Your Office’s Personal Financial Planning Expert

Just like everyone thinks being a CPA makes you an expert on income tax, CPAs in business are increasingly seen as the office personal financial planning expert. You get asked all sorts of questions.

Should I invest in the company 401(k)?
How much should I invest?
Which funds should I invest in?
Should I use the Roth 401(K) feature?

Saying you don’t know or aren’t qualified to give advice doesn’t work.  It either undermines your expertise which carries over to other aspects of your job, or it leaves your colleague thinking you know secrets you are unwilling to share which chips away at trust which is critically important to getting things done efficiently and effectively in business today.  This leads me to a few things I think every CPA in business should do.

First, understand your company’s 401(k) and other benefit plan options.  You should be doing this anyway for yourself, so there is no extra work here.  Second, take the 5 minutes to answer the questions.  My answers, which I will go through below, may seem obvious to all of the CPAs out there, but they aren’t to many of your co-workers.  And that is the point.  Even your basic level of knowledge is priceless to many of them.  Their expertise is not in numbers and financial information.  Yours is.  So here is how I answer the questions.

Should I invest in the company 401(k)?  If the company has a match the answer is almost always yes.  The only time it would be no is if the fee structure is truly awful and if that is the case maybe you need to be pointing out to the plan fiduciaries that they have work they need to do.

How much should I invest? At least enough to get the company match.  If you can’t get there in one step then start with anything and increase each year – especially if you get a pay raise.  You take a portion of that pay raise and put it to the 401(k) and you’ll never miss it because you never got used to having it in the first place. 

Which funds should I invest in?  This one gets tricky because this is where you start giving actual investment advice.  Depending on your position in the company, you may have legal hurdles on giving advice, but everyone else can usually be safe giving a couple of general statements.  First, do not invest in the company stock fund if one is available.  Almost everyone already has too much dependent on the company (can we say base salary and bonus).  Your retirement fund is not a place to increase that exposure.  The second piece of advice for most people is to invest in the lowest cost funds available which almost always are index funds.  I’m always amazed at how many funds purported managed by experts paid millions for their insight underperform the market.  I recommend not trying to outperform the market, but instead control the one thing you can control and that is the cost side. This also helps me get out of the conundrum of recommending a specific fund.

Finally, should I use the Roth 401(k) feature (if it is available)?  This one really gets complicated.  Assuming similar or increasing tax rates – under our same tax system – the answer for anyone under 55 is use the Roth feature, but that is just math so I go in a different direction.  I tell them that the Roth feature is great if you think we will have an income tax system like today’s for the rest of your life AND you can at least invest the minimum amount needed to get the full company match without the tax benefit today.  If they need the tax benefit today to get the full match, I say do that first and then if they want to use the Roth feature move future investments to the that feature instead of increasing the amount withheld.  I also warn them that the Roth is only as good as you think the Politicians will be in keeping their hands off your money.  If you worry about that, then maybe you should take the tax benefit today and deal with whatever taxes you end of having to pay in the future.  The point is that a Roth decision is more than just math – you are also making a bet on future tax policy and that needs to be part of the calculation.

Four questions, four answers.  And now you look like the expert you are. So go out there an help your fellow employees enjoy a brighter financial future.

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