Advertiser Disclosure

Investing

What is a Roth 401(k)?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

You’ve probably heard of a Roth Individual Retirement Account (IRA) and are at least somewhat familiar with 401(k) plans, but what about a Roth 401(k)? Here’s what you need to know about this increasingly popular hybrid option some employers offer to help their employees save money for retirement.

What is a Roth 401(k)?

Roth 401(k)s get their name from former U.S. Rep. William Roth of Delaware, who’s credited with establishing Roth IRAs as part of the Taxpayer Relief Act of 1997. In 2006, as an extension of that legislation, employers were able to begin offering Roth 401(k)s, which follow the same tax principals as Roth IRAs — you pay taxes on contributions up front so you have access to tax-free funds during retirement.

Roth 401(k)s operate much like traditional 401(k)s. The difference lies in when you pay taxes on the contributed funds. With a traditional 401(k), the money you put away is taken out of your paycheck before you pay taxes on it. Of course, taxes are unavoidable and you’ll have to pay taxes on the withdrawals you make later in life when you’re retired.

On the other hand, if you contribute to a Roth 401(k), you pay taxes on the funds during the same year in which you contributed. That means when you eventually withdraw money from the account during retirement, you’ve already ripped off the financial Band-Aid so to speak, and you have access to tax-free funds.

Roth 401(k) eligibility

Employers aren’t required to offer any 401(k) plan. They’re an optional benefit businesses of any size can choose to provide, but there are no laws requiring employers to participate. If an employer does offer a Roth 401(k) option, they must also offer a traditional 401(k) plan. If both are offered, employees may split their contributions between the two options.

According to a retirement study by the Transamerica Center for Retirement Studies, 65% of U.S. workers have access to a 401(k) plan through their employer, with large companies (92%) being more likely to offer them than small businesses (59%). Of those companies offering a 401(k) plan, 45% offer the Roth 401(k) option. When offered the option of a Roth 401(k), approximately 28% of employees choose that option, with millennials choosing a Roth 401(k) option 63% of the time.

If your employer offers a 401(k) plan, it doesn’t automatically mean you’re eligible to participate. It’s up to each employer to determine which employees are eligible based on varying criteria. For example, only 41% of employers who offer a 401(k) plan offer it to their part-time workers. Other companies may require certain employment thresholds to be met before they can enroll (like being employed for a year).

Roth 401(k) deductions

Once enrolled in a Roth 401(k), a portion of your salary (usually a set percentage) is deducted automatically from each of your paychecks. For example, if you make $4,000 a month and decide to contribute 10% to your 401(k), then $400 will be deducted from each of your monthly paychecks.

Determining how that money is invested is up to each individual employee. Beyond the Roth option, in some cases, you will be presented with a variety of investment options including managed accounts and asset allocation suites. There may be a fee associated with some of them, which must be disclosed to employees by the plan’s administrator.

How much can you contribute?

There are no income limitations for participation in a Roth or traditional 401(k). However, there is a limit as to how much you can contribute, which is adjusted yearly. For example, in 2018, the limit is $18,500, while the limit for 2019 will be $19,000. If you’re over the age of 50, you can contribute an extra $6,000 per year as a “catch-up” contribution. You don’t have to contribute the entire amount, but you can select to have any amount up to that limit deducted.

As much as 85% of companies who offer 401(k) plans also provide matching funds up to a certain amount (yay, free money!), while others may contribute to your 401(k) regardless of whether you do or not. It’s important to note that any funds your employer contributes won’t be put in your Roth 401(k), and instead placed in a traditional 401(k). You will be responsible for paying taxes on the amount they contribute.

In some cases, employer contributions vest immediately, which means they belong to you right away, protecting your retirement in the event you quit or leave the company. In other cases, employer contributions are vested over time. That means if you quit before a certain amount of time, you only get to take a portion of the employer-contributed funds with you. The amount you get to keep typically increases each year, according to the employer’s vesting schedule, until you’re fully vested and get to keep the entire amount.

Roth 401(k) withdrawal rules

You’ve made the wise financial choice to invest in your future — so when do you get to use some of that money?

The money you’ve contributed, along with any vested employer contributions, technically belongs to you and you can withdraw it at any time. The catch is that unless you meet certain requirements, you’ll have to pay a penalty. To withdraw funds penalty-free, 59 and a half is the magic age. Once you’ve contributed to a plan for five taxable years and you hit your half birthday in your 59th year, you can withdraw from your fund without penalty.

If you do choose to withdraw funds from your 401(k) early, you’ll face a 10 percent early withdrawal fee on the amount, plus taxes. With a Roth 401(k) it’s a little bit different. Since you’ve already paid taxes on your contributions, you’re only responsible for paying the penalty tax based on the increase in the value of your funds since you opened the account. There are also exceptions for death or disability.

Some plans allow you to take out a loan from your Roth 401(k), but there are tax repercussions for doing so. You’ll pay interest on that amount and if you don’t repay the loan, the funds may be considered a non-qualified distribution, requiring you to pay taxes on that, too. In some cases, if you leave your job, you’ll be responsible for paying the loan in full at that time.

It’s important to note that you can’t leave the funds in a Roth 401(k) forever. The IRS requires that you take distributions from your plan no later than age 70 and a half, unless you’re still working.

Roth 401(k) vs. traditional 401(k)

In general, experts say the two most important factors to consider when deciding between a Roth and a traditional 401(k) is your age and the tax income brackets you’re currently in (and expect to be in later on). The more years between you and retirement, the more likely your Roth will pay off. That money has years to grow tax-free, and you won’t pay taxes on it no matter how much that money grows.

On the other hand, people who anticipate their tax rate will be lower in retirement may prefer to keep the extra income now and pay taxes in retirement. It’s not a cut-and-dry decision, and you must take into account your effective tax rates, expected earnings and various other factors that are unique to your situation.

If you can’t decide between the two, you can always split your contributions between both options to diversify your savings.

 TaxesContribution Limits (2019)Penalty-free Withdrawal

Traditional 401(k)

Paid on funds when they’re withdrawn in retirement

$19,000 per year ($25,000 if you’re over 50)

After 5 years and at age 59 and a half or older (exceptions made for death and disability)

Roth 401(k)

Paid in the year funds are contributed to the plan

$19,000 per year ($25,000 if you’re over 50)

After 5 years and at age 59 and a half or older (exceptions made for death and disability)

Roth 401(k) rollover

As the saying goes, all good things must come to an end, and when you’re ready to move on from your job, you have some options when it comes to the funds you’ve been socking away.

One option is to leave it be and start a new 401(k) plan with your next employer. Many people, however, choose to transfer or “roll over” those funds into another account. While you can roll over your Roth 401(k) into a Roth IRA, you can’t roll it in into a traditional 401(k). On the flip side, you can roll over a traditional 401(k) into a Roth 401(k) or IRA, but you will owe taxes when doing so.

So, if you’re fortunate enough to work for an employer that offers a 401(k) plan, take a close look at your options. If Roth is one them, it’s worth considering to help secure your financial future.

This article contains links to LendingTree, our parent company.

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.

Julie Ryan Evans
Julie Ryan Evans |

Julie Ryan Evans is a writer at MagnifyMoney. You can email Julie here

Advertiser Disclosure

Investing

J.P. Morgan You Invest Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Chances are you’ve heard of J.P. Morgan Chase. It’s one of the major players in the financial space, and it’s long had a brokerage arm in addition to providing global banking services. Now, though, J.P. Morgan is getting into the online brokerage space with You Invest.

You Invest is an online trading platform that allows you to buy and sell individual stocks and exchange-traded funds (ETFs) without the need for a human broker. This review will look at what’s offered and provide you with the information you need to decide if it’s right for you.

You Invest offers a way for you to seamlessly connect your Chase bank account to your brokerage account. Additionally, you end up with access to plenty of educational materials and the ability to understand your total portfolio.

J.P. Morgan You Invest
Visit J.P. MorganSecuredon J.P. Morgan You Invest’s secure site
The bottom line: You Invest offers a fairly standard online brokerage experience with the perks of low-cost trading fees and a wealth of investor education.

  • Pay just $2.95 per trade after receiving 100 free trades.
  • Enjoy a large selection of investments, including stocks, bonds, mutual funds and ETFs.
  • Manage investments according to goals with the Portfolio Builder tool.

Who should consider You Invest

You Invest is ideal for beginning investors, especially those looking for education and assistance building a portfolio that will help them reach their goals. Intermediate and advanced investors also can benefit, but the educational tools and resources are especially helpful for novice investors.

Additionally, it connects to your other Chase accounts, making it easy for you to move money from your bank account to your brokerage account and vice versa. If you already bank with Chase, using You Invest to manage your portfolio might not be a bad choice.

While $2.95 per trade is a low cost, this product might not be the best choice for active traders. For traders who can keep their trade volume low, this can be an excellent brokerage since you receive 100 free trades in the first year after an account is opened — with the opportunity to qualify for more free trades in subsequent years.

J.P. Morgan You Invest fees and features

Current promotions

Up to 100 free trades

Stock trading fees
  • $2.95 per trade
  • $0 per trade for Chase Private Client, Chase Sapphire Banking, J.P. Morgan Private Bank and J.P. Morgan Securities clients
Amount minimum to open account
  • $0
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $75 partial account transfer fee
  • $0 inactivity fee
Commission-free ETFs offered
Offers automated portfolio/robo-advisor
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
Ease of use
Mobile appiOS, Android
Customer supportPhone, Chat, 5,100 branch locations
Research resources
  • SEC filings
  • Mutual fund reports
  • Earnings press releases
  • Earnings call recordings

Strengths of You Invest

The educational tools and insights provided by You Invest are where this offering shines. They help you find the right mutual funds and stocks, and get you to understand your investing needs.

  • Low trading fees: To start, you get 100 free trades from You Invest. After you use your allotment, trades cost only $2.95. Among online brokers that charge trading fees, this is one of the lowest. If you’re not an active trader, you might be able to avoid paying fees fairly easily. You can get more free trades each year if you use certain Chase banking products, such as Premier Plus Checking.
  • Educational resources: You Invest offers a number of helpful articles about investing, strategy and more. It’s possible for you to learn the basics and then apply them to your portfolio.
  • Portfolio Builder: If you have at least $2,500 in your account, you can take advantage of this tool designed to help you choose the right investments for your portfolio. You’ll receive guidance on putting together a portfolio based on your answers to questions designed to gauge your risk tolerance, investment goals and time horizon.
  • Powerful screening tools: You can use these tools to set parameters and then find assets that fit your requirements. A list of options appears, and when you’re looking at Mutual funds , You Invest also includes Morningstar ratings and analysis of where they might fit into your portfolio.

Drawbacks of You Invest

A review of You Invest wouldn’t be complete without a look at some of the downsides. In many ways, You Invest is a typical online brokerage option. Other than some of the educational and portfolio building tools, there’s not a lot to distinguish this from other brokers.

  • No standalone app: Rather than offering a standalone app, you access You Invest through J.P. Morgan Mobile. Until you get used to it, it can be somewhat disconcerting to navigate to your trading app within the regular app.
  • Limited account types: There are only two account options with You Invest: taxable and IRA. You can get a Joint taxable account as well as an individual account, and there is a Roth option with the IRA. However, if you’re hoping for a custodial account or 529, you won’t find it with You Invest.
  • No managed portfolios: Right now, you won’t find managed portfolios, but they are supposed to be coming in 2019. So if you’re more of a hands-off investor, you might want to wait until there are more options available.
Fees
$2.95 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Up to 100 free trades

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Cash bonuses are available for new accounts. Bonuses start at $50 if you deposit or transfer $10,000+.

Is You Invest safe?

Any investment comes with the risk of loss. However, You Invest is insured by the SIPC for up to $500,000. Additionally, J.P. Morgan is a member of FINRA. As a result, you’re reasonably protected — especially when you consider that this is a company with more than $1 trillion in assets under management. It’s not likely to fail.

Just make sure you understand your own risk tolerance before you invest. While insurance protects you from failure, you’re not protected from market losses.

Final thoughts

You Invest can be a great option for middle-of-the-road investors who want a little more flexibility in their portfolios but still need some guidance. There are a number of assets to choose from, and the educational tools and resources allow you to build a portfolio based on your long-term goals and expectations.

Depending on your goals, there might be other products that work for you. For those more interested in a hands-off approach, Betterment might be a more suitable choice. You also can make trades for less with a service like Robinhood. However, you might not get the same level of educational tools with Robinhood, and Betterment won’t let you personalize your portfolio to the same degree.

If you want a low-cost, personalized way to invest — learning as you go — and if you’re already a Chase customer, opening a You Invest account might be a good way to move forward.

Open a J.P. Morgan You Invest accountSecured
on J.P. Morgan You Invest’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.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

Advertiser Disclosure

Investing

How to Make Money in Stocks

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Putting money in the market is well-worn financial advice for a reason: Investing in stocks is one of the best steps you can take toward building wealth.But how, exactly, is that wealth built? How is money earned by purchasing stock market holdings, and what can you do to maximize the gains you make from your own portfolio?

How to make money in stocks: 5 best practices

The way the stock market works — and works for you — is as simple as a high school economics class. It’s all about supply and demand, and the way those factors affect value.

Investors purchase market assets like stocks (shares of companies), which increase in value when the company does well. As the company in question makes financial progress, more investors want a piece of the action, and they’re willing to pay more for an individual share.

That means that the share you paid for has now increased in price, thanks to higher demand — which in turn means you can earn something when it comes time to sell it. (Of course, it’s also possible for stocks and other market holdings to decrease in value, which is why there’s no such thing as a risk-free investment.)

Along with the profit you can make by selling stocks, you can also earn shareholder dividends, or portions of the company’s earnings. Cash dividends are usually paid on a quarterly basis, but you might also earn dividends in the form of additional shares of stock.

Micro-mechanics of how stocks earn money aside, you likely won’t see serious growth without heeding some basic market principles and best practices. Here’s how to ensure your portfolio will do as much work for you as possible.

1. Take advantage of time

Although it’s possible to make money on the stock market in the short term, the real earning potential comes from the compound interest you earn on long-term holdings. As your assets increase in value, the total amount of money in your account grows, making room for even more capital gains. That’s how stock market earnings increase over time exponentially.

But in order to best take advantage of that exponential growth, you need to start building your portfolio as early as possible. Ideally, you’ll want to start investing as soon as you’re earning an income — perhaps by taking advantage of a company-sponsored 401(k) plan.

To see exactly how much time can affect your nest egg, let’s look at an example. Say you stashed $1,000 in your retirement account at age 20, with plans to hang up your working hat at age 70. Even if you put nothing else into the account, you’d have over $18,000 to look forward to after 50 years of growth, assuming a relatively modest 6% interest rate. But if you waited until you were 60 to make that initial deposit, you’d earn less than $800 through compound interest — which is why it’s so much harder to save for retirement if you don’t start early. Plus, all that extra cash comes at no additional effort on your part. It just requires time — so go ahead and get started!

2. Continue to invest regularly

Time is an important component of your overall portfolio growth. But even decades of compounding returns can only do so much if you don’t continue to save.

Let’s go back to our retirement example above. Only this time, instead of making a $1,000 deposit and forgetting about it, let’s say you contributed $1,000 a year — which comes out to less than $20 per week.

If you started making those annual contributions at age 20, you’d have saved about $325,000 by the time you celebrated your 70th birthday. Even if you waited until 60 to start saving, you’d wind up with about $15,000 — a far cry from the measly $1,800 you’d take out if you only made the initial deposit.

Making regular contributions doesn’t have to take much effort; you can easily automate the process through your 401(k) or brokerage account, depositing a set amount each week or pay period.

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

500 free trades with a qualifying net deposit of $100,000

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$500
Promotion
New accounts with a deposit of at least $5,000, may be eligible for a cash bonus, which can range from $100 to $2,500 depending on the amount deposited.

3. Set it and forget it — mostly

If you’re looking to see healthy returns on your stock market investments, just remember — you’re playing the long game.

For one thing, short-term trading lacks the tax benefits you can glean from holding onto your investments for longer. If you sell a stock before owning it for a full year, you’ll pay a higher tax rate than you would on long-term capital gains — that is, stocks you’ve held for more than a year.

While there are certain situations that do call for taking a look at your holdings, for the most part, even serious market dips reverse themselves in time. In fact, these bearish blips are regular, expected events, according to Malik S. Lee, CFP® and founder of Atlanta-based Felton & Peel Wealth Management.

So-called market corrections are healthy, he said. “It shows that the market is alive and well.” And even taking major recessions into account, the market’s performance has had an overall upward trend over the past hundred years.

4. Maintain a diverse portfolio

All investing carries risk; it’s possible for some of the companies you invest in to underperform or even fold entirely. But if you diversify your portfolio, you’ll be safeguarded against losing all of your assets when investments don’t go as planned.

By ensuring you’re invested in many different types of securities, you’ll be better prepared to weather stock market corrections. It’s unlikely that all industries and companies will suffer equally or succeed at the same level, so you can hedge your bets by buying some of everything.

5. Consider hiring professional help

Although the internet makes it relatively easy to create a well-researched DIY stock portfolio, if you’re still hesitant to put your money in the market, hiring an investment advisor can help. Even though the use of a professional can’t mitigate all risk of losses, you might feel more comfortable knowing you have an expert in your corner.

How the stock market can grow your wealth

Given the right combination of time, contribution regularity and a little bit of luck, the stock market has the potential to turn even a modest savings into an appreciable nest egg.

Ready to get started investing for yourself? Check out the following MagnifyMoney articles:

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