury Department seal, and Federal Reserve identification numbers are printed using a letterpress.
Once dry, these printed sheets are gathered in stacks of 100 to be cut by a specially designed guillotine cutter. Each new stack of 100 $20 bills is wrapped with a special paper band. Ten of these 100-note stacks are gathered, machine counted, and shrink-wrapped into a bundle. Then, four of these shrink-wrapped bundles are collated together, given a special barcode label, and shrink wrapped again to create a brick of 4,000 bills, worth $80,000.
The Treasury Department ships these newly printed $20 bills to the Federal Reserve Banks, who in turn pay them out to banks and savings and loans—primarily in exchange for old, worn-out bills. The new bills are handed out to customers of these institutions as they withdraw cash, either through tellers or through automated teller machines.7
An average $20 bill will change hands often, but even the U.S. Bureau of Engraving and Printing isn’t sure how many times a bill will move from one pocket to the next. Contrary to popular belief, the government doesn’t have any way to track individual bills.
There is a polyester security thread embedded in the paper that runs vertically up one side of each bill. If you look closely, the initials USA TWENTY along with the bill’s denomination and a small flag are visible along the thread from both sides of the bill. This thread makes currency more difficult to counterfeit, but cannot be tracked electronically.
Banks gather worn out and damaged currency, sending it to the Federal Reserve in exchange for new bills. The Federal Reserve then sorts through these bills to determine which are still usable and which are not. Those bills deemed usable are stored until they can go out again through the commercial banking system. Those deemed no longer usable are cut into confetti-like shreds. Most are then disposed of; a small portion is sold in five-pound bags through the Treasury’s website.
Sources: 1.) Federal Reserve, 2019 2.) Bureau of Engraving and Printing, 2019