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Good news: Suspended 401 (k) matches are being restored

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In this awful year, here’s some good news: Scores of companies that reduced or suspended 401(k) contributions to employees during the pandemic are restoring them.

The cuts and suspensions, made last winter and spring in an attempt to preserve cash, reflected a general corporate priority to preserve jobs and health care benefits, says Joy Napier-Joyce, head of the employee benefits practice at the law firm Jackson Lewis.

Read: Confused about Social Security — including spousal benefits, claiming strategies and how death and divorce affect your monthly income?

But now, “The majority of the companies that I work with that reduced or suspended their match have put the match back in place,” Napier-Joyce says, while others will resume on Jan. 1.

Of 260 companies that cut or halted 401(k) matching contributions during the downturn, 75% have now restored them, says consulting firm Towers Watson. Of these, 74%, reinstated matches at prior levels, 23% restored matches at a lower level and 3% boosted them.

Read: The government suspended required minimum distributions — should you take one anyway?

“It’s reassuring that companies are trying to do the right thing,” Napier-Joyce says.

Of course, the absence of company contributions over the past few months could have a long-term effect on employee next eggs, given the tremendous stock market run that has occurred since the market lows of nine months ago. Since bottoming out in late March, the S&P 500
SPX,
+0.50%

 is up about 63%. That’s a sizable gain that some workers missed, and “nothing can be done about that,” Napier-Joyce says.

The question going forward, however: We’re clearly in the middle of a new wave of the pandemic, with new cases and deaths soaring even beyond what the country suffered through in the spring. Are companies being too hasty in restoring 401(k) contributions?

Read: 10 retirement lessons from a retired retirement pro

Napier-Joyce doesn’t think so.

In the spring, “We had no idea what was coming our way, how long it would last,” she says, so companies “took a conservative and thoughtful approach to batten down the hatches if you will.” She says companies have since learned to adjust and can probably ride out this current resurgence of the virus, particularly given the very good news on the vaccine front.

The suspension of matching contributions by so many companies has served as a difficult reminder to workers that the primary responsibility of saving for retirement lies with them. Two of the nation’s biggest asset management firms, Pennsylvania-based Vanguard Group and Boston-based Fidelity Investments, which manage $5.7 trillion and $3.3 trillion respectively (as of January 2020), each recommend that individuals save between 12% and 15% of their salary annually if possible. But most people don’t. Vanguard says the average 401(k) contribution was 7% of pay in 2019, a figure that rose to 11% when employer contributions were included. The firm says only 21% of 401(k) participants save more than 10% of their salary for retirement.

The long-term dearth of retirement savings helps explain why so many Americans remain unprepared for their “golden years.” The average U.S. household in the 55-64 age group, for example, has retirement savings of $408,420, according to a 2019 survey. But the median figure is far more ominous: $134,000. Remember, median means half have less than that.

How much will $134,000 generate? The answer: Not nearly enough.

So it’s no surprise, then, that the Federal Reserve estimated in May that only half of Americans aged 60+ felt that they were on track for a decent retirement. In the 45-59 age group, 44% felt this way.



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Galaxy Digital’s Mike Novogratz explains the outlook for crypto as Coinbase goes public.





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My fiancée’s mother asked us to raise her 2 kids, as we live in a good school district and she has a gambling addiction — then she claimed their stimulus checks

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Dear Quentin,

Last year, in February, my fiancée’s stepfather passed away. After his passing, my fiancée’s mother asked both her and me to raise her younger sons, as we had recently purchased a new home, have degrees and will be able to provide a great area for their education, such as help with homework and the ability to communicate with their schools or doctors. My fiancée’s mother cannot read, write or speak English, and she has an addiction to gambling at casinos.

COVID-19 hit soon afterward. We both were let go from our jobs, and are making it by with unemployment and savings.

With that said, in March of this year, we filed taxes and my fiancée claimed both of her brothers since they had lived with us for almost nine months of last year. We received both of their stimulus payments a few days later. About three weeks later, we found out that my fiancée’s mother had also received the stimulus payments, even though she is adamant that she did not claim her children this year.

Upon seeing the money, I advised her to leave the money as the Internal Revenue Service may eventually ask for it back. Her new boyfriend then quickly told her to withdraw it anyway. They’ll deal with it later if the IRS asks for it, he said.

My question is: Will this situation hurt my fiancée and me in any way? I fear that the IRS may find out sooner or later about the error and seek the money from us, as her mother may have already gambled away that stimulus money, and make us pay for it even though we are using it as it was intended: for bills and necessities.

Fiancé

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Fiancé,

You are correct. The IRS will eventually ask for that money back, and it will likely do so by deducting the money from a future tax refund. You are also correct that your de facto mother-in-law should not spend the money. I take my hat off to you for raising these two children, and giving them a stable home and the head start in life that they deserve.

Many people in such a situation would write complaining about how they did X, Y and Z, and their in-laws were ungrateful. But you have taken the high road, knowing that these shenanigans are between you two and your fiancée’s mother, and do not involve your girlfriend’s two younger siblings. I am glad that you have not involved them in this somewhat messy situation.

You, of course, have done the right thing. The Moneyist column has dealt with dependents who claimed the stimulus, and parents who are not guardians of their children collecting it. The $1,400 economic stimulus payment, as you are aware, is not a loan. This third stimulus check is an advance tax credit on your 2021 taxes, and calculated based on your 2020 taxes.

If the IRS does not know who is telling the truth here, it will audit both parties. The truth will come to light eventually, and your fiancée’s mother and her boyfriend should be made aware that you are not in a position to help bail them out of this situation. They have knowingly walked into it, and there should be a clear boundary between helping her children and being a facilitator to this malfeasance.

The IRS has extensive guidance on what to do when someone fraudulently claims your dependent. “If you determine the other person was not eligible to claim your dependent, you’ll need to take steps to protect your right to claim the dependent and ensure an accurate filing,” it says. You have everything you need to know in order to take proactive steps here.

I leave that for you to decide.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

Hello there, MarketWatchers. Check out the Moneyist private Facebook
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 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.



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I’m on track to retire at 58. My fiancée is in debt and drives my old car, and I support her family. How do I ensure my son inherits my wealth after I die?

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Dear Quentin,

I have dated my fiancée for just over three years. Within those three years, I have been severed from a job and spent two years unemployed looking for a new job. I have a new job, making roughly 75% of what I previously made, but it is a more than livable salary. My fiancée makes a modest salary in comparison to my own.

Financially, I had spent a lot of years going without in order to pay for my son’s college education and to stockpile savings in order to retire early. According to my financial planner, I am well ahead of my goal to retire at 58 (I’m 51 currently) with an IRA of around $2 million, plus savings and other liquid assets.

Currently, my fiancée is trying to get herself out of debt. She drives my old car and shares no utility bills or mortgage payments, but she does buy groceries, as the household is made up of her, her children and me. By supporting her family, I have very little I can do for my own son.

It has always been tradition in my family to leave an inheritance. I had planned on leaving my only son a rather large inheritance so that he may better himself and his family. My fiancée has children, and my concern is that if I am married (I live in Texas), the savings I have would go to her and subsequently her children, bypassing my son.

Since I am 10 years older than my fiancée, I suspect she may outlive me. How do I protect my assets so that they can be split as part of my wishes?

Nervous Fiancé and Father

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Want to read more? Follow Quentin Fottrell on Twitterand read more of his columns here.

Dear F & F,

Texas is a community-property state, so what you bring into the marriage, you also take out of the marriage. Assets accrued during the marriage, with the exception of inheritance, are deemed marital or community property.

You have several options, including setting up a living trust to allow you to transfer your wealth to your son during your lifetime, and thereby avoiding going through probate, which can be an unpredictable, cumbersome and public process.

You have two choices of trust: revocable or irrevocable. The first can be changed. You could retitle financial accounts in your son’s name. The latter cannot be changed, and also serves to save on estate taxes. It’s typically used to leave assets to children and grandchildren.

Other routes: a prenuptial agreement, a will (obviously) and naming your son as your beneficiary on your life-insurance policy. With the help of an estate planner, you can devise ways to ensure your son is taken care of after you’re gone, and your future wife is not left out.

In the meantime, ensure you keep separate property separate. If you deposit an inheritance in a joint bank account, for instance, it becomes marital property. If your fiancée contributes to the renovation of a home in your name, it again becomes community property.

Speak to your fiancée about your concerns and goals. It’s important to be transparent and ensure that you and she are on the same page, and share the same financial expectations. You may also want to wait until your wife pays her debts before marrying.

Hello there, MarketWatchers. Check out the Moneyist private Facebook
US:FB
 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.





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