Intro
In this episode of the Rich Habits Podcast, the hosts dive into the world of employer-sponsored retirement accounts. They discuss the different types of accounts, such as the 401k, Roth 401k, 403b, 457b, and ESOPs, and explain how to optimize them for building wealth and securing a comfortable retirement.
Main Takeaways
Understanding Retirement Accounts
- Less than half of the 110 million Americans with access to employer-sponsored retirement accounts contribute towards them, missing out on their benefits.
- The 401k is the most popular retirement account, allowing tax-free contributions and company matches. The maximum contribution limit is $22,500 per year.
- Roth 401k offers tax-free withdrawals in retirement but taxes are paid upfront.
- 403b accounts are similar to 401ks but are offered to employees of public schools and tax-exempt organizations.
- 457b accounts are offered to government employees and have an annual contribution limit of $19,500, with a double-limit catch-up for those nearing retirement.
- ESOPs give employees ownership interest in the company they work for in the form of stock, with vesting schedules to understand before investing.
Optimizing Retirement Accounts
- Contributing as much as possible towards retirement accounts can save on taxes and build wealth for a comfortable retirement.
- Prioritize investing in this order: first up to the match, then max out Roth IRA, then invest in 401k only if you have autonomy, otherwise invest in index funds.
- Autonomy over investments is important for a good retirement strategy.
- Never borrow against retirement funds or cash them out early.
- ESOPs should be considered as part of compensation, not retirement, and diversified if necessary.
Building Wealth and Diversification
- NEO’s investments offer ETFs that aim to provide monthly income while offering core portfolio exposure across equities, fixed income, and cash alternatives.
- Diversification is important not just for investments, but also for how you spend your time. Don’t be all in on one thing for too long, have a backup plan.
- Passive index funds are a consistent way to build wealth.
- Building wealth slowly is a good approach if it allows for free time to pursue other interests.
- Surrounding yourself with information is crucial to the wealth-building journey, and there are many ways to do so, such as subscribing to newsletters and following relevant accounts on social media.
Connecting with Like-Minded Individuals
- Finding like-minded people with similar goals for building wealth can be challenging in small towns.
- It’s important to get entrenched virtually by joining online communities and attending virtual meetups and masterminds.
- It’s important to remember that there are many like-minded people out there, and they don’t have to be physically close to you to benefit from their support and advice.
Summary
Understanding Retirement Accounts and Optimization
The hosts emphasize the importance of contributing towards employer-sponsored retirement accounts, such as the 401k, Roth 401k, 403b, 457b, and ESOPs. They explain the tax advantages and contribution limits of each account. They recommend prioritizing investments based on autonomy and diversification. Borrowing against retirement funds or cashing them out early should be avoided. ESOPs should be considered as part of compensation and diversified if necessary.
Building Wealth and Diversification
The hosts discuss the income-focused alternative offered by NEO’s investments and the importance of diversification in investments and time management. They highlight the benefits of passive index funds and the value of building wealth slowly while pursuing other interests. Surrounding oneself with information through newsletters and social media accounts is crucial for wealth-building.
Connecting with Like-Minded Individuals
Finding like-minded individuals in small towns can be challenging, but the hosts suggest getting involved virtually through online communities, virtual meetups, and masterminds. They emphasize that support and advice can come from people who may not be physically close but still offer valuable insights.
Conclusion
Optimizing employer-sponsored retirement accounts is crucial for building wealth and securing a comfortable retirement. By understanding the different types of accounts and their tax advantages, individuals can make informed decisions about their contributions. Diversification, both in investments and time management, is key to long-term success. Connecting with like-minded individuals virtually can provide valuable support and advice throughout the wealth-building journey.
