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401(k) Contribution Limits in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Contributing to your company-sponsored 401(k) is one of the easiest ways to make sure you’re set up when your golden years arrive. By starting early and maximizing your contributions, you’ll give yourself ample time to take advantage of the unique magic of compound interest — which, given enough years, can turn even modest savings into impressive cushions.

However, it’s important to remember that there are limits to how much you can sock away in a retirement plan, 401(k)s included. Furthermore, those limits have recently changed. Here’s what you need to know.

2019 401(k) contribution limits

Here’s a quick look at the IRS’ updated 401(k) contribution limits for 2019.

Type of Contribution

Limit Amount

Employee Contribution

$19,000

Catch-Up Contribution

$6,000

Employer Contribution

$37,000

Total Contribution

$56,000 or $62,000 with catch-up contributions

As you can see, the total contribution limit ($56,000) is broken down into different contribution methods, including elective deferrals — i.e., your own regular 401(k) contributions automatically taken out of your paycheck — as well as catch-up contributions and employer contributions, which are frequently made via an employer match program.

Let’s go over how each type of 401(k) contribution works in detail.

Employee contributions: the lifeblood of your 401(k)

The bulk of your 401(k) is likely to be made up of what the IRS calls “elective deferrals” — the percentage or dollar amount you contribute to your 401(k) from your wages each pay period.

Note that 401(k) contributions can be made either pre-tax or post-tax, depending on what kind of account you have. In a traditional 401(k), your contributions are tax-deductible and won’t count toward your taxable income for the year in which you make them. They will, however, be taxed when you withdraw them later.

In a Roth 401(k), on the other hand, your contributions will count as taxable income but won’t be taxed when you take them out. Furthermore, Roth 401(k)s are not subject to the same required minimum distribution rules as their traditional counterparts, said Malik S. Lee, a certified financial planner at the Atlanta-based Felton & Peel financial advisory firm.

“Most employers’ plans have Roth 401(k)s, but a lot of people don’t know to ask for it,” said Lee. Roth 401(k)s are “one of the hidden gems” you might find in your onboarding documentation, so be sure to read your paperwork carefully.

How employer contributions can maximize your stash of cash

Maximizing your 401(k) is the best way to rest assured you’ll be set when the time comes for retirement. In most cases, the easiest way to do that is to take advantage of your employer’s 401(k) match.

A match program works exactly as advertised: Your employer will “match,” dollar for dollar, the money you put into your 401(k) up to a certain percentage of your income, generally between 3% and 6%.

That might not seem like much, but it’s free money. Given the incredible power of compound interest, that small match can work out to a lot of money over time.

For example, let’s say you were making $50,000 and contributed 5% of your salary toward your 401(k). That works out to an annual contribution of $2,500. Now let’s say your employer matched up to 3%, which works out to an additional $1,500. You’ve just bumped your contribution from $2,500 to $4,000 — almost doubling your savings with zero additional effort. Pretty cool, huh?

Your employer also can make contributions outside of a matching program. For instance, the company might contribute a percentage of your overall salary regardless of how much you elect to pay in or a percentage of its annual profit. You have less control over these contributions, but they add to your total and count toward the limit.

Catch-up contributions: are you eligible?

If you’re age 50 or over, you’re eligible to make “catch-up contributions,” which means you can electively defer an additional $6,000 per year without incurring any tax penalties.

If you got a late start saving for retirement or were unemployed — and therefore unable to contribute to your 401(k) for a while — it makes good financial sense to make catch-up contributions to maximize your retirement savings.

However, if you’ve been steadily saving and already have a significant nest egg built up, it might make more sense to seek out alternative investment options, which can diversify your overall portfolio, said Lee. A financial advisor with fiduciary responsibility can help you decide which option is best for your personal goals.

What happens if you go over the limit?

Given the generosity of the 401(k) maximum contribution limit, it’s rare to exceed it. In fact, Lee said he hasn’t seen this financial faux pas happen in his career.

Although saving too much for retirement might sound like an oxymoron, if you do somehow exceed the limit, the tax benefits that make these accounts so powerful will stop working in your favor. In fact, you’ll be penalized by paying taxes twice: The excess contributions will count toward your taxable annual income, and they’ll be taxed when you withdraw them.

If you do overshoot the contribution limit, you should ask your account custodian to withdraw the excess amount by April 15 of the following year. Because it’s done to keep your account within the IRS guidelines, this money will not be subject to the 10% early withdrawal fee you would incur otherwise. It’s important to keep in mind, however, that any income earned on the excess deferral will be taxed as regular income.

Contributing to your 401(k) is an important step to take toward a well-deserved rest after a fulfilling career. Be sure to stay within the contribution limits to maximize your returns and minimize your taxes.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here

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Investing

Wealthsimple Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Wealthsimple may not be the largest robo-advisor in the U.S. — though it is the largest in Canada and made the leap south of the border in 2017 — but it should be counted among the best. It’s especially valuable for newer investors, even though its fees are higher than some rivals’. For that higher fee, clients receive a portfolio review from an actual human and an all-inclusive package without additional fees, which may cost extra at other robo-advisors. Clients also have access to socially responsible portfolios and at least one other unusual perk. Altogether, Wealthsimple is the complete package for beginners to not-so-beginners.

Wealthsimple
Visit WealthsimpleSecuredon Wealthsimple’s secure site
The bottom line: Though it’s on the expensive side, Wealthsimple delivers an investor-friendly product that’s great for newer investors.

  • Free portfolio review and no extra fees
  • Access to financial planners
  • Higher account management fee

Who should consider Wealthsimple

Wealthsimple is a great choice for investors who are looking for a few more perks from their robo-advisor and who don’t mind paying a bit more for that privilege. It’s also a solid choice for those looking to get into socially engaged investing or halal investing and those who need basic access to financial planners. In these respects, it’s a good choice for beginners who need more guidance. Finally, for those with larger accounts, Wealthsimple provides expanded access to planners as well as special airport lounge access.

Wealthsimple fees and features

Amount minimum to open account
  • $0
Management fees
  • 0.5% (less than $100K deposited)
  • 0.4% ($100K+ deposited)
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • Trust
Portfolio
  • ETFs cover 10 asset classes.
Automatic rebalancing
Tax loss harvesting
Tax loss harvesting detailTax loss harvesting is automatically activated for Wealthsimple Black clients; it is available to all Wealthsimple clients.
Offers fractional shares
Ease of use
Mobile appiOS, Android
Customer supportPhone, Email

Strengths of Wealthsimple

  • Free portfolio review: Wealthsimple offers a free portfolio review as a way to get its foot in the door, much like FutureAdvisor does. With Wealthsimple, you provide your personal details, upload your financial statements and make an appointment with one of the company’s financial planners. The review includes an assessment not only of your investments but also of your debts and how much you’re paying for the funds or investments you currently have. It also includes plans to minimize your taxes and sets up your financial goals — so you know where you’re going. The entire process is led by a Wealthsimple financial planner, who has a fiduciary duty to act in your best interest. Even if you don’t opt for Wealthsimple, it’s a free review of your whole financial life by a professional, so it’s hard to go wrong there.
  • Expanded access to financial planners: While everyone at Wealthsimple has some access to financial planners, those enrolled in Wealthsimple Black (for accounts of more than $100,000) receive more access. This includes a formalized financial plan, which features a strategy for generating retirement income and a goals-based investing plan for retirement or for those big purchases in life. This access is one of the larger perks of the service and should be a draw for those who need this kind of planning and advice.
  • No extra fees and access to some unusual perks: Even if Wealthsimple does charge one of the higher account management fees, it doesn’t nickel-and-dime you on other fees like many other robo-advisors do. A transfer-out fee that might run you $75 at a rival is free here. And tax loss harvesting and portfolio rebalancing are included as a standard part of the management fee.Wealthsimple also allows you to purchase fractional shares, which is a nice bonus for beginning investors who may not have enough money to buy a full share of a fund with a high price tag. That ability allows you to purchase the full range of funds recommended for you and fully diversify even smaller cash deposits immediately — getting you in the game more quickly.Finally, the most unusual perk offered by Wealthsimple has nothing to do with investing. If you have more than $100,000 with the robo-advisor, you’ll become part of Wealthsimple Black, the firm’s upgraded service that offers access to more than 1,000 airline lounges in over 400 cities. If you’re a frequent traveler, that’s a nice perk.
  • Socially engaged investing: Looking to build a portfolio filled with socially responsible companies? Wealthsimple can help you do that, investing in six exchange-traded funds (ETFs) that support major socially engaged themes, such as low carbon, gender diversity and affordable housing. The company builds three types of portfolios using these investments depending on your risk tolerance: conservative, balanced and growth.Wealthsimple also offers Shariah-compliant halal investing, which is in accord with Islamic law. All investments avoid profiting from gambling, tobacco, arms or other industries that violate Islamic law. The diversified portfolio consists of 50 Stocks that have been vetted by a third-party committee of Shariah scholars. Because the portfolio is all Stocks, it’s riskier than more balanced portfolios that include Bonds (which are forbidden under the investment mandate).

Drawbacks of Wealthsimple

  • Account management fee: The account management fee — clocking in at 0.5% (less than $100K deposited) for basic accounts — is probably the biggest drawback at Wealthsimple. Basic accounts at other major rivals are around 0.25%. But it’s not always an apples-to-apples comparison, as Wealthsimple clients have some access to financial planners as well as the other free services above. And Wealthsimple manages the first $5,000 for a year for free, so that helps newer investors get started with their nest egg.Clients who deposit more than $100,000 will automatically join Wealthsimple Black, reducing their management fee to 0.4% and gaining more extensive access to a financial planner. Still, this reduced fee remains above those of rivals offering access to financial planners, including Schwab Intelligent Advisory (at 0.28% and a minimum of just $25,000) and Vanguard Personal Advisor Services (0.30% and a $50,000 minimum). These options beat Wealthsimple on the minimum for the higher tier of service too.
  • Customer support: Wealthsimple provides adequate customer service, and you can call in to have your account or investing questions answered by a professional. But the hours feel somewhat limited: Monday through Thursday from 9 a.m. to 8 p.m. EST and Friday from 9 a.m. to 5:30 p.m. EST. You also can drop Wealthsimple a line via email, but don’t expect an online chat or off-hour responses.

Is Wealthsimple safe?

Wealthsimple manages more than $2 billion in client assets, so it’s a trusted name in the industry. Client assets — which technically are held by the company’s broker, Apex Clearing, and not Wealthsimple itself — are safeguarded by the Securities Investor Protection Corporation (SIPC). This ensures that in the event of a bankruptcy, customers’ assets are insured to at least $500,000 (including $250,000 in cash only). That doesn’t protect you against the market falling or other risks of investing, but it should give you peace of mind about Wealthsimple.

Final thoughts

Wealthsimple should be an attractive candidate for any new investor looking to understand how to build a portfolio. The firm provides access to its financial planners for all investors, though clients in the higher service tier will receive more extensive time with them. The free portfolio review also is a solid service for beginning investors, and those looking to build a socially engaged portfolio should consider Wealthsimple.

Beginning investors who are focused primarily on fees (and need less access to education and advice) might consider shifting to Wealthfront or Betterment. Those who need more advice and can bring more than a little coin to their accounts also might want to consider Vanguard Personal Advisor Services or Schwab Intelligent Advisory. But Wealthsimple will be a solid fit for most.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James F. Royal, Ph.D.
James F. Royal, Ph.D. |

James F. Royal, Ph.D. is a writer at MagnifyMoney. You can email James here

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Investing

YieldStreet Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

YieldStreet is the type of fintech company that the internet makes possible: The investment manager, founded in 2015, connects borrowers with investors in alternative assets, taking a fee from each deal it completes. These alternative investments include short-term loans that might traditionally have gone to well-connected investors, such as placements in real estate, litigation finance, and marine vessel acquisition and deconstruction.

The appeal for investors (who must be accredited) is the high yields offered on the deals, and YieldStreet has engineered financings worth more than a half-billion dollars. Also of interest is what YieldStreet claims is its investments’ low correlation to the stock market, meaning these assets won’t zag when the market does. That provides diversification away from publicly traded companies and offers greater safety to an investor’s overall portfolio.

YieldStreet
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The bottom line: YieldStreet provides high yields on illiquid real estate and alternative investments, albeit with high fees.

  • Clearly explains the benefits and risks of individual investments
  • Offers a variety of investment types
  • Charges pricey management fees

Who should consider YieldStreet

The prospect of high interest on a limited-term loan can be enticing, but you’re invited to the club only if you’re an accredited investor. That means you’ll need to have at least $200,000 in income for the past two years as an individual, or $300,000 if joint. Alternatively, you need at least $1 million in assets, not including your primary residence. So YieldStreet is not for casual investors who decide they want to invest in real estate loans.

Another factor: As an investor, you’ll need to analyze the prospectuses of various loans, which the company will provide you. While YieldStreet outlines many of the risks, it’s ultimately up to you to decide what to invest in, and that requires more work than simply buying an index fund and kicking back. These are illiquid investments, so if you need the money soon, you’re better off elsewhere.

YieldStreet fees and features

Amount minimum to open account
  • $10,000 (possibly higher for specific offerings)
Commission1% to 4% management fee on all offerings
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • Solo 401(k) (for small businesses)
  • Trust
Customer supportPhone, Email

Strengths of YieldStreet

  • High yields and easy-to-make investments: YieldStreet couldn’t really make it any easier, technically, to select potential investments. It’s easy to allocate a certain amount of your capital to each loan, and the prominent details of each are presented in an easy-to-read summary. You’ll read sections on the investment’s positives and negatives, and you can download further information too. It’s easy to go by what YieldStreet says, but investors will want to investigate and analyze each investment themselves.And those high yields? The company is targeting 8% to 20% annual returns, a level that would make almost any investor’s mouth water. The company projects that already-financed investments are on track for a 12.6% annual return.
  • High interest on cash account: Investors can fund their investments from the YieldStreet Wallet, which allows users — even unaccredited investors — to earn 2% on the cash in their account. It’s like an online bank account, and it’s backed by a real bank, Evolve Bank & Trust. That’s an attractive rate for investors looking to stash their cash while waiting on their next YieldStreet investment or even for average investors to stockpile their money at an above-average yield.
  • No principal loss on prior investments: YieldStreet really wants you to know upfront that investors have lost no principal on their investments. It’s one of the first things the company’s website highlights. Each investment is asset-based — that is, backed by collateral — meaning it’s supported by an asset such as real estate or a legal settlement. Collateral provides greater safety to the loans that are on offer. If a loan does go sour, YieldStreet works with the loan’s originator to recoup as much of the principal and outstanding interest as possible, potentially through legal action. While the track record has been good so far, it can turn at any time.

Drawbacks of YieldStreet

  • Pricey management fees: The company clearly outlines that it takes a 1% to 4% management fee on all offerings on its financed deals, and that isn’t cheap. For each deal, the company highlights the expected net investment return, and it would be all too easy to bury the management fee in the fine print. But it does disclose the fees on its summary page for each deal (and not in illegible legalese either), so kudos for that.Still, those fees are expensive, especially as management fees on index funds of publicly traded companies are quickly plummeting. Of course, the appeal of YieldStreet is the access to traditionally inaccessible deals, and the company is charging a premium for that access.
  • Illiquid investments: Another downside to these investments, relative to traditional stock and bond investments, is that they are tied up completely for the life of the project and are illiquid. The company clearly spells out how long each project should last, and projects may run for just a few months to several years. If you can’t keep your money in that long and need access to it, this kind of investing won’t be for you.
  • Ongoing fees: It’s not just the management fee that comes out of your account but also an ongoing fee for each investment, and this fee depends on the type of legal structure set up to house the investment. This fee pays for such things as an annual audit and filing fees with the SEC. Depending on the specific type of structure, first-year fees run $100 to $150, while subsequent years cost $30 to $70.That can be more pricey than you think and can really ding your returns, especially if you’re investing smaller amounts. For instance, if you invested the minimum in each deal — $10,000 — and earned a 9% return, a $150 fee would eat up one-sixth of your first-year interest and as much as one-twelfth of your interest in subsequent years. That’s no trivial fee, and it encourages you to invest more in each deal, which may or may not be prudent.
  • Uncertain risks and an unproven business model: The company does provide key details of each deal, a useful guide for what to watch out for and a prospectus. However, there may be further or unknown risks investors must ascertain for themselves (just as there are in publicly traded investments). That means investors in YieldStreet really need to be able to analyze these potential investments effectively and perhaps even have some background conducting such analysis. There’s no one who’s going to do this work for you, so if you’re not comfortable doing it, YieldStreet may not be for you.In addition, the quality of YieldStreet’s investments is still untested by a significant recession — remember that the company was founded in 2015 — and such a test will prove how viable this model is longer term. The returns on offer here imply high risk, and risky investments often perform poorly during tough times. Of course, this is not a prediction but something prudent investors will want to analyze for themselves.

Is YieldStreet safe?

The biggest risk at YieldStreet is the investments themselves, and that varies on a case-by-case basis. That said, the company boasts that investors have had $0 loss of principal while enjoying (or slated to enjoy) an annual return of 12.6%. Each investment fund is held in a separate company whose sole purpose is keeping the investment secure, and in the event of YieldStreet going bankrupt, a new manager could be appointed for the funds.

The company’s YieldStreet Wallet, which pays interest on cash balances, is held by the FDIC-backed Evolve Bank & Trust, meaning that any cash deposits are insured up to $250,000. None of this protection, however, means that your at-risk investments at YieldStreet won’t lose money.

Final thoughts

YieldStreet is an interesting investment offering enabled by the connective power of the internet, and it’s allowing investors and borrowers to come together in new ways. The potential for high returns is there for investors, but these returns also imply high risk. While the track record is favorable so far, YieldStreet is too young to have gone through a recession. With high-risk investments, things can change quickly, so investors should invest accordingly.

Accredited investors who find the risk and fee structure a bit too much also may turn to publicly traded stocks, where fees are moving ever lower. While such investments don’t offer the low correlation to stock markets, they offer a time-tested model and potential exposure to the world’s best businesses (and you can even invest in real estate if you want).

Open a YieldStreet accountSecured
on YieldStreet’s secure website

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James F. Royal, Ph.D.
James F. Royal, Ph.D. |

James F. Royal, Ph.D. is a writer at MagnifyMoney. You can email James here

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