The taxes are due in the year you convert at your regular income-tax rate. If you move a large sum all at once that can bump you into a higher tax bracket. Converting in smaller amounts for several years is a wise move, but even then your income will be higher every year. Because taxes are progressive, you end up paying your highest personal tax rate on those converted IRA dollars.
If you were choosing from a menu, which would you pick: a $1,000 bonus, an extra percentage point match on your 401(k) or higher pay?
Hundreds of American companies are handing out goods like these in the wake of the new tax bill. But, so far, workers cannot choose what perk they get.
Companies seems to understand that happier and healthier employees are more productive, and improving their benefits helps retain a stable workforce, said Lloyd. But still, “raising wages will be a much slower affair,” he added.
If your company announces an extra benefit, or gives you an option of what benefit to take, here is how to evaluate what it means to your bottom line:
Bonuses are easy to process once a company has cash on hand.
For employees, however, the perk ends up to be slightly less, because of taxes. For somebody in the new 12 percent tax bracket, that $1,000 is $880. For individuals in the new 22 percent bracket, it is $780.
A short-term infusion of cash could have a long-term impact on workers concerned about debt if they use it to pay down credit card balances. Chris Whitlow, CEO of Edukate, an online financial wellness platform, said when he surveys workers, their biggest concern by far is debt. Even a few hundred dollars could take a bite out of debt, when you factor in compounded interest.
* Bigger 401(k) matches
Take that same $1,000 and make it part of an increased 401(k) match, and you could double it in less than ten years. But that is only if you are an employee who is participating in the company’s retirement plan up to the match level.
“Longer term, the 401(k) match has a bigger impact,” said Lloyd, adding the caveat that this only applies to the people who are investing already.
* Pay increases
On the hierarchy of benefits, perhaps nothing is better for workers than a real raise in annual salary.
While some companies have announced increases, expect raises to come slowly.
Some companies have increased their hourly minimum wage, mostly to $15, including banks like Capital One and SunTrust Banks. Other companies added money to their salary increase pools, but may not have announced raises yet because it is harder to explain in a press release, Bremen notes.
“If the salary increase pool was 2.8 percent and now it’s 3 percent, that’s huge dollars for a company with 20,000 employees,” Bremen said, noting that the charge for one company he knows is $5 million.
Most investors know that a diversified portfolio spreads out your risk and keeps your returns afloat if one of your investments takes a nosedive. The question then becomes: Where are the best places to invest your money?
While the stock market offers plenty of options for diversification, it's wise to look beyond Wall Street and find other investment vehicles with solid yield potential. We asked members of Forbes Finance Council to share their thoughts on the best holdings to add to your portfolio. From cryptocurrency to health savings accounts, here's what they had to say.
1. Life Insurance
2. Self-Directed IRAs
3. Online Businesses
5. Real Estate Investment Trusts
6. 401(k) Account
7. Health Savings Account