By Janet Kidd Stewart
Large employers have been rolling out a slew of 401(k) bells and whistles designed to get workers to save more, but what about those who are going it alone?
As year-end draws closer, workers thinking about retiring and hanging out the entrepreneurial shingle after the holidays have an opportunity to make some smart money moves now, experts say.
First, mobile apps for managing money are getting more sophisticated. That can make staying on top of your own retirement savings a breeze, even if you are your own HR department.
Fidelity Investments, for example, is rolling out several new investing capabilities via its mobile app in November, from margin trading in your IRA to extended hours for all trading.
“People are increasingly relying on the convenience of mobile to invest and manage their finances,” Velia Carboni, senior vice president, mobile channel at Fidelity, said in a news release announcing the new products and a survey about online trading activity. “In the past year, investors increased mobile trades at Fidelity more than 40 percent, and our survey found that more than one-third of mobile traders make trade decisions on the spur of the moment, capitalizing on investing opportunities from their screen, anywhere.”
The big caveat, of course, and this is particularly true for entrepreneurs with stereotypically big appetites for risk, is that more trading isn’t necessarily a good thing.
“I think knowing what’s going on in your IRA is good, but you don’t need to be following the market every day,” said Terrance Odean, a University of California, Berkeley finance professor who has extensively studied behavioral aspects trading.
“Checking constantly (on account balances) just makes you hyper-aware of the ups and downs and is likely to make you get too excited when the market is up and fearful when it’s down. And it will make you trade too much in between,” he said.
“Constant information is, for the ordinary investor, probably detrimental, though it is beneficial to be reminded where your savings are,” Odean said. “Making it easy to trade is akin to having a credit card in your pocket. People spend more when they have them. Some people will trade more impulsively if it becomes easier, which is not necessarily going to improve their welfare.”
If you’re transitioning from an employer-based environment to a self-employed consulting gig, run the numbers on converting some of your traditional IRA money to a Roth IRA, suggests the aptly named Allan Roth, a Colorado Springs, Colo., financial planner.
Now is a good time to do this if your income will be dramatically lower next year as you make the transition, he said. That’s because you can convert funds while you are in a lower tax bracket, before you start raking in those profits from your new gig.
You might also consider setting up a Solo 401(k), or a Solo Roth 401(k), which must be established by the end of the year. Not every investment house offers these tax-advantaged accounts, which will allow self-employed workers to sock away up to $53,000 in contributions next year (though there are limits depending on your business income).
There are also some record-keeping hassles to deal with after the account reaches $250,000, but consider that a good problem to have.
ABOUT THE WRITER
Janet Kidd Stewart writes The Journey for the Chicago Tribune