Many executives and professionals are a bit confused by the benefits they receive from their employer. One question that a lot of people have is, what is a 401K?
The basics of financial education regarding benefits are not often taught. In this episode, you will learn more about 401Ks and how to get the most benefit from them.
Our host and CEO Porschia, alongside our guest, Rhonda Jones, will discuss why working with a trusted financial advisor is beneficial and the biggest mistakes people make with their 401Ks.
Rhonda Jones has been servicing clients as a Financial Advisor for over 8 years and she has over 15 years of finance experience. She is a Certified Financial Planner and has her AAMS designation. Rhonda holds a Bachelor of Science from Eastern Michigan University and a MBA from the University of Phoenix.
What you’ll learn:
- Why financial education is important
- The fundamentals of investing
- What is a 401K? And how to get the most benefit from it
- The biggest mistakes executives and professionals make with their 401Ks
- Why working with an experienced financial advisor is vital
As a thank you for listening to this episode of the Career 101 Podcast, we are sharing our FREE master class – Career 911: Solving the Top 5 Challenges Executives and Professionals Have! It’s a training based on solving the common problems our clients have experienced to reach their goals. You can get access to the master class here!
Episode Transcript
Porschia: [00:00:00] Today we are talking about 401ks 101. What is a 401k? With Rhonda Jones. Rhonda Jones is a financial advisor that has been servicing clients for over nine years with their financial goals. She has over 15 years of finance experience, including serving as a director of finance and teaching college level personal finance classes.
Rhonda holds a Bachelor of Science [00:01:00] from Eastern Michigan University and a MBA from the University of Phoenix. In addition to her degrees, she has earned the Certified Financial Planner certification and AAMS designation. Hi, Rhonda. How
Rhonda: are you today? Hi, Portia. I’m doing great.
Porschia: We are excited to have you with us to discuss 401Ks 101. But first we want to know a little more about you. So tell me about seven year old Rhonda.
Rhonda: Yeah, well, seven year old Rhonda, I think was already destined for finance, quite honestly, Portia. I loved math. I loved teaching my friends math and my mom would look at me and my friends in the yard and she’s like, what is she doing out there?
And what I was doing is I had my little tutorial group and teaching them one plus one and two plus two and fun games with [00:02:00] numbers. So I’ve always loved numbers. Yes. Yes. I agree. Definitely.
Porschia: You were destined to be in finance. I’m just, I’m
Rhonda: picturing you now Rhonda with your group.
Porschia: So what did you want to be when
Rhonda: you grew up?
Well, although finance was in my destiny. I wanted to be a journalist like Oprah. I loved interviewing and asking questions and getting to know people. And I guess in retrospect, if I look at it now, it does fall into what I do as a financial planner, because I really have to understand my clients and have a good listening ear of what their goals are.
So, what was your first job, Rhonda? My very first job was working at the Target snack bar before they started putting in well, they have the [00:03:00] Starbucks in there now, but they used to have pizza and hot dogs and popcorn and all kinds of fun things that you can snack on while you were shopping. That was my very first job.
Wow. And there was
Porschia: a lot of counting. I’m sure that you could do with collecting the money and all that good stuff. So the
Rhonda: math continued. That is true. That is true. So tell us about
Porschia: some highlights or pivotal moments in your career before you
Rhonda: started your business. I would say the most pivotal moments in my career was when I was a director of finance.
I had the opportunity when I was in that role to actually get certified to teach college level finance and business courses. And as I was teaching those courses, there was a program in the curriculum that started. Introducing personal [00:04:00] finance at the college level. It’s pretty popular nowadays. But back then it wasn’t.
And so it was a very engaging course. Students would come in and they just loved learning, applicable things that they could go home and talk to their friends, family about. 401k is like what we’re talking about today. Understand and investing. What’s a stock? What’s a bond? That type of thing.
It was very engaging and from that course. It just took me down the trajectory of wanting to do more with financial planning and more with helping people with their investment management. And then that led me to then getting certified with my series 7 securities license and then later getting my certified financial planning designation and being able to help clients in that way.[00:05:00]
Great. So you have a
Porschia: very interesting background, but what motivated you to really go out on your own and become a financial
Rhonda: advisor?
That’s a great question because it was really a heart passion, to be quite honest. I realized that there was a lack of knowledge when it comes to finance. And I have a heart to teach and a heart to. Help people understand numbers. Like I said, I’ve been doing that since I was little. So it was really that I saw there was a need to really educate people about their finances and not just talk to them about investments or talk to them about their portfolio, but help them understand their overall financial picture.
Wow. I think you’re so right.
Porschia: And why do you think financial education
Rhonda: is so important? [00:06:00] Because money really touches every aspect of our life. , think about it as a little kid, you probably saved money in. Your piggy bank or in a coin jar. And then as you got your first job, like you asked me about my first job.
I had no idea what a retirement account was. I was a teenager at the time working at a snack bar, but man, what an opportunity that I could have had, had I participated in that, even that, at that age, you have jobs in college and. Sometimes you may get approached, to start to open credit cards and things like that can impact you, long term taking out student loans and different things like that.
Finances touch really every aspect of our life. Going all the way up to planning for and going into retirement. So the sooner you understand those things and the more you understand the [00:07:00] intricacy of how all of those things play together, I always say they, they have to play well in the sandbox together.
. In order to really understand that someone has to. Help you navigate that. And so I try to help investing and numbers make sense for my clients. It was great, Rhonda, because,
Porschia: Just in hearing you talk you transformed me back into when I was in college and I remember no one had ever really talked about student loans
Rhonda: to me.
Porschia: And I was fortunate where I have hope scholarship and I didn’t. But I knew people who took out a lot of student loans and, they were feeling the pressure before they even graduated. And then definitely after graduation. I also thought about the people, on campus signing students up for credit cards and all of that.
I saw other students, really go [00:08:00] into credit card debt in college. So, what you mentioned about financial education is just really vital to know.
So in your opinion, Rhonda, what are the fundamentals
Rhonda: of investing?
The fundamentals of investing? Wow. That’s a great question. I would say that there’s kind of some rules to the road. There’s some key things that you should know that can help you to have a consistent path with investing. So one, investing in quality investments. My clients always hear me say, Can you see it?
Can you hear it? Can you touch it? Does it exist? So, those type of things you can find quality, in your investments. So those are goods and services that we use and. Things that we do throughout life that makes up the market, the stock market per se. And the other [00:09:00] thing is to actually focus on a goal.
How long do you plan on investing? For what purpose are you investing? And that helps you navigate the fact that. Being in the market, it does come with some risk. It comes with volatility at times. And so you have to stay focused on that long term goal so that your emotions are not what’s dictating the goal that you’re trying to reach.
And then being consistent, we’re going to talk about, I believe 401ks this evening. And that’s one of the reasons that 401ks for many is one of their. larger investments because they can consistently contribute to it through their payroll deductions, through the checks that they earn, they set aside, some money from that each pay period.
So I would say one quality [00:10:00] investments. Two, have a goal that you’re working towards on why you are investing so you can invest for the long term and stay focused. And three consistency on how you’re building your investments, your contributions. That is
Porschia: great. That is great. And yes, it’s a perfect segue, Rhonda.
So many executives and professionals have heard of 401ks, but don’t really understand them. For those who don’t know, what is a 401k?
Rhonda: Yes, a 401k is a profit sharing plan. It’s really designed to allow employees to defer some of their salary for retirement savings. And in many cases, a 401k may have a matching program as a part of it.
And so that provides a pretty strong incentive for employees to participate, because as they’re putting away some money for themselves for [00:11:00] retirement, then their employer may be matching a portion or all of those dollars. It depends on how your plan is structured. And ultimately that helps to reduce some tax burden really on both, on the employee who’s putting some money aside and then on the employer who’s matching.
Right. And I think
Porschia: you were starting to go there, but I want to know from your perspective, how can someone get the most benefit from their 401k?
Rhonda: Yes, that is a fantastic question. So, the first thing is I would recommend all your listeners check to see what their employer matching options are. Just.
Contact your plan administrator or your HR department and say, Hey, I just want to know how much does my [00:12:00] employer match? So I would start there. The reason is to be quite honest with you. When I sit down with clients who are currently working and participating in their 401k, it is a surprising amount who are participating but not taking the full benefit.
And so full benefit means if the employer is matching, we’ll use nice even numbers for math, let’s say 5%. And you’re only contributing 2%. They may be matching your 2% and they would match, and they would do 2%. So that’s 4% of your salary that’s going into the 401k, but you missed out on the opportunity for you to do 5 and them to do 5 and then 10%.
The two combined are going into the 401k. So I would say the starting [00:13:00] place is to find out what your employer match is. The second thing is to know what your individual contribution limits are. Now, I have had folks, they’ll say, well, Rhonda, I asked the employer. The plan administrator, how much they’re matching and I’m only doing the match.
But I really want to do more and I say, you have to think about it. A 401k is allowing you as the employee to defer salary mean take some of your earnings and put it aside for your retirement. And that’s just one part of it. So you as an individual, if you’re under 50, then this year for 2023, you can put away for yourself 22, 500 of your salary, [00:14:00] if you like.
If you’re over 50, then you get what’s called a catch up, meaning You know the plan is going to allow you to put more away because you’re getting a little closer to retirement at age 50. and so you probably want to be a little bit more aggressive with your planning. And so they allow you an additional.
7500 that you can put away. So just think about it. If you’re over 50, you can put up to 30, 000 of your earnings into your 401k. If you’d like to invest, and that’s separate from the employee or match from what your employer is going to do. So I always encourage people to think about. I’m putting this away for me in retirement.
The employer matching is a great cherry on top, but let me [00:15:00] not miss out on opportunities to put some money tax deferred, meaning you don’t pay the taxes on any growth that happens, while it’s invested until you start to take distributions in retirement. So to answer your question, one, don’t miss out on Fully funding your 401k.
If your budget will allow, that’s 22,500 if you’re under 50 and up to 30,000 if you are over 50. Then the second part of that is to make sure that you know what the employer match is and if your budget doesn’t allow you to do those maximum numbers, at least do up to what your employer is maxing out on their match.
[00:16:00] That is great. That’s great to know.
Porschia: So Rhonda, what are some of the
Rhonda: biggest mistakes you’ve seen executives and professionals make with their 401ks? Yes, indeed. So believe it or not one of the bigger mistakes that I see is loans and withdrawals. Too early . So what do I mean by that? , at some [00:17:00] point money in a 401K may be, an individual’s largest investment and they may run into situations where, a hardship has come about and they need to find some funding, and the first thing they think is, oh, my biggest pot is my 401k.
So they’ll go and they’ll take a loan or a withdrawal. Those two are completely different, and if we have time, I’ll explain the difference between the two. But they take the money out of there, and sometimes they’ll do that instead of looking at other sources, like maybe an emergency fund that they, have.
It may be a couple months of living expenses, sitting in a savings account or a money market or, something like that. And they forego that because they want to keep that and they’ll take [00:18:00] from their 401k or maybe even if they have an HSA, a health savings account, if it’s a qualified medical expense.
They could take the money from there, instead of the 401k, or maybe even if they have other taxable investments, maybe they have a small stock portfolio or something they can do that rather than going into their tax deferred 401k, because that money. Can be quote unquote expensive because you’re going to pay taxes on that money.
And if you’re under 59 and a half, there could be also an additional penalty for early withdrawal. So yes,
Porschia: please explain to us the difference between the loans and the withdrawals like you mentioned a little earlier.
Rhonda: Yeah, happy to do so. Typically there’s two choices on how you get [00:19:00] money out of a 401k.
You can get a loan or you can do a withdrawal. So there’s three things that I tell people to consider when they are doing either or and it just depends on how your plan is structured because every 401k is designed You For that particular company and how the employer has, design that for their employees.
for plans that allow loans, employees generally can borrow up to 50%. Of the vested amount of their 401k. So that’s a key word there. Portia vested a lot of times people ask me about vesting and we can get back to that at another time, but vested the short of it means that you your service to the employee.
Earned you the dollars that they matched. So your dollars went in. So remember I told you there’s [00:20:00] two things going on. There’s your dollars going in as the employee and then it’s the employee are matching those dollars. So the vested is the dollars that you’ve earned through your years of service and you normally can borrow up to 50% of that with a maximum being 50, 000.
50, 000. That normally if it’s a loan needs to be paid back within 12 months. So you have about a year to pay it back and there may be administrative fees or interest that’s charged on it. And as you’re paying it back, that money is going back into your 401k. You’re paying yourself back. Now there are exceptions where you can get up to five years to pay it back.
And that’s if you’re using it for a home purchase. You have up to. Five years, and you have equal payments that you have to make at least quarterly unless payments are allowed to be [00:21:00] paused, temporarily, but that’s the normal guideline now with a loan. If you leave the company. And don’t repay the loan, according to the agreement, the loan balance will likely be taxed as a taxable distribution.
So they’re going to report that to the IRS that you. You took a distribution out of your 401k if you leave. So the things that I always tell people to consider those 3 things are what is the amount that you need. Try not to take more than what you need because there’s some, stipulations on payback.
What is the time frame that you have to pay it back? So does it fall under the 12 month requirement? Do you have up to 5 years? You don’t think about that. And then what happens if you leave the company? Now, some companies might allow you to go into a different payment option. Normally that payback is coming out of your [00:22:00] paycheck.
So every time you get a paycheck, there’s some money getting paid back into the 401k. But if you’re not working there anymore, there’s not a paycheck anymore. So now what are the options? Ask those questions. Will they allow me to make payments from my bank account? Will they want a lump sum, payment?
So ask those questions. So that’s under the category of alone as we transition on to withdrawals. So that’s It’s completely taken the money out with no intention of returning it. And that’s just based upon the plan. The plan will let you know if you can do a loan or withdraw. So with a withdrawal, it typically falls under two categories, either a hardship or non hardship.
So hardships typically qualify as things that have a heavy immediate [00:23:00] financial need. Things like got to pay college tuition. I have a medical issue. I’m purchasing a home and maybe I need a down payment. And so your withdrawal under a hardship is typically limited to the amount of the need. So, if tuition is 5, 000, they’re going to allow you to withdraw 5, 000.
The down payment on the house is 20, 000. they’re going to allow you to, take out 20, 000 that’s under the hardship category. Under the non hardship withdrawal, that’s typically taken for any purpose. You can just take the money out. But it’s not normally granted until you’re like 59 and a half. So that, you’re pretty much getting close to retirement.
But with a withdrawal, you have to think about the fact that is indeed Going to count as ordinary income for you for the [00:24:00] year. So it will, possibly have some tax implication there. And then the other thing is with the if you’re under 59 and a half. Then there could be an additional 10% penalty for you being under 59 and a half.
That’s called an early withdrawal. So one of the things that I always recommend, because as you said, in my bio. I am a financial advisor. So with me being a financial advisor, I always recommend that my clients, seek their tax professionals. For advice, I don’t offer tax or legal advice.
I always let them know that they would want to go to their tax and legal professionals for that. But those are just some general guidelines to think about. A [00:25:00] lot
Porschia: of good information there, Rhonda. And one thing I see a lot of with our clients, and I’m sure you see this too, so I want your thoughts.
A lot of people think, there’s so many do it yourself financial options out there, with technology and everything.
Rhonda: When there’s all of that available to people,
Porschia: why do you think still working with a trusted financial advisor is beneficial?
Rhonda: Oh, that’s a great question. Well, all that good information that I just provided, I would say on average when folks come in and talk with me, they know general.
Things as a financial advisor, I am consistently aware of legislative changes that [00:26:00] impact things like retirement accounts. Like we just had the secure act 2. 0 that. Legislation that was just passed, and I’m often contacting my clients and updating them on that. And they’re like, thank you.
I appreciate you telling me that because I know I don’t have to always pay attention to all of that. Because I’ve got you who will call and let me know those things. So tax things that, you know, different changes in legislation, different changes in the. economic environment, different changes in the stock market environment.
So we are always looking for different strategies keeping abreast, educated, ongoing education about things, all things finance, to make sure that we are helping our clients. Expand even more, I, Portia, I was telling a client earlier [00:27:00] today, I said, when you go to a trainer, a fitness trainer, before you walk in the door, you already know I should be eating my vegetables, drinking my water and exercising at least three times a day.
Right. But when you go to a professional, you’re like, man. There is a problem area that I just cannot get right. I want that six pack or I want, whatever the beach body and I can’t seem to get it right with what it is that I’m doing. I need some assistance. And so that’s same with finance. There’s plenty of.
YouTube and, all these different things out there for folks to, to learn, but the strategy to really concentrate in on a goal and be very effective with it, doing things tax efficiently, making sure that you’re, choosing the right investments to reach that goal. That’s why people [00:28:00] seek financial professionals.
I love that, Rhonda. I love that. And you’re so right.
Porschia: Financial advisors, other types of professionals, fitness trainers, career coaches, business coaches. There’s so much information out there online, on YouTube, on blogs, just everywhere that you’re right. I think people are swimming in information and Let’s be real.
A lot of it is not even necessarily accurate information. That, just working with a trusted advisor like yourself is just really important. So tell us
Rhonda: about your office. Yeah. So, my office team, we really consist of three parts. We have client service where my team will focus on the services to our clients, making sure that, everything that they need administratively service, that kind of thing is available.
Then [00:29:00] we have the investment management side of my practice where we are helping clients manage their investments. That’s what most people think about when they think about a financial advisor, someone’s going to help them manage their investments. And then as you’ve said in my bio, I’m a certified financial planner.
So there is the financial planning side. Of my practice, and that is where we are looking at really the six key areas of your financial life. Everything from your cash flow and net worth, your goals, whatever your goals are could be retirement could be, legacy for your family. It could be a state considerations there’s a variety of different things that we do there.
And so we are a full service. financial practice where we help clients with their long term financial goals. And we really pride ourselves in also helping the extension of our clients [00:30:00] by helping their families. A lot of my clients are charitable and things of that nature. So we help generationally, with our clients financial picture as well.
Great.
Porschia: Great. And I know that you have clients. in different states and all of that too, Rhonda. Can you tell us more? Because I know a lot of people ask me about, referring them, someone who might be a specialist in some area, and sometimes they wonder, can this person help me if I’m in a different?
Rhonda: state. Yes. I am licensed in 12 different states. Just to summon up most of your major metropolitan cities or areas. And yes, I do have clients all over the United States. I’m here in Georgia, so quite a few in the Southeast region. And I’m originally from Michigan, so quite a few in the North region.
Porschia: Great. We’ll be providing a link to your website and other social channels in our show notes [00:31:00] so people can find you online. But what is the best way for someone to get in touch
Rhonda: with you? Yeah, the best way to get in touch with me to, good old phone is good. So the number to my office is 6 7 8 5 6 7 0 5 4 1.
And I would say if folks want to, Look me up first. They can go to www. edwardjones. com backslash. Rhonda, with an H, R H O N D A, dash L, like Larry, dash Jones. That would take you to my office information, you’d be able to see a little bit more about my practice and my team, and also that is a platform where you can interface with me as well.
Great.
Porschia: So, Rhonda, I want to ask you our last question that we like to ask all of [00:32:00] our guests. How do you think executives or professionals can get a positive edge in
Rhonda: their career?
I would say never stop learning. In my bio, you mentioned that I was a director before moving over into the the financial planning and investment management side of finance. To be a good leader, to be a good executor executive, to lead a company, you have to continue to educate yourself about your competitors educate yourself about the industry that you’re in, and you have to be a good listener to be a good leader.
Wow. Wow.
Porschia: Rhonda, you have shared a lot of wisdom with us today, and I’m sure that our listeners can use it to be more confident in their careers. And with their 401 case, [00:33:00]
Rhonda: we appreciate you being with us. Thank you for having me. My pleasure.
