San Diego Union-Tribune (Sunday)
Consider that 401(k)
Q:
Should I contribute to a 401(k)? — S.C., Kenosha, Wis.
A:
Certainly consider it if your employer offers one. As with IRAS, there are both traditional and Roth 401(k) accounts, and the 401(k) contribution limit for 2023 is a generous $22,500 (with an additional $7,500 allowed for those 50 or older).
With a traditional 401(k) or IRA, your taxable income for the year may be reduced by the amount of your contribution for the year, shrinking your taxes. Roth accounts offer no upfront tax break, but let you withdraw money from the accounts tax-free in the future, if you follow certain rules. Withdrawals from traditional accounts are often taxable as ordinary income.
It’s common for employers to set your initial contribution level fairly low (for example, 3 percent), so be sure to increase that rate if you can — and consider upping it annually. Many employers also match some or all of your contribution, so aim to contribute enough to at least max out the match — that’s free money!
Money in your 401(k) can usually be invested in a variety of stocks, bonds and funds. Low-fee, broad-market stock index funds, such as funds based on the S&P 500, are great for long-term money. You might balance that with some bonds, too, especially as you approach retirement.
Q:
What’s a trust? — M.N., Miamisburg, Ohio
A:
It’s a legal arrangement in which a “grantor” gives control of property to a person or an organization (the “trustee”) for the benefit of a third party (the “beneficiary”). The beneficiary owns the property, but the trustee controls it — usually for a limited period (such as until the beneficiary reaches a certain age). Trusts are often part of estate plans.