November 2020 NewsletterSubmitted by Dorval & Chorne on November 2nd, 2020
Keagan Kinsella | November 2, 2020
Oh, November. With the snow we’ve had the last couple weeks, it has felt more like January! As the snow melts, it’s time for another newsletter, just in time for two big days—Halloween & Election day. In perfect combination for those two days, I stumbled upon a great story that blended two wonderful topics together…Candy and taxes! Let’s kick it off here:
A Sweet Deal for Uncle Sam
So, apparently there is a tactic that parents use to teach their trick-or-treating children about being financially responsible and the beauty of taxes from a young age. It’s called the Candy Tax, and instead of April 15th, Uncle Sam gets his share on October 31st! I know Halloween just passed, but I’m curious to know your opinion on this…
Here’s the low down: When your kids come home and dump their bags on the floor, you let them count and sort it all. This is their income! Once they have it all squared away, they are informed about what taxes are (money from mom and dad’s income), and what they pay for (things that help the community). Because mom and dad took the kids out trick or treating and bought the costume, they will get to take a percentage of the candy (the tax rate % = their age).
Of course, it sounds like a lovely plot for parents who want to get first pickings at their favorite treats, but if explained with good reason, it can show kids basic principles of life, such as taxes. What are your thoughts about this? Fun fact: in Minnesota, candy is not considered a grocery and is therefore taxable upon purchase? (Rude.)
Question of the month: “I just got notified that my company 401k is switching providers! What do I need to do?”
It might feel a little overwhelming to open an envelope and see that the 401k plan you’re familiar with is getting the boot, and being replaced with a new plan…and you’re just along for the ride! No need to worry though, it really isn’t as complicated of a process as you might think. You will just want to be more vigilant than you might typically be!
First things first, it’s important to be aware that your plan provider (ie: Fidelity, Transamerica, Empower, etc) is not your actual investment. It is simply where your investments are being held! Each plan provider will offer different fund options, which depend on your company’s unique plan document. You will likely have similar type options regardless of the provider.
To keep it simple, the two most important dates to know are A) when the blackout period begins and B) the day it ends. You may be thinking, blackout period?! That sounds scary, what does that mean? A blackout period is when your 401k plan essentially “goes dark,” and you can't have access because the assets and records are being moved from one provider to another. It can be as short as overnight, or sometimes a month or two. Have no worries, during this time your contributions will continue to be invested and you will not be “out of the market.” The plan provider will be mapping over your current holding(s) into similar, if not the same, fund(s) that are available in your new plan.
Once your money has transferred, you will want to cross reference the balance in your new plan, and make sure it is similar to the amount that left your old plan. Also, check the fund options to make sure you are in a similar portfolio, and that your contribution plan is set up correctly.
Social Security… for me?
I shared a great article on Linked In about Social Security and millennials earlier this week, which inspired me to share more about it. Social Security is many times synonymous with retirees, and when you’re just starting out your career—retirement sounds like it is light-years away! But, I think it’s an important step for millennials to at least know some basics about!
- Did you know that every time you get a paycheck, you are having taxes for Social Security withheld that go right out the door to pay benefits for those who are receiving benefits? Take a peek, you’ll see money taken out for OASDI on your paystub.
- Social Security isn’t just for retirement, it is technically a social insurance program designed to protect you from being impoverished when you are no longer able to work. This could be from old age, but also disability!
- You may think it will not exist by the time you retire. This is because media promotes the idea that Social Security is “going broke,” and is not sustainable. Since Social Security is a pay as you go system, as long as there are people paying money into the system, there will be money going to the door to pay for benefits of current retirees. There are ways to make it more sustainable though, because the current ratio of money in to money out will need to change at some point in the future. This could come from adjusting taxation caps, changing full retirement ages, or changing the way benefits grow (cost of living adjustments).
Eight in ten millennial workers said Social Security won’t be there for them when they get to retirement, according to a 2017 study by Transamerica Center for Retirement Studies. However, 7 in 10 millennials agree that it’s crucial to preserve Social Security, even if it means contributing more! So, don’t count it out just yet— it has been around since 1935, and I don’t think it’s going anywhere any time soon.
All right, that’s it for this month! Stay tuned for my next newsletter where I will continue to share and inform in new and creative ways. If you want to sign up for the newsletter email, click here (and let others know they can sign up.) Last but not least, let’s connect on LinkedIn!
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