Supporting Financial Literacy in Young Professionals
Young professionals just entering the workforce must learn to balance immediate financial demands with long-term goals. Building financial literacy is a critical foundation for long-term success. You have the opportunity to help your employees build strong habits for a healthy journey toward retirement. Here are five ways you can help guide younger employees toward a firm financial foundation.
Begin with a Budget
About a quarter of millennial and Gen Z workers don’t know how much they need to save to retire comfortably. Establishing a realistic budget is a great first step in working toward long-term savings goals. As an employer, you can offer resources to help employees build a straightforward spending plan that includes saving for retirement and health care expenses.
Emphasize Saving Early
Young professionals have the advantage of a long savings horizon. Help them understand the importance of establishing savings habits early to capture the power of compound interest over time. Aside from the company retirement plan, though, there are other vehicles to support financial goals – like health savings accounts (HSAs).
Educate on Health Savings Accounts
A successful savings approach considers possible medical expenses. HSAs offer trip tax savings and can be used to pay for current eligible health care expenses. But unused funds roll over annually to cover future medical expenses, offering employees a dedicated pool of savings to help them prioritize wellness right into retirement. Despite their clear benefits, there’s still tremendous opportunity to help young professionals engage with their HSAs more fully – nearly one-third of employees under 30 are not contributing anything. Employer contributions can help encourage young professionals to contribute as well. Encourage employees to monitor their accounts and make incremental changes until they are maximizing their HSA contributions.
Promote Building an Emergency Fund
While saving for retirement is crucial, it is equally important to have liquid savings for immediate, unexpected expenses. Encouraging younger employees to establish an emergency fund ensures they have a financial cushion for unforeseen circumstances like a medical emergency or job loss. Challenge them to save three to six months’ worth of living expenses in an accessible account. This reduces the risk of dipping into long-term savings and provides financial security.
Make Wellness Part of Workplace Culture
Gen Z has the least positive life outlook and may be less proactive overall in seeking care. Encourage your younger employees to make routine care a priority and help them understand their role in paying medical expenses. Help them establish wise habits to build their financial literacy and take control of their personal goals.
What is a health savings account?
A health savings account (HSA) is a tax-advantaged way to save for qualified medical expenses. Because it offers potential tax advantages and money within the account can be invested, an HSA can be used to pay for both near-term medical expenses and expenses in retirement. HSAs are portable, meaning they move with you when you change employers. An HSA has triple tax advantages:
• Your pre-tax contributions reduce your taxable income (if you choose to fund your account with after-tax contributions, you may be able to take a deduction when you file your taxes)
• The money isn’t taxed while it’s in the account, even if it earns interest or investment returns
• As long as the funds are used for qualified expenses, you won’t owe taxes when you take money out of the account
PRO TIP – After reaching age 65, you can withdraw money from your account for any reason at all without paying a penalty; this will be considered taxable income, though, so you’ll pay taxes on these types of withdrawals.
How does it work?
An HSA must be paired with an HSA-eligible health plan. Once you’re enrolled in this type of health plan, you can make pre-tax contributions to the HSA, creating a cash cushion to help offset the higher deductibles HSA-eligible health plans usually have.
If you don’t need the money right away, you can save it until you do. Many HSAs allow you to invest the money after reaching a certain threshold. (These features set HSAs apart from another popular account, the flexible spending account (FSA). FSA money typically has to be used by the end of the plan year, can’t be invested, and can’t be taken with you to another employer.)
Your employer may make matching contributions to your HSA, so be sure to ask – you won’t get a tax deduction on what your employer contributes, but this extra money has the potential to grow over time if invested.
What’s a qualified medical expense?
Generally, qualified expenses include things big and small, from ongoing costs to unexpected ones, including doctor visits, medications, X-rays, medical equipment, dental care, vision care, and much more. IRS Publication 502 explains the expenses in detail.
What are the contribution limits?
Contributing to your HSA early and investing those savings can help you better afford medical care in the future. Pay attention to the annual contribution limits:
• In 2024: $4,150 (individual coverage) / $8,300 (family coverage)
• In 2025: $4,300 (individual coverage) / $8,550 (family coverage)
Keep in mind: if you are at least 55 years old, you can contribute an additional $1,000 annually.
These limits include employer contributions, so make sure you know how much is being contributed in total.
Do you still have questions?
When planning for your future healthcare expenses, it’s important to understand how your HSA might pair with what you’re saving in your company’s retirement plan. To dig into the details of your personal situation, call the Shepherd Financial team at 844.975.4015.
Understanding Forfeiture Accounts
People are generally most familiar with the plan’s investment options that are part of the plan’s core lineup. However, other plan assets for which plan sponsors have a fiduciary responsibility include the revenue credit account and forfeiture account. The names of these accounts may vary across different recordkeeping platforms.
Forfeiture Basics
Employee contributions are always 100% vested, meaning they belong to the employee when they leave. However, employer contributions may be subject to a specified vesting schedule, which determines when an employee gains ownership of any employer contributions. The forfeiture account is where these employer contributions are held when an employee leaves the company before becoming fully vested in those contributions.
Employers have the choice of how they want to use these funds. It is important to make sure the plan document, as well as any other plan documentation, specifies how the funds can be used. It is also critically important to ensure any plan documents align with what is actually happening. Common uses of the forfeiture funds include:
• Plan Expenses: Covering administrative costs associated with managing the plan.
• Employer Contributions: Reducing future employer contributions that the company needs to make to the plan.
• Reallocation to Participants: In some cases, the forfeited amounts can be reallocated among the remaining plan participants in a nondiscriminatory manner.
Proposed Regulation and Timing
As a practical matter, most plans try to spend the revenue credit account and forfeiture account within the plan year in which the funds were generated or, at the latest, by the end of the following plan year. This was formalized in 2023, when the Internal Revenue Service (IRS) proposed a regulation for defined contribution plans to require that forfeitures must be used no later than 12 months after the close of the plan year in which the forfeiture is incurred. While this remains a proposed rule, the timing guidelines should be followed.
Action Items for Plan Sponsors
• Understand where all the plan assets are even if those funds are not in the core investment lineup; this extends to holding accounts including the revenue credit account and forfeiture account.
• Determine how the forfeiture account can be spent as identified in the plan document or other governing documents and policies for the plan.
• Ensure the plan’s operation aligns with the plan documentation, including as it relates to how to spend forfeiture dollars.
• Determine a procedure to ensure forfeiture dollars are spent within the plan year in which the funds were generated or, at the latest, by the end of the following plan year.
Tips to Improve Your Credit Score
Keeping up a solid credit history and good credit score is a bit like staying in shape – you have to work at it regularly to stay at the top of your game. If you wanted to run a marathon, you wouldn’t wait to start training until it was a month away. Similarly, you don’t want to neglect your credit until you’re about to apply for a major loan.
Instead, try to incorporate good credit habits into your regular financial routines. That way, if or when you need to apply for new credit, you should already be in a strong position. Below are eight habits to consider adopting to help raise your credit score.
1) Never Miss a Bill Due Date
Paying your bills on time is the cardinal rule of maintaining a good credit score. That’s because your payment history (meaning whether you’ve paid your past credit card and other loan bills on time or not) is typically one of the most important contributing factors to your credit score.
If you have trouble staying on top of bill dates, consider enrolling in autopay, registering for billing alerts, or creating a reminder system.
2) Keep Your Balances Low
If you have revolving lines of credit, such as credit cards or a home equity line of credit, try to make sure you only use a portion of the total credit available to you. One rule is to make sure your outstanding balance is never more than 30% of your credit limit, like staying at or below a $3,000 balance on a credit card with a $10,000 limit. This ratio is called your credit utilization, and it’s typically another important contributing factor to your credit score.
3) Think Twice Before Closing Old Cards
Another contributor to your credit score is the average age of your credit accounts. The longer the average age, the better for your credit (because it shows you have more experience managing debt and means lenders have a longer track record for you to evaluate). That’s why it may make sense to keep old credit cards open, even if you don’t actively use them anymore. However, closing a card could still be the right move if it charges an annual fee or if keeping it open creates a temptation to overspend.
4) Be Cautious About New Loan Applications
When you apply for a new credit card or loan, the issuer or lender will generally make a hard inquiry into your credit. These inquiries hurt your credit, though they typically only affect your credit score for a year (and stay on your credit report for only two years).
You can help reduce the negative impact of hard inquiries on your credit by thinking twice about opening new credit cards, avoiding hard inquiries if you’ll be applying for a major loan soon, and being efficient when rate shopping.
5) Consider a Well-Rounded Credit History
To reach a top-tier credit score, it can help to show that you have experience with a variety of types of credit – such as credit cards, auto loans, mortgages, and home equity loans – instead of only one type (such as only credit cards). This doesn’t mean you should borrow money that you don’t need. But if taking on a new type of loan makes sense within your broader financial plan, know that it might also benefit your credit over the long term.
6) Check Your Credit Report Regularly
You’re entitled by federal law to a free annual credit report from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. When you check your report, keep an eye out for anything amiss, such as incorrect account details, overlooked past-due accounts, and evidence of fraud or identity theft. Consider checking one report every four months to keep regular tabs on your credit.
7) Dispute Any Errors You Find
If you do ever find incorrect information on your credit report, try to get the information corrected by filing a formal dispute with the credit reporting agency and pursuing the issue with the relevant creditor. Although the process might take some legwork, it can be worth it to make sure your credit history provides a fair and accurate picture of you as a borrower.
8) Keep Your Overall Finances in Shape
It can be easier to stay fit when you lead a healthy lifestyle. Similarly, it can be easier to maintain a good credit score when you keep other areas of your finances on track. To adopt a healthy financial lifestyle, consider following a budget, avoid getting overstretched by debt, and making sure you have an adequate emergency fund.
National Estate Planning Awareness Month
October is National Estate Planning Awareness Month. Have you created or updated your estate plan?
Plan for tomorrow (today).
That seems like sensible advice, doesn’t it? Yet a surprising number of people leave no estate plan in place for their survivors. It makes a certain amount of sense. Nobody likes talking about death. But this is exactly why you should make an effort to create and maintain an estate plan: you simply won’t be there to settle matters when the time comes.
Everyone has an estate.
Someday, it will be someone’s job to account for the things you leave behind when you die. This goes for homeowners and renters, those who are retired, those who are working full-time, and everyone from every walk of life.
Everyone needs an estate plan.
Without your instructions, it could be decided in court. If you don’t leave behind an estate plan, your family could face major legal issues and, potentially, bitter disputes. Your estate plan may include wills and trusts, life insurance, disability insurance, guidance on the care for children and other dependents, powers of attorney, a living will, medical directives, anatomical donation directives, a pre-or post-nuptial agreement, extended care insurance, charitable gifts, debts, passwords, digital assets, and more.
Why not just a will?
While your will may state who your beneficiaries are, they may still have to seek a court order to have assets transferred from your name to theirs. Estate planning can include items like properly prepared and funded trusts, which could help your heirs to avoid probate. Probate can be an expensive process and lock up assets during the time they’re needed most.
Beneficiary designations on qualified retirement plans and life insurance policies usually override bequests made in wills or trusts. Many people never review the beneficiary designations on their retirement plan accounts and insurance policies, and the estate planning consequences of this inattention can be serious. Having an estate plan means keeping the estate plan updated, as time passes or changes happen in your family.
Where do you begin?
We recommend that you speak with a qualified financial professional – one with experience in estate planning. Please contact us so that we can refer you to a good estate planning attorney and a qualified tax professional, and from there assist you in drafting your legal documents.
The Department of Labor Reiterates Focus on Cybersecurity
The US Department of Labor (DOL) issued a press release on September 6, 2024, reminding ERISA plan fiduciaries that it considers cybersecurity to be an area of ‘great concern,’ emphasizing the DOL will continue to investigate potential cybersecurity-related ERISA violations. The press release accompanied guidance which updated the DOL’s 2021 cybersecurity guidance; most significantly, it clarified the 2024 updates apply to all types of ERISA plans, including health and welfare plans.
Background
The DOL issued three pieces of guidance in 2021 intended to address the intersection of cybersecurity and ERISA-covered plans. Each piece of guidance was addressed to a different audience:
- Online Security Tips was addressed to ERISA plan participants.
- Tips for Hiring a Service Provider with Strong Cybersecurity Practices (Hiring Tips) was addressed to ERISA plan fiduciaries.
- Cybersecurity Program Best Practices (Best Practices) was addressed to ERISA plan vendors and fiduciaries selecting and monitoring such vendors.
The 2021 guidance was framed only in terms of retirement plans, but it could be read to cover all ERISA plans.
2024 Updates
Outside of clarifying that the DOL’s cybersecurity guidance applies to all ERISA plans – retirement plans and health and welfare plans alike – the 2024 updates were limited:
• In Online Security Tips, the 2024 update tweaked the frequency with which it recommends participants update their passwords (changing it from 120 days to annually), clarified participants should not use common passwords (as opposed to stating they should not use dictionary words), and suggested participants favor longer passwords instead of more frequent resets.
• In Hiring Tips, the 2024 update clarified ERISA plan fiduciaries should ensure their vendors’ insurance coverage covers cybersecurity breaches and incidents involving the plan.
• In Best Practices, the 2024 update indicated ERISA plan vendors who follow these best practices should adopt certain multifactor authentication processes, as well as notify participants of unauthorized acquisition of their personal data without unreasonable delay.
The Bottom Line
Despite the limited scope of the 2024 updates, the takeaway is clear: the DOL continues to see cybersecurity as a top priority, and all ERISA plan fiduciaries (including those overseeing health and welfare plans) should be prepared for the DOL to investigate the steps taken to mitigate their plans’ cybersecurity risks.
In light of this clear message from the DOL, fiduciaries and service providers to ERISA plans (that have access to data and or assets) may want to consider evaluating the plan’s cybersecurity regime, such as through a cybersecurity self-audit, adoption of a cybersecurity policy, or through other improvements to the cybersecurity and or monitoring processes.
For group health plans, this can be done in conjunction with the self-audits that must be conducted to develop those policies and procedures required under the HIPAA Privacy and Security Rules. Final Rules issued under HIPAA earlier this year require group health plans to update their HIPAA privacy policies and procedures and provide associated workforce training by December 22, 2024.
If you need assistance with such process improvements, or have any questions about the impact of this guidance or fiduciary oversight of cybersecurity risk, please contact the Shepherd Financial team.
Saving for Holiday Spending
It can be easy to go overboard on holiday spending and start the new year feeling overwhelmed by credit card debt.
You’re not alone – 70% of Americans say they feel stressed about their expected holiday spending.1
So now is the perfect time to create your financial plan for the holidays! Follow these tips to save for purchases and avoid overspending during the holiday season.
Create your holiday budget
• Determine your gift recipients (remember, you don’t have to buy something for everyone!)
• Project how much you plan to spend on gifts – it might help to look at what you spent last year.
• Don’t forget to include other holiday expenses, like charitable donations, food, clothing, and travel.
Start saving now
• Designate a savings account for holiday spending.
• Calculate how much money you need to set aside each week to hit your spending goal in time for the holidays.
• Set up an automatic savings plan to transfer money from your checking account into this savings account.
Make a plan for paying off your debt
• If you use a credit card for holiday spending, make a plan to pay off the balance before any interest charges are assessed.
• If you know it will take longer to pay off your balance, add that amount to your everyday budget so there’s a clear plan in place.
Avoid overspending
• Track your spending and stick to your limits – once you reach the limit you set, stop!
• Curb your impulse spending by only buying what’s on your list.
• Look for coupons, codes, and deals – you may be able to save money just by keeping your eyes open!
• Identify how to trim travel expenses – can you save money by driving instead of flying?
• Consider gifts that either don’t cost money or cost less – think about a baked goods exchange with groups of friends or giving the gift of your time.
1 https://dadavidson.com/News/ArticleID/3761/D-A-Davidson-Survey-Reveals-Credit-Card-Debt-and-Financial-Stress-Are-on-The-Rise-This-Holiday-Season
National Life Insurance Awareness Month
September is National Life Insurance Awareness Month, so it’s a great time to review your coverage.1 If you don’t have any life insurance, you’re not alone. Life insurance is one of those ‘someday’ things for many people, but the cheapest time to buy it is probably today.
There are two kinds of life insurance: term and permanent. Additionally, there are three kinds of permanent life insurance: whole, universal, and variable.
How do these forms of life insurance differ, and how do you find out which type of coverage is right for you? The way to find out is to look at where you are in life, so that you can assess your current insurance needs. Have you reviewed your insurance lately? Don’t think you need life insurance? If so, consider the following potential factors that may make it a good idea:
You have a spouse or partner
You have children
You have an aging parent or disabled relative who depends on you for support
Your household depends heavily on your income
Your retirement savings or pension won’t be enough for your spouse or partner to live on should you pass away
You own a business, either solely or with partners
You have a substantial joint financial obligation, such as a personal loan for which another person could be legally responsible after your death
In any of these circumstances, you may require life insurance. If you have coverage, changes in your life may demand an update.
The affordability of life insurance may surprise you. Many people think it is expensive, and so often, it is not. A 20-year term life policy with $500,000 in death benefits can cost you less than $70 a month.2 Life insurance is intended to help your loved ones financially after you die. The proceeds from a life insurance policy may help your spouse, partner, or family members manage finances if they have to adjust to life without your income. The death benefit may also be used to meet funeral costs and other final expenses, which may run into the tens of thousands of dollars.
Are you still unsure about buying life insurance, or do you suspect that your current insurance coverage needs to be updated? Our team would be happy to assist you in evaluating all the factors and help you choose an appropriate policy.
1. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
2. ValuePenguin.com, 2023. Based on a male in excellent health.
SECURE 2.0: Catch-Up Contributions
With SECURE 2.0’s increased catch-up contribution limits set to take effect next year, it’s time for 401(k) plan sponsors to brush up on the rules and consider how to administer the changes. Under the current rules, 401(k) plans may allow participants to make catch-up contributions when they are age 50 or older. For 2024, the catch-up contribution limit is $7,500.
SECURE 2.0 creates a window of increased catch-up contribution limits for participants ages 60 – 63. Below are key questions 401(k) plan sponsors are asking about this change:
Are the changes mandatory?
Plan sponsors are not required to offer catch-up contributions. However, if a plan allows for catch-up contributions, it is important to check with the plan’s recordkeeper to determine whether or not opting out of the increased catch-up contribution limit will be permitted.
When do the changes take effect?
The new limits take effect for tax years beginning after December 31, 2024.
Which participants are eligible for the increased limit?
Participants are eligible for the increased limits for the years in which they attain ages 60, 61, 62, and 63.
What is the increased limit?
The increased catch-up contribution limit for eligible participants is the greater of: (a) $10,000, subject to cost-of-living adjustments starting in 2026; or (b) 150% of the limit in effect for 2024 (i.e., $11,250).
While the change seems straightforward, administration may be complex. For example, plan sponsors should consider how to track eligibility for the increased limits, in addition to tracking eligibility for regular catch-up contributions. Plan sponsors should also consider how to re-impose the lower catch-up contribution limits when participants age out of the higher limits. Employers may need to work with their payroll teams and update their existing processes (e.g., payroll codes) to implement these changes.
Finally, keep in mind that the increased catch-up contribution limits are separate from the SECURE 2.0 Roth catch-up rule for certain high-earning individuals, which the IRS delayed to 2026.
Essential Cybersecurity Practices
In an age where digital threats are just a click away, understanding how to protect yourself online isn’t just advisable – it’s essential. This guide is your first step toward mastering the essentials of cybersecurity, providing you with the knowledge to shield your personal and financial data from the evolving dangers of the digital world.
The Foundations of Cyber Safety
Embarking on a journey towards comprehensive cyber safety starts with mastering a few fundamental practices. By adopting the four simple steps outlined below, you can significantly enhance your digital security. These measures are designed to fortify your identity and sensitive data against the myriad threats that lurk online. Each step serves as a pivotal building block in constructing a robust defense for your personal and professional digital environments.
Multifactor Authentication (MFA)
Also known as Two Factor Authentication, Two Step Factor Authentication, MFA, or 2FA, they all refer to the same concept: choosing to add an additional verification step when trusted websites and applications require confirmation that you are indeed the person you claim to be when logging into their system. MFA adds a critical layer of security by requiring two forms of identification before access is granted. This method significantly reduces the risk of unauthorized access, even if a password is compromised, because the likelihood that an attacker also has the secondary authentication factor is minimal.
Regular Software Updates
Keeping software up to date is not just about accessing new features but primarily about securing devices from vulnerabilities that hackers exploit. Updates often include patches for security flaws that, if left unaddressed, could allow hackers easy access to your system. We recommend taking it one step further by enabling automatic updates on your operating systems, which will ensure you’re protected as soon as these fixes are available.
Think Before You Click
Over 90% of successful cyberattacks start with a phishing email. These deceptive messages are designed to look legitimate to trick you into giving away sensitive information or downloading malware. Always inspect emails for unusual language or out-of-place requests and verify the authenticity of the message through other communication channels if possible.
Use Strong Passwords
A strong password acts as the first line of defense against unauthorized access. Use long, unique, and randomly generated passwords for different accounts to prevent cross-site breaches. Password managers such as LastPass or 1Password can help manage the complexity of storing and remembering different passwords, enhancing your overall security posture while maintaining convenience.
Vigilance Against Phishing Attacks
Phishing attacks remain one of the most common and pernicious threats in cybersecurity. These attacks often involve fraudsters masquerading as reputable entities to deceive individuals into providing sensitive data.
Identifying Phishing Attempts
Phishing emails or messages often contain suspicious links, urgent requests for information, and slight inconsistencies in email addresses, links, or formatting. Being aware of the possible threat, along with recognizing the signs is crucial in avoiding phishing.
Preventative Measures
Handle unexpected requests for personal information with skepticism. If you receive such a request, do not respond immediately. Instead, verify the sender by contacting the organization through official channels, such as their verified contact number or email address found on their official website.
Education and Training
Educate yourself about the latest phishing tactics through online resources, safety courses, or webinars. Staying updated on new phishing strategies and learning practical tips can enhance your ability to protect your personal data.
Use of Technology
Employ reliable email filtering tools that can screen out suspicious emails. These filters can significantly reduce the number of phishing attempts that reach your inbox, adding an essential layer of security.
By proactively enhancing your knowledge, understanding the basics, and implementing these strategies, you can significantly lower your risk of falling victim to cyber attacks.