Traditional vs Roth 401(k): How to Choose the Right Contribution Strategy

The Simple Framework for 401(k) Contributions

Not to sandbag our version of this question right out of the gate, but this blog/article/education exists on every personal finance resource on the interwebs. Yet, it’s still one of the most common questions that people standing around at a bar, looking for free financial advice clients ask us. 

The math is really quite simple. If you’re in a lower tax bracket when making withdrawals in retirement, you’d want to make Pre-Tax Contributions now. If your funds are subject to a higher tax rate later, you’d be thankful you made Roth contributions now. But that’s where the simplicity ends. You might not even know what you’re having for dinner, let alone what life might look like in 40 years. And even if you had that crystal ball, there’s no telling what federal and state tax rates might be. If you’re an actual wizard and do know what the tax brackets will be, there are still scenarios where having access to both Traditional (Pre-Tax) and Roth buckets would be beneficial. 

And I won’t bury the lede any further: Here’s a simple way to view the timing of Traditional and Roth contributions. 

  • Early Career: Roth 

  • Mid Career: 50/50 Split

  • Peak Earning Years: Traditional

But if you want some additional guidance on the full considerations between the two, keep reading!
Because, as mentioned, you are probably somewhat uncertain about:

  • Retirement Age
  • Reduced Income Prior to Retirement (Back to School, Sabbatical) 
  • State of Residence
  • Expected Federal Tax Brackets
  • If You’ll Need a Large Sum of Money Suddenly (Home, Health, Grandkid’s Education)
  • Tax Brackets for Your Kids Upon Inheriting Money
  • If You’ll Inherit Money and If That Will Be Pre-Tax or Roth
  • Needing Health Insurance Before Medicare-eligibility

Explain 401(k) Contributions To Me Like I’m Five

401(k) plans are employer-sponsored retirement accounts that enable employees to contribute through automatic payroll deductions. You might hear a 401(k) called a “Traditional 401(k)” or a “Roth 401(k),” but they are the same employer-sponsored plan. It’s a single 401(k) that accepts two different contribution types. Also, “Traditional” Contributions refer to Pre-Tax Contributions, and these terms can be used interchangeably. Some 401(k) plans even offer a third type of 401(k) contribution known as After-Tax Contributions, which should not be confused with Roth contributions. We’ll skip the After-Tax Contribution bucket for the purposes of this blog.

Understanding How 401(k) Contributions Are Taxed

The key difference between Traditional and Roth contributions is the timing of taxation.

  • Traditional 401(k) Contributions: Defer tax now, pay taxes later

  • Roth 401(k) Contributions: Pay tax now, withdraw tax-free later

A popular metaphor is “the seed vs. the harvest.” The seed is taxed when you make Roth Contributions. The harvest is taxed when you make Traditional or Pre-Tax Contributions. Mathematically, if you’re subject to the same tax rate on contributions and withdrawals, it doesn’t matter whether you’re taxed today (the seed) or in the future (the harvest). 

An example:

When the tax rate is flat, the math – maths. Even though you paid more in cumulative taxes by deferring them, your net distribution remains unchanged.

Won’t My Tax Rate Always Be Lower In Retirement?

“I’m not making any money, so why would I be paying more in taxes?” right? RIGHT!? It certainly makes sense, but it’s not that straightforward. Here are some reasons you might end up subject to a higher tax rate or face higher costs later on, even without any earnings. 

Future Federal Marginal Tax Rates and Brackets

When it comes to future tax rates, we are purely speculating. Here is a chart of the historical highest and lowest marginal tax rates since its inception. 

And this chart doesn’t even fully capture how difficult it is to predict how future rates may move across different income levels. The highest marginal rate may apply to only a small number of taxpayers. More specifically, it will come down to how each income threshold is taxed at what rate and where you will fall in comparison. However, if you were to speculate that our low maximum marginal tax rate, combined with increasing national debt, might result in higher future tax rates, I certainly wouldn’t stop you! But note that’s been a popular thesis for decades, and current tax rates have actually decreased relative to certain periods.  

State Tax Rates

The next biggest reason your tax rate may increase is a change in your state of residence. See how your state or desired home in retirement stacks up!

Thinking about retiring in California after working in Louisiana? That’s a big jump in state taxes paid on distributions. Therefore, you might think twice about making traditional contributions today, since you’ll pay a good bit extra at the state level later. But then you might hit your 50s, and your entire personality could be honoring the late, great Jimmy Buffett. So now you’re riding motorcycles and drinking pina coladas (not at the same time, of course!) and eyeing a move to Florida. Well, then you might be kicking yourself a little for not saving pre-tax in Louisiana, since Florida has no income tax. 

Obscure Taxes, Penalties, and Costs

Based on current tax rules, there are additional financial *consequences* such as the Net Investment Income Tax (NIIT), the Medicare Income-Related Monthly Adjustment Amount (IRMAA), and how health insurance premiums are determined if you go through the Healthcare.gov exchange without access to an employer-sponsored plan or Medicare and have too much income to qualify for Medicaid. Being forced to make a large amount of pre-tax distributions within a calendar year could result in additional money owed, even if it’s not directly tied to the tax rate on the retirement income itself. 

Required Minimum Distributions (RMDs)

Some people are naturally great savers. And if you’re great at saving, you might have a hard time spending money, too. Therefore, you may build a substantial pre-tax nest egg. Based on your birthdate, the government says you must start taking withdrawals from this money between the ages of 70.5 and 75. These mandatory Required Minimum Distributions could exceed what you were earning while working. 

You Inherit Money, or Your Kids Inherit Your Money

If you are around my age or most of our clients’ ages, you have boomer parents. And if you have boomer parents, you know they just don’t talk about money. It’s not in their DNA. You’ll get what you get when you get it. But if you are fortunate enough to get *something* and it’s pre-tax money, you’ll have ten (10) years to empty the account to $0. It’s a GOOD problem to have, but it still affects how much you get to keep. There’s a lot of tax planning involved. And if your money is already tied up in 100% pre-tax accounts and the government is forcing you to take distributions, you might find yourself with very little flexibility on what tax rate it’s subject to. You’ll just owe what you owe. 

Or, if you are the one saving now and building a 100% pre-tax allocation with the goal of passing money to your own kids, they might actually be fulfilling the American dream of doing better than you! And now you have deferred taxes on money your kids will realize at a higher rate. 

That’s A Lot of *Stuff*

That’s not even an all-encompassing list. But it’s worth listing some of the main reasons it’s never as simple as anyone wants to make it. A lot of these things, we just don’t know. And that’s okay! A financial planner can certainly help you address some of these blind spots and make educated guesses/assumptions around tax planning. But if you’re doing it yourself, I’d suggest focusing on what seems best now rather than overthinking every future multiverse scenario. 

Emotional Benefits of Roth vs Traditional Contributions

Traditional (Pre-Tax) Contributions Provide CONTROL

I’ll start with pre-tax contributions because I just spent the last couple of minutes of your time making you second-guess whether you should even make pre-tax contributions at all. While we’ll give further financial guidance on when you should consider making pre-tax contributions later in this article, here’s a softer reason. For the most part, you maintain control over your tax consequences. By deferring taxes now, you have control over when you make distributions based on your tax rate at that time. While the government tries to force your hand with RMDs, that may be decades away. 

But aren’t there rules and penalties that prevent you from making distributions before Age 59.5? Yes, but you could do what’s known as Roth Conversions. As the name suggests, Roth Conversions allow you to convert Pre-Tax funds to Roth funds beforehand and avoid the 10% early withdrawal penalty. There are a few other considerations and *gotchas* that I won’t go into here, but you should definitely look into them if you’re considering making Roth Conversions. Here’s an educational piece from Schwab that outlines them. I mention Roth Conversions because they are a great tax-planning tool for those who are going back to school, taking a sabbatical, on track for early retirement, or have an opportunity to fill lower tax-rate thresholds before RMDs.

Roth Contributions Provide Peace of Mind

While you lose control over how your money is taxed, the good news is you don’t have to worry about it anymore! Assuming certain holding periods and age thresholds are met, the money in this bucket is 100% unequivocally yours! Taxes have already been paid at the time of contribution, and distributions are not included in your gross income. Therefore, you don’t have to worry about obscure tax laws or rules that tax you more, reduce certain credits, or penalize you as your Adjusted Gross Income or Modified Adjusted Gross Income increases.

Even if you don’t end up with the highest tax-adjusted balance, understanding how much money truly belongs to you can make retirement planning easier.

How Life Events Can Influence Contribution Strategy

There isn’t a better graphic to illustrate this than the one in this Kitces.com article, which I’ve included below.

Above, you’ll see reasons you may contribute to a Traditional IRA, split contributions 50/50, or contribute to a Roth IRA, based on life events that affect your tax rate. Here’s the synopsis:

Contributions by Tax Rate

  • 12% or Lower: Roth Contributions

  • 22% – 24%: 50/50 Split

  • 32%+: Pre-Tax Contributions

While the future is important, it’s often more practical to concentrate on today’s events and adjust accordingly. As your life changes, so should your 401(k) contribution method. This approach helps you systematically build your allocations across different tax buckets, offering you maximum control and flexibility when taking distributions before retirement, during retirement, or passing on an inheritance to your family. 

Ultimately, a balanced approach to your 401(k) contributions will help you make the most of your funds as you near or enter retirement.

Frequently Asked Questions About 401(k) Contributions

Q1: Should I choose Roth or Traditional 401(k) contributions?
Choose Roth contributions if you expect your tax rate to be higher in retirement. Choose Traditional contributions if you expect your tax rate to be lower later. Many investors benefit from using both to create tax flexibility.
Q2: Is it better to pay taxes now or in retirement?
It depends on your future tax bracket. Paying taxes now (Roth) is better if tax rates rise or your income increases later. Deferring taxes (Traditional) is better if you expect lower income in retirement.
Q3: Can I make both Roth and Traditional 401(k) contributions?
Yes. Most employer plans allow you to split contributions between both types, helping create tax diversification for retirement withdrawals.
Q4: Why should I have both Roth and Traditional retirement savings?
Having both creates flexibility. You can withdraw from different accounts strategically to manage taxes, avoid Medicare premium increases, and reduce required minimum distribution impacts.
Q5: Can Roth conversions help later?
Yes. Roth conversions allow you to move Traditional savings into Roth accounts during low-income years, helping manage taxes before retirement or RMD age.

Great Day Louisiana: Setting Up Your 401k For Your Retirement (originally aired on February 19th, 2026)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

What to do With an Old 401k

What to do with an old 401k

Millennials have a knack for switching jobs throughout their careers. In our generation’s constant pursuit of workplace fulfillment, many suddenly find themselves one day with a collection of old employer retirement accounts. It’s kind of like unwittingly opening that random kitchen drawer only to discover a bursting assortment of koozies, collected from a couple of particularly busy wedding seasons and that one college alumni event that was somehow confident everyone in attendance would want 12 koozies each. 

Naturally, a frequent question we get working with couples in their 30s and 40s is: “What should I do with my old 401k(s)?” 

Whether you’re sitting on a stockpile and are uncertain of how to move forward (possibly the upcoming open enrollment season has reminded you of benefits past), or you’re preparing to make your first job switch and want to be prepared, this one’s for you!

You have FOUR Options

After separating from an employer, you can do one of four things with your old 401k:

  • Leave the account where it is
  • Roll it into a new employer plan
  • Move it into an IRA
  • Cash it out

Let’s break down each one and when they do (or don’t) make sense…

Option #1: Leave the old 401k where it is – with your former employer

This can be a good idea if…

  • Your next job doesn’t offer a retirement plan, you are implementing (or planning to implement) a backdoor Roth IRA strategy, and the 401k in question contains pre-tax money.
    • If your income is high enough to the point that the IRS says you cannot contribute directly to a Roth IRA, then you have to take the “backdoor” approach in order to put future dollars into a Roth IRA.
    • This means you ALSO need to pay attention to what’s called the “pro rata rule”. In short, if you have any pre-tax dollars in an IRA and then go about doing a Roth conversion, you’ll end up owing some taxes (even if you only convert an amount equal to after-tax contributions). The solution? Keep pre-tax money in employer retirement plans since the pro rata rule excludes those accounts. 
  • The old plan has a great list of investment fund options and low expenses.
    • Each company’s retirement plan has its own unique list of investment options available within the 401k. If the new plan is light on quality fund options and heavy on the fees, it may behoove you to keep that money put.
  • You don’t have the next job lined up yet.
    • There’s no need to rush into doing something with the old 401k. Wait until you have the next job secured to at least see how the new plan compares, so you can make the most informed decision.
  • You want to take advantage of the Rule of 55.
    • The Rule of 55 is a way for you to access retirement funds before age 59 ½ without owing that pesky 10% early withdrawal penalty to the IRS.
    • To do this, you must be 55 or older and have separated from your company. This type of distribution can only be taken from your most recent employer’s 401k (or 403b), not an IRA.
    • It’s important to note that not all 401k plans allow for this. While the IRS gives it the “ok”, the actual plan documents need to give it the green light as well.
    • This method for early retirement money access comes with somewhat more flexibility than the Substantially Equal Periodic Payment (SEPP) route, which can be used with both 401ks and IRAs.

Be mindful that...

  • You’ll be limited in how you can manage the account.
    • You can no longer add new money to the old 401k. However, you WILL still have full control over how the money is invested (within the list of investment options the plan offers).
  • More time and distance between you and a past employer can make it more difficult to access the account when needed.
    • Just how solid is your system for keeping track of usernames and passwords?
    • Your old company might decide to switch 401k providers, making the account more challenging to locate when you go back to hunt for it (“My account used to be held at Empower, but now it’s at Fidelity?? I’ve never even logged into Fidelity…”).
    • If an especially long period of time passes, there’s even a chance the money could be transferred to the state as unclaimed property.
  • If you have a smaller balance in the 401k, the plan administrator could take action on your behalf, without you requesting them to do so.
    • For old 401k balances under $7,000, there’s a chance that the plan automatically does any one of the following:
      • Cash out the balance and mail you a check, creating a taxable distribution (for balances under $1,000).
      • Move the money into an IRA (also for balances under $1,000).
      • Roll the funds into your new employer’s plan (sometimes for balances between $1,000 – $7,000).

Option #2: Roll the old 401k into your new employer’s plan

This can be a good idea if...

  • The new plan has a more robust investment fund lineup and/or lower fees.
    • It may not necessarily make-or-break your ability to one day retire, but better-performing funds and lower internal expenses add up over growing balances and several years. So it could certainly help get you to your target more efficiently.
  • The 401k has pre-tax dollars and you’re up against the pro rata rule.
    • Just like we discussed in the section above, it’s essential to keep pre-tax money in employer retirement plans when you’re utilizing the backdoor Roth IRA strategy. That means either leaving your old 401k where it is, or rolling it over into your new employer’s plan – as long as the money doesn’t go into an IRA.
  • You want to keep things as streamlined as possible.
    • There’s a real benefit to simplicity. Even in the case where the new 401k plan isn’t a clear “winner” over the old one in terms of investment selection and/or expenses – if they’re pretty close – consolidating the accounts will probably make your life easier down the line. 

Be mindful that...

  • We’ll capture some of the things to be aware of here, and with the other options, in the “General questions and considerations” section at the bottom.

Option #3: Roll the old 401k into an IRA

This can be a good idea if…

  • Your income is under the threshold that would prevent you from contributing directly to a Roth IRA.
    • In the case that you have pre-tax dollars in a Traditional 401k, BUT your income is under the IRS limit for making direct Roth IRA contributions, then you’ll be in the clear of that annoying pro rata rule (assuming that a Roth IRA will also be part of your plan) since you’ll be able to simply make future contributions right into the Roth. 
  • Your entire 401k balance is made up of Roth money.
    • If you don’t have any pre-tax funds in the 401k at all, then you don’t have to be cautious of this money sparking the pro rata rule when it gets moved into a Roth IRA. Again, it’s only pre-tax dollars in a Traditional IRA that make things tricky when doing the backdoor Roth IRA strategy down the line. 
    • Though increasingly rare these days, not all 401ks offer a Roth option. If that’s your new plan, then you’d have to go into a Roth IRA if you’re moving the money.
  • You want more investment options and/or lower fees.
    • By transferring the funds into an IRA, you’d then gain access to the full universe of investment options (mutual funds, ETFs, stocks, bonds, etc.). You can invest the money however you like, without being confined to a 401k plan’s set list of funds. This provides for greater control over the internal expenses that come with investments such as mutual funds and ETFs.
    • With an IRA, you can also pick whatever custodian you prefer, and there are plenty that have no management fees. 
  • You are seeking professional investment management.
    • Speaking of fees, professional management may or may not come with additional expenses, and it’s crucial to understand what those would be.
    • However, if you’re the kind of person who values someone with the appropriate level of expertise taking on some of the responsibility with your retirement savings, you might consider an IRA to allow for this level of guidance.
  • You want to do a Roth conversion.
    • If you have pre-tax money in the 401k and you’re in a position where it makes sense to execute a Roth conversion, then this could be an easy time to make it happen. Of course, you’ll need to be prepared for any taxes owed on the conversion. Note that some plans do allow for in-plan Roth conversions, so this could be a possibility with a new 401k as well.
  • You need some additional flexibility for penalty-free access of retirement funds for hardship or other life events.
    • The IRS grants some leniency to early withdrawals from IRAs (over 401ks) under certain circumstances. You get an exception to the 10% early withdrawal penalty in the following scenarios:
      • Up to $10,000 for a first-time home purchase
      • Covering qualified higher education expenses
      • Paying for health insurance while unemployed
    • Still, income tax is owed on anything you take out and you should ideally treat retirement accounts as an absolute last resort for accessing funds earlier in life. Just because this is an option does not mean it is always a good idea.

Be mindful that...

  • Roth money goes into a Roth, IRA and Traditional money goes into a Traditional IRA.
    • If you have both “types” of dollars in your one 401k plan, you’ll have to split the money between two IRAs when it gets rolled over, based on the tax treatment. 
  • A “Rollover IRA” is essentially the same as a “Traditional IRA”.
    • If you roll money from a 401k into an IRA, you will probably see the option to open a “Rollover IRA”. This account has the same tax treatment and contribution limits as a Traditional IRA. The IRS views these accounts through the same lens. You could choose to roll money from an employer plan into either one and you could then make contributions from earned income to either account. For all intents and purposes, the only real distinction is that you might opt for the “Rollover IRA” if you wanted to have some level of compartmentalization between retirement savings accumulated through past employers vs. those built up through your own contributions directly into a Traditional IRA.
    • It’s worth emphasizing here, too, that money in a Rollover IRA is factored into the pro rata rule the same as money in a Traditional IRA!
  • You need to actually invest the money.
    • When the money is sent to your IRA from the 401k, it will come over as cash. It’s then on you to make sure it gets invested. This is a critical step. 
  • In many cases, you should be able to move money from an IRA into a current employer 401k plan if needed in the future.
    • You’ll need to check with your current employer’s 401k plan documents to see if they allow for this “reverse rollover” (not all do).
    • You can only transfer money from an IRA into the 401k of a company where you’re presently working.
    • And why might you consider doing this? The most typical reason I come across is when your income has grown to the point of necessitating the backdoor Roth IRA strategy and we want to be sure you’re staying clear of issues with the pro rata rule. 
  • While the Rule of 55 exists for 401ks, Rule 72(t) (Substantially Equal Periodic Payments) is a way to access funds without the early withdrawal penalty from IRAs (and 401ks too).
    • There’s a little less flexibility with how funds are accessed under this rule, specifically in regards to the amount and timeline of withdrawals.

Option #4: Cash out the 401k

Yes, technically an option… But not one you really want to give any thought to.

In short, don’t do it! By choosing to cash out your old 401k, you’re creating a fully taxable event (if it’s pre-tax money) and potentially exposing yourself to the 10% early withdrawal penalty if you’re below age 59 ½. Not to mention, you’re likely better off keeping those retirement savings invested and working toward your long-term financial security.

General considerations

  • If you have an outstanding 401k loan….
    • Upon separating from your employer, you’ll have a short period of time to pay back the full balance of the loan.
    • If you don’t pay off the loan in the plan’s prescribed timeframe, the remaining amount owed is treated as a taxable distribution (which could also come with a 10% early withdrawal penalty if you’re younger than 59 ½). 
  • Choosing between a direct rollover vs. an indirect rollover…
    • A “direct rollover” is one in which the 401k money is sent straight to the new IRA or 401k institution and never touches your hands. This is the easier and preferred method.
    • With an “indirect rollover”, a check is sent to you. You then have up to 60 days to deposit the money with the new institution before taxes and penalties kick in. We recommend avoiding this type of rollover given the potential for taxes/penalty in the event it’s not handled in time, plus the increased chance of the check not making it to its appropriate destination.
  • Take note of your vested balance…
    • Your “vested” balance is how much of the account you can access or move, whereas the “unvested” balance is forfeited upon separating from your employer. The unvested portion won’t ever be accessible to you, regardless of what you do with the 401k.
  • Understand the tax status of your 401k dollars (Pre-tax vs. Roth)…
    • It’s important that the tax status of any new account you move 401k funds into matches the tax status the dollars had while in your 401k (Traditional → Traditional and Roth → Roth). You risk creating a taxable event if this gets mixed up.
  • Be wary of the “advisor” who tells you that you have to move your old 401k into an IRA…
    • As we’ve laid out here, your only option isn’t to move money from your 401k into an IRA. In fact, it very well may be in your best interest to leave it where it is or roll it into your new employer’s 401k. 
  • If you think you might have an old 401k sitting around somewhere, but aren’t sure…
    • There are resources out there that can help you track down lost employer retirement plans. One such example is the Department of Labor’s Retirement Savings Lost and Found.

As for the koozies, your four options are:

  1. Make a quilt
  2. Develop a daily koozie rotation to justify the obscene number
  3. Decide which friends/organizations you love the most and toss the rest
  4. Dump the whole drawer and move on
Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Eddy Jurgielewicz

Eddy Jurgielewicz, CFP® is a Partner and Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Preparing for Movement in the Markets

When Do We Officially Enter a Recession?

Recessions are tough to measure definitively, but as the famous saying goes, you know it when you see it. They are typically defined as two consecutive quarters of negative growth in Gross Domestic Product (GDP), a term used to measure a country’s total output of goods and services. As GDP grows, companies hire to meet demand, productivity increases, and laborers earn more money. As GDP shrinks, we will likely see a spike in unemployment, a decrease in asset values, and a reduction in consumer spending. Let’s face it, though. No one thinks of GDP when considering the threat of a recession. It’s… am I going to lose my job? Will my 401k recover?

Lessons from History on Bear Markets

Bear markets (when the market declines by 20%) often coincide with recessions, but accurately timing the market recovery would require a time machine. If this isn’t an impossible task for you, congratulations! You’re the best investor in the world. The challenge, especially for the general public, is that market recoveries historically happen swiftly and at a moment when consumer sentiment is at an all-time low. Here’s a chart from J.P. Morgan showing sentiment cycle lows and subsequent 12-month S&P 500 returns.

J.P. Morgan Guide to the Markets

You’ll notice the disconnect between present fear and future returns. Things will never have felt worse right before the market pushes higher.

Historical Performances of Bull + Bear Markets

Bear markets are typically measured in months, while bull markets are measured in years. Since 1957, the S&P 500 Index has returned an annualized 10%, yet there are very few years when the return actually fell between 8% and 12%. In fact, across this 67-year period, it has only happened on 7 occasions. Markets tend to have bigger calendar year swings that, historically, have netted out favorably. Here’s a chart presented by First Trust displaying the importance of staying disciplined as a long-term investor.

And to beat this point with a stick (iykyk), here’s another illustration showing how costly it would be if you were caught up in the negative consumer sentiment, sold to cash, and ended up missing the best days as the market recovered!

Hartford Funds: Timing the Market Is Impossible

Compared to a portfolio that remained fully invested, if you were caught in cash during the best days for returns, you’d be kicking yourself!

Missed the 10 Best Days → 54% Less Money

Missed the 20 Best Days → 73% Less Money

Missed the 30 Best Days → 83% Less Money

And as noted by the above graphic’s pie chart, these best days are likely to occur during a bear market. While the COVID-19 pandemic initiated an economic shutdown that resulted in GDP decline and peak unemployment in line with the Recession of 1937, the losses in the markets were a blip. If you hadn’t logged into your investment accounts for a couple of months, you would have never known it even happened. So, setting COVID-19 aside, we haven’t seen an extended contraction of the economy since the financial crisis of 2008. This means that we have twenty-somethings who were barely aware, along with individuals in their thirties who lack perspective on the mental toll of watching their portfolio decline. We even have people in their 40s who probably weren’t investors yet themselves and were just starting their careers. That’s a significant portion of the investing population entering their peak earning years without any first-hand experience on how to prepare for a recession. 

Prepare for Economic Downturns, But Don’t Panic

If you’re anxious right now, you’re not alone. According to the March results of the Harvard Harris Poll, the two biggest concerns for voters right now are price increases/inflation and the economy/jobs. Inflation continues to be the top issue for voters across party lines. Although we are not currently in a recession, we are nearing the definition of one, along with a bear market. However, we cannot predict what will happen next. We haven’t experienced a global trade war for almost a century. And after an emotionally tolling election and with the 24/7 news cycle, it’s difficult to allow yourself the space to step back from making an emotional decision. But as a local advisor and friend, Jude Boudreaux, would say, respond, don’t react. 

Now is a time for focus and introspection. What opportunities do you have to save more or spend less, and what are your household’s biggest threats?

I’m Already Struggling to Make Ends Meet, How Will I Prepare For An Economic Downturn?

Households have two options for saving more money in preparation for a financial crisis:

  1. Reducing Expenses

  2. Earning More

If you are already living paycheck to paycheck with limited discretionary income, the possibility of losing your income or the rapidly rising cost of goods is a frightening prospect. Reducing expenses is already a finite solution, and if you’re living paycheck to paycheck, your ability to do so is severely diminished. 

Additionally, if your household’s income comes from a single source, you are at greater risk of needing to withdraw from your savings or rely on credit if the economy experiences a downturn. Income preservation, similar to asset protection, is most effective through diversification. It’s easier said than done, but do you have a path toward increasing or diversifying your income? Can you pivot and further your education on a clearly defined path that leads to career advancement? Can you add extra income to, at the very least, build an emergency fund, perhaps through seasonal employment or gig work? While recessions are undeniably bad, opportunities can emerge. Be realistic about your current situation and how it will project into the future. Don’t be afraid to invest in yourself or leverage your connections toward a brighter future. Nothing worth doing is easy.

Reducing Discretionary Expenses

There’s no time like the present to reevaluate your discretionary spending habits. It’s better to act before a crisis takes hold, but you certainly would not be alone if you delayed this difficult internal evaluation upon reaching an inflection point. As a financial planning note, we hope that you completely avoid being between a rock and a hard place by practicing what we preach regarding cash flow flexibility:

Building a proper Emergency Fund (discussed in the February 2025 Newsletter)

Keeping fixed expenses like home and auto at a conservative percentage of household income, rather than borrowing the maximum a lender permits. (discussed on Great Day Louisiana)

Successfully benchmarking your salary and negotiating a raise (discussed in the March 2025 Newsletter and on Great Day Louisiana)

However, if those opportunities have passed, we also have a great guide on taking control of your cash flow.

To quickly reduce spending, here are four key categories to explore for opportunities to make immediate adjustments. 

Dining Out: Meal prep at home is always cheaper than dining out and healthier. 

Travel: Experiences can add up quickly if you’re not careful. 

Impulse Purchases: Create some framework around necessities vs. nice-to-haves. 

On-Demand Services: Are you paying a hefty surcharge for convenience services such as same-day shipping, meal delivery, and rideshares?

The Moral Of The Story

As of this writing, we aren’t in a recession or a bear market, and attempting to predict one or how long it will last isn’t worth your energy. I would even go so far as to say that if you have a financial advisor who is making market timing predictions with your money, you may want to reevaluate that service or at least question the methodology of when their crystal ball indicates to reenter the market. Especially considering what you know now about consumer sentiment and diminished returns from missing the best days. 

History is a cycle. On a timeline long enough, we wouldn’t be surprised by much. Unfortunately, our moment happens in a blink of the universe’s eye. It’s difficult to stay disciplined when times are uncertain. In today’s world, it’s crucial to uphold your values and what matters to YOU, rather than succumbing to peer influence or the blatant deception found on social media. Life is too short to confine oneself to someone else’s definition of success.

Great Day Louisiana: How Movement in the Markets Impact You (originally aired on April 21st, 2025)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Presidential Inauguration and Your 401k

Inauguration, 401k, investments

Presidential Elections vs. the Stock Market

New President = New Investment Strategy? Not so fast! 

Historically speaking, there is nothing red or blue about the United States stock market. It’s green (see below). Regardless of who is leading the administration, the stock market and your 401k has consistently moved up and to the right. 

And look, there are many reasons each election can be conceived as the most important in our lifetime. Indeed, the presidential and congressional election winners affect our geopolitical and economic outlook. Our debt is soaring. Instability is rising across the globe. There’s much work to be done on issues surrounding inequality and human rights at home. However, it pays to zoom out when it comes to the stock market and your 401k + investment portfolios.

S&P index, Presidencies, Investment Management

Source: YCHARTS

THE Reason Against Changing Your Investment Strategy. Spoiler Alert: It’s Your Money.

If you had only remained invested when your preferred candidate was in office, you would have missed out on some significant opportunities and cost yourself a fortune. Check out the graphic below created by YCHARTS! Assuming an initial investment of $10,000 starting in January of 1950, here’s how your portfolio would have performed if you had only remained invested under a Democrat or Republican.

  • During Democratic Presidencies Only: $444,760
  • During Republican Presidencies Only: $77,770

And here comes the big BUT. If you had remained invested regardless of who was in the White House, that $10,000 would have grown to $3.49 Million by September of 2024.

Portfolio Performance, Investing, Politics

Source: YCHARTS

Allowing your political beliefs to influence your portfolio can lead to disastrous outcomes.

Attempting to time the market is a fool’s errand! Just turn on the TV. No matter if the market is rising or falling, everyone always has an explanation. Although they may act as if they possess one, there is no crystal ball. Not even when it comes to explaining intraday market swings.

Uncertainty is a certainty, which is why I love this Vanguard article and its principle: TUNING OUT THE NOISE NEEDS TO BE YOUR SUPERPOWER.

Now That I’m Thinking About My Portfolio, Are There Any Practical Adjustments I Can Make?

Risk Capacity: Are your investments appropriately aligned with the level of risk you can afford to take? e.g., Do you already have an emergency fund? Could you experience a loss of income, a medical emergency, car trouble, or a home repair without having to withdraw from your investment accounts at an unfavorable time? Depending on the account type, untimely withdraws could lead to penalties and tax issues in addition to loss of principal. 

Check out the graphic below compiled by Lincoln Financial Group. From 1976 to 2022, in any given 12-month period, your investment in the S&P 500 (the 500 largest companies in America) may have gained 61.2% at the peak or lost 43.3% at the trough. 

Is that a gamble that you want to take if there’s a chance you might need your money in the interim (less than 15 years)? Feel free to check out a quick risk checklist in a previous Upbeat Wealth blog post.

S&P 500 index, Investing, Rolling Returns

Source: Advisorpedia via Lincoln Financial Group

Time Horizon: Have you clearly defined your goals and corresponding timelines to achieve them? Are you properly allocated to maximize risk-adjusted returns based on when you expect to need the money? We often receive questions about investment optimization with condensed time horizons. “I want to buy a home in five years; how should I invest the money?” Well, probably not very aggressively. 

Below is our firm’s current general guidance on how to approach short-term time horizon investing, especially given the current high-interest rate environment and the virtually risk-free returns of FDIC-insured high-yield savings accounts and fixed income such as U.S. Treasury bonds, backed by the full faith and credit of the U.S. government. 

One strategy we like to implement with our families is to separate taxable investment accounts into different sleeves or buckets. We assist them in identifying their goals and timelines, and we encourage them to create separate accounts for a clearer allocation and visualization of their objectives for those funds.

investment allocation, equities, fixed income, high-yield savings

Managing Costs: Are you invested in low-cost index funds and effectively tax planning around your contribution and investment strategy? I can’t tell you how often I have reviewed household 401(k) investments and seen selections in the highest-fee mutual funds, which seldom beat their respective benchmarks. 

Rule of thumb: the fancier the name, the higher the fees. If you see a Yellowstone Dutton Ranch New Pioneers Beth is Aggressively Back on The Booze, Psych – She Never Actually Left Portfolio, RUN for the Vanguard or Fidelity Index Funds if they are there, pleeeeease!

Dollar Cost Averaging: Are you already sitting on a heavy concentration of cash or encountering a sudden money event? Consider investing it over time rather than all at once. While it might not be the mathematically preferred approach, taking this route can help minimize your investment timing risk and serve as a portfolio Ambien when it comes to getting your money a better night’s sleep. 

What If This Time is Different?

The U.S. stock market has recently outperformed its average annual returns despite the election, higher interest rates, Russia invading Ukraine, and conflict in the Middle East. When market volatility rears its head, it’s impossible to point to one single factor.

At the beginning of every year, banks and wealth management companies are issuing their annual market forecasts and it’s a whole lot of blah blah blah. Some interesting insights? Maybe. But, ultimately, the themes are indistinguishable and laced with caveats about what the future holds. Because if they knew, they wouldn’t be writing about it. And there are no real consequences because it is all hot air to begin with. Most of the larger well-known wealth management firms conveniently erase their previous year market predictions. Look around, they’re hard to find. That’s because there are no crystal balls, especially during an administration change.

If you make investment decisions solely based on who is in the White House, you might be costing yourself a chance to reach your financial goals. If you’re investing for retirement with 15 years or more ahead of you, embrace a long-term, disciplined strategy. Staying the course now will pay off in the future! It’s important to remember that the market reflects the companies that provide goods and services and drive innovation rather than the actions of any one political party. The only thing we can predict about recessions is that they will occur, but not when. Make sure to have an emergency fund prepared and focus on the things within your control!

“The only president who didn’t complain about the previous administration was George Washington” – like every political speaker or journalist

Great Day Louisiana: Financial Advice Ahead Of Inauguration Day (originally aired on January 16th, 2025)

Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

The Importance of Open Enrollment Season for Families

open enrollment, workplace benefits, 401k, group insurance

The leaves are changing. Store shelves are overflowing with Halloween candy and holiday decorations. Pumpkin spice lattes and sweaters have made their annual comeback… This can all mean only one thing: Open Enrollment Season is upon us!

That’s right, nothing spells Fall like the chance to adjust your family’s health insurance plan.

In all seriousness, Open Enrollment is an important time of year – something worth paying close attention to. But, with the general craziness of the season in which the window typically falls, it can be an easy thing to push aside. Or it may be something that feels unnecessary if you’ve been at your employer for multiple years already and you believe everything is “set”. 

So I want to share some important considerations and a handful of reasons why it’s a good idea for everyone to perk up during Open Enrollment.

First off, be prepared

First and foremost, you’ll make things easier for yourself if you know ahead of time exactly when your job’s Open Enrollment period begins. The majority of employers do this sometime during October or November, but the exact start date and how long the window lasts can vary. There are also some companies that may conduct theirs at another time during the year. In any case – if you’re not already positive – check with HR to see when your Open Enrollment will take place. Take note and mark your calendar so that you can more readily take action. Many windows may last only a couple of weeks, so it can quickly fly by if you’re not anticipating it.

Coordination is key

For dual-income households, the stakes are higher. It’s especially important to coordinate across BOTH benefits packages to be sure you’re making the most (and saving the most) of what’s available. Having kids in the picture only ups the ante even further. Naturally, your enrollment windows may not overlap, making it even more necessary to be prepared and proactive. 

This coordination for families is most consequential when figuring out health insurance – and we may do a deep dive in a separate post. For now, here are some big considerations (assuming both spouses have benefit plans through their employers):

  • There are essentially 3 ways you could slice it:
    • Put the whole family on one partner’s health insurance
      • Sometimes there may be a clear winner with one partner having far superior health insurance options, at a better cost too. Some employers may have a long list of plans to choose from, while others don’t.
      • Although this is usually the easiest to keep track of – managing one plan for the whole family – it is not always the least expensive. 
    • Split it up – for example, one partner could go with individual coverage and the other partner covers themselves along with any kids
      • Companies tend to cover more of their own employee’s premium than they do for a spouse on the same plan. If both partners have employers who take on a large chunk of the cost, it could be much cheaper to go with separate coverages.
      • This can also make sense if one partner requires a lot of healthcare attention throughout the year. They may be better off going with a more robust low-deductible PPO plan while the other partner and the kids get covered under a high deductible health plan – if they are generally healthy.
    • Dual coverage – this means both partners enroll in separate plans that each cover everyone
      • Given that everyone is covered by two plans, it’s going to be the most costly structure. And it’s important to realize this does NOT mean you have twice the coverage. What it does mean is that you’ll have two levels of insurance – a primary and a secondary. As such, the secondary plan may cover costs that the primary plan doesn’t – though coverage will never exceed 100% of healthcare costs.
      • This method also requires you to take extra steps in coordinating your benefits, which is time consuming and sometimes complicated to navigate.
  • When determining the most optimal setup, we look at multiple factors:
    • What are the associated costs? → Premiums, deductibles, out-of-pocket maximums, copays, and coinsurance
    • Will you be able to access your preferred providers in network?
    • What are the specific medical needs of each family member?
    • Are you anticipating any major medical expenses in the coming year such as a surgery or pregnancy?
    • If available, is one plan structure more beneficial for your needs over another (HMO vs. PPO vs. POS)?
    • Can you benefit from an FSA or HSA (via a high deductible plan)?

Reasons to pay close attention at Open Enrollment time

You started the job this year and in the flurry of onboarding didn’t fully get your benefits squared away

If you started at a new employer this year, you already had the opportunity to select benefits as part of the onboarding process. But with how stressful and dizzying it can be to get going with a whole new job, it’s very possible to miss or overlook something concerning benefits. Open Enrollment presents a time to go back through and ensure everything is set up in the most optimal way. 

Your family experienced a big life change and you missed the special enrollment period for the qualifying life change

Did you get married? Did you welcome a new child? Did your spouse go through a job change? Maybe you registered as a domestic partner – like me this year! (CA allows this, but not all states do)?

There are several “qualifying events” that come with the ability to update employee benefits outside of the traditional Open Enrollment window. It’s important to know this and do what you can to make changes as soon as possible during this “special” enrollment period. However, those life changes that qualify also happen to be rather big things… So your mind may be elsewhere as you try to simply focus on that epic wedding and honeymoon, caring for a brand new baby, or whatever it may be. If the craziness of life does what it tends to do, just make sure to get your benefits properly structured when the regular Open Enrollment comes around.

Is now the time to switch to that HDHP/HSA winning combo?

In some cases, you might not have been aware that you had access to a High Deductible Health Plan (HDHP) and the Health Savings Account it comes with. Or this could be the first time your company has offered it. Either way, Open Enrollment is a prime time to consider the benefits of this plan. 

It’s worth doing a thorough analysis and stacking a HDHP up against the other health insurance options. Examine the differences – the premiums, deductibles, out-of-pocket maximums, co-pays, co-insurance, and what’s covered vs. what’s not. Understand that to get the most out of a HDHP, it involves actually contributing to the HSA it comes with. Assess what the impact of the tax savings would do for you and consider the plausibility of maxing it out. Your employer may even contribute some funds to the HSA on your behalf – I’ve seen rather generous cases out there. Often, going the HDHP route and maxing out the HSA will yield better results compared to other health insurance coverage options. 

Let’s look at a case where the switch makes a lot of sense. In the following example, a family has been enrolled under one spouse’s low deductible PPO plan up to this point. They are all generally healthy and don’t expect any extra medical expenses in the coming year. With the current plan, their basic total annual outflow is $20,400 (the monthly premium multiplied by 12). For 2025, they are considering the switch to a HDHP so that they can contribute to an HSA. In that scenario, their annual premium cost would be $13,452. They also have the ability to max out the family HSA with $8,550 in contributions. Since they’re squarely in the 32% Federal tax bracket, they can benefit from tax savings of up to $2,736. As such, their total basic net outflow for the HDHP plus maxing out the HSA is $19,266. 

So, they get the health insurance plan for the family AND they direct $8,550 into a highly tax-advantaged investment vehicle to benefit them down the road.

Key Assumptions

  • Federal Tax Bracket: 32%
  • 2025 HSA Family Contribution Limit: $8,550

PPO Total Annual Outflow

  • Total Premiums: $1,700 x 12 = $20,400

HDHP w/ maxing out HSA Total Annual Outflow

  • Total Premiums: $1,121 x 12 = $13,452
  • Federal Tax Savings of HSA Contribution: $8,550 x 32% = $2,736
  • Total Premiums PLUS Net HSA Contributions: $13,452 + $8,550 – $2,736 = $19,266

Remember: HSA contributions = tax savings + potential for long-term investment growth (in addition to having these pre-tax dollars available for medical expenses if needed). The amount saved in taxes should absolutely be factored in when comparing the total cost of your various health insurance plans.

Are you optimizing your employer-provided life and disability insurance?

Life and disability insurance are often offered in two flavors: basic and voluntary (or some variation of these). For life insurance, the base amount is typically something like $50,000 or an amount equivalent to your annual salary and is sometimes paid for by the employer. However, they may make it relatively easy to get additional voluntary or supplemental coverage if needed – at a cost to you. On the disability insurance side, many companies will provide and pay for coverage that replaces around 50-60% of an employee’s income. In plenty of circumstances, this percentage will be capped at a monthly dollar amount (for example, the policy may replace 60% of an employee’s salary up to $5,000). In these instances, the actual amount of income replacement for higher earners ends up being less than that 50-60% mark. Some employers will then allow you to secure more disability insurance coverage on top of the base amount – again, at a cost to you.

Here’s how we think about the employer life insurance:

  • Beyond whatever is given to you for free, we favor getting any additional needed coverage through a personal policy for two main reasons:
    • If you’re relatively healthy, it will probably cost less over the long term than employee-paid group coverage through your employer.
    • The policy is yours – it doesn’t stay with your employer if you leave as is often the case with those group policies.
  • If needed, voluntary group coverage through your employer CAN be worth going for if you’re someone with certain health issues that may make it difficult to qualify for life insurance.
    • Employer life insurance usually comes with an easier qualification process (underwriting) compared to the much more comprehensive medical questionnaire/exam involved with personal policies.

And here’s our take on the employer disability insurance:

  • You should have 60% of your income protected by disability insurance. If the basic employer coverage doesn’t fully take care of this, supplemental coverage will be necessary.
  • To fill any gap, voluntary supplemental disability coverage through an employer policy is typically more cost-effective than getting it privately. However, the employer policy is often limited in its actual definition of “disability”, making it less likely to pay out in certain situations. 
  • For some, this will be fine and is the recommended route to get fully covered – especially given the lower cost.
  • If you’re in a more specialized field (such as a surgeon), we recommend getting disability coverage with a personal policy – that way it’s totally customized to your specific needs and is portable (goes with you if you switch jobs).

Is there a legal benefit available to help you cost-effectively get estate documents in place?

Estate planning anyone?? If you’re in need of a will and other important estate documents, take a close look at your benefits package. Some employers offer rather cost-effective paths to getting these important documents secured. Since this isn’t as familiar as a 401k or health insurance, I’ve seen many situations where someone didn’t realize this was on the table for them.

Good reminder to double-check beneficiaries

Speaking of estate planning, Open Enrollment is a good time to confirm all of your beneficiaries are listed as intended. Specifically, you’ll want to check on your workplace retirement plan and life insurance. We recommend having a secondary level of beneficiary(ies) in addition to primary.

Are you paying for benefits you don't actually need? (those unnecessary insurances)

I’ve come across multiple instances where someone cast a wide net with their initial enrollment and checked the box for everything. They said, “I’ll have one of everything.” While this is more favorable than signing up for zero benefits, it’s probably not the most optimal setup for you. There are certainly offerings that aren’t necessary for everyone. Reviewing these and trimming any unneeded benefits can help to save money with each paycheck. 

There might be new benefits being offered (or some that are going away)

Employers can change things up from year to year in the form of new offerings or eliminating certain options. As this has a direct impact on your household, it’s important to be aware of such adjustments and update your benefits accordingly.  

Benefit packages are getting more creative

Did you get a new furry friend this year? You might have pet insurance available to you.

Are you hoping to grow your family? Some companies are even offering IVF benefits.

More and more, employers are providing “lifestyle” type benefits to help retain their talent. This could include valuable perks like reimbursements for gym memberships, professional development support, financial wellness assistance, and so on.

Get the Most Benefit from Your Benefits

Here’s what to do:

  • Confirm your enrollment period start and end date
  • Mark your calendar
  • Review the benefits at the start of the window (or earlier), to give yourself time for any adjustments
  • Coordinate with your spouse’s benefits
  • Check with your financial planner to be sure it all makes the most sense
Linkedin Instagram Facebook
Fiduciary, fee-only, Certified Financial Planner, Eddy Jurgielewicz

Eddy Jurgielewicz, CFP® is a Partner and Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.