2018 401k Contribution Limits

401k Contribution Limits in 2018

On October 19, 2017 the Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2018. This news means the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan (TSP) is increased from $18,000 to $18,500. However, the catch-up contribution limit for those age 50 and over remains at $6,000. So if you are 50 or over, you may contribute up to $24,500 towards your 401(k) in 2018.

Roth IRA and Traditional IRA Contribution Limits in 2018

In 2018 both the Traditional IRA and Roth IRA contribution limits will remain flat at only $5,500 for those younger than age 50, and $6,500 for those who are 50 or older. That’s the same limit that’s been in place since 2013. From 2008 to 2012 the IRA contribution limit was $5,000.

2018 Traditional IRA and Roth IRA Eligibility

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.

2018 Traditional IRA Eligibility

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $189,000 and $199,000, up from $186,000 and $196,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

2018 Roth IRA Eligibility

The income phase-out range for taxpayers making contributions to a Roth IRA in 2018 is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000 in 2017. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.




The 10 Commandments for Individual Investors

Book Review: Winning the Loser’s Game: Timeless Strategies for Successful Investing by Charles D. Ellis

I recently completed one of the greatest books on investing, written by one of the most influential investors of all time. That book is Winning the Loser’s Game: Timeless Strategies for Successful Investing by Charles D. Ellis.

If you do a search for the best books on investing, Ellis’ Winning the Loser’s Game is always in the top 5. It’s a great, timeless classic on personal investing that is simple and concise. Ellis tells great, and often very funny, stories to convey his points, as well as compelling data to support his claims.

Charley Ellis lays out the most important investment lessons for individual investors. Those looking to save, invest and retire wealthy through diligent saving and investing in low cost index funds must read this book. He lays out the easy and successful ways to get rich (slowly) through proper investing. It is required reading for all my Millennial personal finance readers. Regardless of your investment knowledge, the sound money management skills laid out in this book are a must read for all audiences.

10 Commandments for Investors

One of my favorite parts of Winning the Loser’s Game: Timeless Strategies for Successful Investing by Charles D. Ellis is his 10 commandments for individual investors. Below are the 10 commandments for investors, which is a great guide for Millennial investors.

1) Save, save, save. Invest and save for your future happiness and financial security, as well as an education for your kids. This is the foundation of financial freedom and one day becoming financially independent to do whatever you want, whenever you want.

2) Stop speculating. The more you read up on investing the more you hear every reputable financial advisor insisting you only invest in low-cost index funds. Well some people just have to “play the market” to satisfy and emotional itch. If you do, try to limit yourself to 5% or less of your portfolio and be sure to track your performance carefully. You may stop “playing the market” faster than you think.

3) Don’t invest for tax purposes. Don’t believe in tax shelters or tax-loss harvesting. Don’t do anything in investing primarily for tax reasons. You absolutely should invest in a Roth IRA (or Traditional, but I strongly prefer Roth) and maximize contributions to your tax-sheltered 401(k) every single year. But, outside of these accounts, don’t overthink it.




4) Don’t view your home as an investment. A home is not a good financial investment and never was. But a home can certainly be a fine investment in your family’s future and happiness. Your goal should be buy a modest home that you can afford and that your family will love. Then, pay the mortgage off and live there forever. That’s when your house becomes a good investment.

5) Just say “no” to commodities. Dealing with commodities (oil, gold, silver, corn, livestock, etc.) is really only price conjecture. It is not investing because there is no economic efficiency.

6) Be very leery of stockbrokers and mutual fund salespeople. Their job is not to make you money, but to make money off you. Now not all stockbrokers and mutual fund salespeople are bad, but you must be very careful and watchful when dealing with one.

7) Don’t invest in new or “interesting” investments. Stick to the basics, total stock indices, REITs, emerging markets, etc.

8) Don’t invest in bonds just because you heard they are conservative and safe. Bond prices fluctuate nearly as much as stock prices do. And bonds are terrible against one major risk – inflation.

9) Come up with goals and write them down. And then stick to them. Write down your long-term investing goals (retirement and college), home payoff, retirement income and net worth goals. It’s best to review these goals annually to ensure you are on track.

10) Don’t trust your feelings. When you feel overjoyed, you’re probably in for a bruising. When you feel disenchanted, remember that it’s darkest just before dawn, so don’t take any action. Less is better when it comes to investment activity. Set it and forget, and keep investing.




How Much Does it Cost to Have a Baby?

Are you and your spouse considering starting a family? If you’re like me then you are doing your due diligence prior to beginning this magical, lifelong journey that is parenthood.

I did a lot of research prior to us having our first baby and it was really hard to find any great info. My health insurance gave me an “estimate” based off my standard PPO or high deductible plan. My estimate was $3,000 for everything. But, it was a bit off…and we didn’t have any complications whatsoever.

Hospital and Delivery Cost to Have a Baby

I have made it a point to track all of our child care expenses for my Millennial personal finance readers. And now I finally have all of our medical bills back for the birth of my baby girl, so I can now post exactly how much it cost us to have her (delivery, hospital stay, anesthesia, and baby).

Item

Total

Insurance

Net Total

Delivery $1,654.00 $581.88 $1,072.12
Lab Work $96.00 $91.97 $4.03
Hospital Stay $17,213.80 $14,561.79 $2,652.01
Anesthesia $6,176.00 $5,906.12 $269.88
Baby $4,288.56 $3,750.16 $538.40
Baby’s 1st Dr Check $300.00 $268.04 $31.96
$4,568.40

Last Week Stock Market Recap (October 16-20, 2017)

Last week, October 16-20, 2017, all U.S. stock indices were up due to rising company earnings and easing political uncertainty as the Senate passed a 2018 budget resolution. Rising expectations of lower corporate taxes have helped stocks rise to record highs recently. Case and point, the Dow also hit 23K for the first time ever this week. This is definitely a huge milestone for this U.S. stock index. President Trump is really patting himself on the back for this achievement too. That, obviously, irritates a number of people on both Wall Street and in Washington. The business community of America is a huge reason for the growth and President Trump has helped with the idea of a corporate tax cut.

Black Monday: October 19, 1987

Exactly 30 years ago this week (Monday, October 19, 1987) the Dow fell exactly 508 points to 1,738.74 (22.61%). This is known as “Black Monday” in the financial world. The Black Monday decline was, and currently remains, the largest one-day percentage decline in the Dow Jones Industrial Average (DJIA).

Noteworthy market news from week of October 16-20, 2017

  • 52% of American’s say they’re less likely to shop on Black Friday this year.
  • Netflix added 5.3 million subscribers last quarter (July, August, September 2017).
  • Existing home sales were up 0.7% in September 2017.
  • But… U.S. home construction fell 4.7% in September 2017.
  • 30-year fixed-rate mortgage dips slightly to 3.88% this week (down from 3.91% last week).
  • But… 30-year fixed-rate mortgages were only 3.52% one year ago (all-time low was 3.31% back in November 2012).

Last Week’s Stock and Bond Index Performance (October 16-20, 2017)

  • NASDAQ 0.4% (YTD 23.1%)
  • Dow Jones Industrial Average 2.0% (YTD 18.0%)
  • S&P 500 Index 0.9% (YTD 15.0%)
  • U.S. Aggregate Bond Index -0.5% (YTD 3.1%)

How Did My 401k Do Last Week?

Last week my retirement accounts were up only 0.18%, whereas the S&P 500 was up 0.86% and the Dow was up 2.0%. So last week (October 16-20, 2017) I obviously lagged the two biggest U.S. stock market indices. And, overall this year, which is 294-days into 2017, my retirement portfolio is up 14.85%.

The Vanguard Target Retirement 2040 Fund (VFORX) is up 14.96% so far in 2017. This is my personal benchmark because I could invest all my retirement portfolio into one account or choose a number of index funds to diversify. I am doing the latter and this year I am losing to the 2040 Target Date Fund. Again, slightly. But, more on why I am not using the 2040 retirement fund later.

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. Through lots of reading and research on my part, I’ve found that a number of these assets classes “zig” when the market “zags”.

With that said, if I can beat the market I will absolutely take it (obviously)! Last year in 2016 my retirement portfolio returned 13.01% versus 9.54% from the S&P 500. In addition to the S&P 500, I like to measure my portfolio performance against Target Date Retirement Funds. I specifically like to use the Vanguard Target Retirement 2040 Fund (VFORX) because that is what I used to invest in before I went to all index funds. But if I can’t beat the Vanguard 2040 fund, then why not simply invest in it (one fund) versus the 10+ mutual funds I am in now? Well in 2016 the Vanguard 2040 fund was up only 8.73%. So it under performed the market (S&P 500) by nearly 1%, and I personally beat it by nearly 5%. So that tells me I am on the right track with my well diversified portfolio.




Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.




Am I Saving Enough For Retirement?

I recently logged in to my Personal Capital account and received the following message;

27% of users like you have saved more.

You’ve saved 73% of the average tax-deferred investments (like IRA & 401K) for your age group among Personal Capital users. Is it time to start saving more? Learn more about saving more and even retiring early. How can I save more?

So, Personal Capital is telling me that I am in the 73rd percentile in my age group when it comes to retirement savings. I appear to stack up pretty well against my fellow Millennial retirement savers. I also like how Personal Capital frames the statement; they actually are encouraging me to save even more. They are telling me that 27% of users like me actually save more. I love the fact that they are really trying to push me to save more.

I can’t argue with this logic because it does push me to want to save more for retirement. Currently I am saving 15% of my income towards retirement. I then receive a 11.5% match from my employer. On top of that, both my wife and I max out Roth IRA accounts. In 2018 I do plan on increasing my retirement savings even more…even if it is by just a couple percentage points.

Millennials, you too, need to push yourself to keep saving more. We should all be striving for an early retirement. And, if you decide to work longer and well into your 60’s, then great, you now have more than enough for retirement in that scenario.

Last Week Stock Market Recap (October 9-13, 2017)

Last week, October 9-13, 2017, all U.S. stock indices reached new all-time highs. The NASDAQ is leading the charge in 2017, with a year-to-date return of nearly 23%. Interesting note; the NASDAQ has logged its 57th all-time high.

Stocks have been setting new highs and interest rates remain low, pushing investment returns well-above their long-term averages. Over the past five years, U.S. stocks returned almost 15% per year, which is roughly twice as much as projected long-term returns most financial experts are predicting (approximately 7% annually).

Last Week’s Stock and Bond Index Performance (October 9-13, 2017)

  • NASDAQ 0.2% (YTD 22.7%)
  • Dow Jones Industrial Average 0.4% (YTD 15.7%)
  • S&P 500 Index 0.2% (YTD 14.0%)
  • U.S. Aggregate Bond Index 0.5% (YTD 3.6%)

Last Week’s Retirement Portfolio Performance Report
(October 9-13, 2017)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained (or lost!) last week.

How Did My 401k Do Last Week?

Last week my retirement accounts were up 0.52%, whereas the S&P 500 was only up 0.20%. Overall this year, which is 288-days into 2017, my retirement portfolio is up 14.6%. So I am actually slightly beating the market. Slightly.

The Vanguard Target Retirement 2040 Fund (VFORX) is up 14.9% so far in 2017. This is my personal benchmark because I could invest all my retirement portfolio into one account or choose a number of index funds to diversify. I am doing the latter and this year I am losing to the 2040 Target Date Fund. Again, slightly. But, more on why I am not using the 2040 retirement fund later.

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. Through lots of reading and research on my part, I’ve found that a number of these assets classes “zig” when the market “zags”.

With that said, if I can beat the market I will absolutely take it (obviously)! Last year in 2016 my retirement portfolio returned 13.01% versus 9.54% from the S&P 500. In addition to the S&P 500, I like to measure my portfolio performance against Target Date Retirement Funds. I specifically like to use the Vanguard Target Retirement 2040 Fund (VFORX) because that is what I used to invest in before I went to all index funds. But if I can’t beat the Vanguard 2040 fund, then why not simply invest in it (one fund) versus the 10+ mutual funds I am in now? Well in 2016 the Vanguard 2040 fund was up only 8.73%. So it under performed the market (S&P 500) by nearly 1%, and I personally beat it by nearly 5%. So that tells me I am on the right track with my well diversified portfolio.




Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.




Cost of Raising a Child in 2017: 7-Month Old

How Much Does it Cost to Have a Baby?

My wife and I are first time parents and we are now 7-months into the “parenting” process. I made it a goal to track all of our childcare expenses so I could truly report on the cost of raising a child. I invite all of my personal finance readers to follow along our journey as I diligently track all expenses involved in truly raising a child these days in middle class America.

Prior to us having a child I did some research and the consensus was that it costs roughly $14,000 per year to raise a child, which equates to roughly $240,000 (without college). Don’t get me started on how much college will cost for my child

So the consensus was from my research that it costs $14,000/annually to raise a child in 2017. Well, we are halfway through year one and we have spent just over $3,000 on our baby girl thus far. It is very early and she is still very young, but we are on pace to spend less than half of that $14k per year average. However, its obvious that what we spend in year one will (and should be) far less than what we’ll probably spend in, say, year 8 and/or 12 and beyond when expenses really rise to raise a child. But I like the pace we are on and currently setting.




How Much Does It Cost to Raise a Child?

We are 7-months in and thus far we have spent $3,743 on my daughter in total. We have lucked out and received a number of hand-me-down clothes and toys, as well as a ton of gifts and gift cards from our baby shower that are still holding us over. We are nearing the end of our baby shower gift cards, but I estimate that we have about $200 left to various stores.

Last month our biggest expense for our daughter was her new swim lessons. This month we didn’t have any expenses like that. We just had the usual, nanny care and 529, as well as some actual baby food and a couple outfits.

We bought baby food because my daughter is now transitioning to actual food, along with her formula. We are virtually only feeding my daughter formula now, as my wife is now longer producing breast milk. So our baby food expenses may begin to increase a bit. We also bought two new fall weather outfits for her now that the weather is beginning to change in our state.

Child Care/Nanny

We use a part-time nanny to watch our daughter two days a week. We consider ourselves very lucky though, as we have a nanny who comes to our house twice a week, a nanny our daughter loves, who really doesn’t costs us that much.

My wife is off two days during the week and then a family member watches her another day, so we only need to “pay” for two days of child care. Thus far we have spent a grand total of $2,400 on childcare.

Cost to Raise a Child in 2017: 7-Month Old

  • 1st month = $414
  • 2nd month = $105
  • 3rd month = $545
  • 4th month = $643
  • 5th month = $520
  • 6th month = $866
  • 7th month = $650
  • Since inception (March, 2017) = $3,743

 

September

Item Price
529 contribution $50
Child care $560
Baby food $20
Clothes $20
Total $650




Personal Finance 101: Build an Emergency Fund

In this personal finance 101 series I am going to focus on why all Millennials need to establish an emergency fund. The general consensus from virtually all financial experts is that you should save between 3-6 months worth of living expenses as your emergency fund, aka your “rainy day” fund.

How Much Should I Have In An Emergency Fund?

Unfortunately, most American’s have less than $1,000 in savings. According to MarketWatch, more than 60% of American’s have less than $1,000 set aside for an emergency fund. And more than 20% have no savings account whatsoever. So unfortunately most American’s can’t afford what life throws at them; car repair, water heater, ER visit, etc. Let alone a layoff!

As I stated earlier, I believe most Millennials should have 3-6 months living expenses set aside as their emergency fund. That number does vary based off your current situation. Is your job stable? Are you salaried or self-employed? Are you single or do you have dual income? Everyone’s situation is different. But if you have a stable job that you feel very secure in, then I think you are correct leaning towards the low end of 3-months living expenses. But if you are self-employed and your pay varies based off contracts/work, then you should absolutely skew higher on the emergency fund side and aim for 6-months.

Do You Have $400 for an Emergency?

I was recently listening to an episode of Motley Fool Answers, one of my favorite money podcasts for Millennials, and they too were discussing how most American’s don’t have enough money in savings to cover a $400 emergency. This was actually a study done by the Federal Reserve, and it wasn’t just for low income families, as it even applied to families with a $100,000 income.

That is just terrible. And I am sure most people don’t think they need it because they can simply put an emergency expense on a credit card. Says the person who probably has a boatload of credit card debt, I’m assuming…




How Much Is In My Emergency Fund?

I am a Millennial and I am married with one child. I personally have 5-months of living expenses in my emergency fund. I am salaried and in a very secure position with a very stable company. My wife, however, is self-employed but her income has been consistently stable for the last decade. We also both max out Roth IRA’s each year. I have no intentions of using these for an emergency, but they are there just in case. Especially my Roth IRA because I already have a well funded Roth 401(k) at work, with a healthy company match.

To be honest, my wife and I never really established an emergency fund until about 2 years ago. I started getting hooked on Dave Ramsey and we began to budget and manage our personal finances much more diligently. We now have no debt, other than our house, and a fully funded emergency fund. The peace of mind we’ve had the last couple years because of this emergency fund is indescribable. We sleep better at night and we rarely stress out about money. It is a fantastic feeling.

Emergencies Happen

Just this past summer, our emergency fund saved us from some major stresses. It May we had saved up to re-sod our backyard, which costs us $2,500. Big hit, but we saved up for it. But then life hit and our emergency fund got taxed. In June our hot water heater went out and that costs us $1,200. Then in July our garage door broke and we had to replace that, which costs us another $600. August was light, thankfully, but then in September my 10-year old SUV needed some work; rear brakes and a new sway bar. That too was another $600.

Our fully funded emergency fund saved our bacon big time this summer. We were able to take from there, then replenish. But then we were hit again. But we again replenished our emergency fund.

On this same note, I recall reading a number of stories about Houston families and residents who were unable to evacuate prior to Hurricane Harvey making landfall on August 25, 2017. It saddens me that so many people not only didn’t have an emergency fund, but they had virtually no money in savings to get their family to safely. I read a few stories that since the storm hit at the end of the month the family was out of money, because they obviously live paycheck to paycheck. Gas, hotels, meals and safety wasn’t an option for them at the end of the month.

Stories like this should be a teachable moment for us Millennials. Save for an emergency…and save aggressively now. Stop putting it off.

Did you know that if you saved just $25/week for 2 years you would end up with $2,600. If you can triple that to $75/week you would end up with $7,800. Now that probably doesn’t fully fund your emergency fund, but its a great start with very doable, and very conservative savings amounts.