Pre-Tax and After Tax Investing
I retired two years ago and had the good fortune to have had access to a 401-K plan that did well throughout my career and had a generous matching funds feature. All of us should be so lucky :). Anyhow, after I retired I realized there was one thing I could have done more wisely, so I thought I'd share it here in case it can help anyone else.
My "problem" was that I was able to contribute a substantial amount of after-tax money into the same account that held all my pre-tax contributions. Obviously having a nice pile of money that's sort of complicated to un-pile isn't the worst thing that can happen to someone in retirement. Fortunately I had an opportunity to segregate those funds after I retired, and that's going to make using the money in the future easier, and it also shields me from some tax losses that I would have incurred if the money had remained together in the same account.
That said, I have a few caveats:
1. This may only have direct, current application to any of you who are in a similar situation to me - I'm 68, and began investing in my 401K and some IRA's pretty much at the earliest opportunity I had about 35 years ago. It is that situation that provided me with a window that allowed me to break apart my pre-tax and after-tax funds.
2. I can't answer much in the specifics of how this window works. I would not have known about it if it hadn't been pointed out by an advisor with the company that manages my former employer's (International Paper) retirement funds for their retirees -- that management group is the Empower Company. Also I would not have taken advantage of it had I not signed up to have part of my retirement money managed by our bank (Fifth-Third here in Cincinnati). I was kind of bothered by how desperate the Empower advisor was for me to make the change - it really seemed like a super hard sell. And my personal financial advisor at Fifth Third was not initially aware of the window I could use. She checked with one of the bank's senior advisors, and he came back with, "Yes he can do this, and he should do it right now". Turned out to be good advice.
2a. And before I get to the last caveat, at least in my case, I'd say that engaging the financial advisor at the bank was a good move. While I was very pleased with how my retirement planning had worked out for my over the last thirty or so years of my career, it turned out to be pretty helpful to have a professional advisor to bounce questions off. And thankfully, the chunk of money I moved from my old 401k into the bank's management has performed very well over the last two years.
3. Lastly, for those of you following this thread who still have a way to go before you retire, while the above info will likely not apply directly to you (the window will be gone, Congress will change the laws, or who knows what...). It's still something that you should figure into your planning and stay on top of.
Don't know if this will help any of you - but it certainly was beneficial for me.