401(k) in Focus

In this issue

A Taxing Decision:The Difference Between Roth and Traditional 401(k)s

Quarterly Market Update from Fisher’s Investment Policy Committee

FAQ Check—What Happens to Your 401(k) if You Leave Your Job?

August 2016

®

401(k) SOLUTIONS

2 AUGUST 2016

®

401(k) SOLUTIONS

A Taxing Decision: The Difference Between Roth and Traditional 401(k)s

In 2006, changing IRS rules allowed employers to offer a

new 401(k) option. Now employees could decide to stay

on the well-worn traditional 401(k) path, or forage into

largely uncharted territory and place their contributions

into a Roth 401(k) account.

Fast forward to 10 years later and the path still isn’t

clear—many employees don’t understand the difference

between a traditional 401(k) and a Roth 401(k) account

and are confused about which they should choose. If

your plan offers a Roth option for your personal 401(k)

contributions—and not all of them do—grab a compass

and put on your explorer hat. We’re going to look a little

deeper.1

How 401(k)s are taxed may help you choose your path

Roth and traditional 401(k)s are great retirement savings

options. The key difference between a Roth and a traditional

401(k) account is the way each is taxed. If you contribute to

one, you’ll pay taxes up front. Send your contributions to

the other, and you’ll pay when you withdraw your money.

The trick is to figure out which path will benefit you more.

With a traditional 401(k) you:

Save tax-free now…When you initially decided to participate in your 401(k)

plan, you may have been drawn by the idea of paying less

in income taxes. In a traditional 401(k) account, the money

you contribute is deducted from your paycheck before

federal and state taxes are applied and does not count

as taxable income. At the end of the year, your W-2 will

show a lower Adjusted Gross Income (AGI), or less taxable

income, than it would have if you had not saved in your

401(k) account.

And pay your taxes laterHowever, when the time comes to withdraw money

from your traditional 401(k) account, the withdrawals

will be considered taxable income. You will have to pay

federal and state (if applicable) income taxes on your

withdrawals because you weren’t taxed when you made

your original contributions. All investment earnings from

your contributions will be taxed upon withdrawal as well

because they grew in your account tax-free.

1As is true with most legal and governmental issues, there are exceptions to the rules. You should discuss your specific situation with a tax advisor before making your own decision.

3AUGUST 2016

With a Roth 401(k) you:

Pay taxes now…On the other hand, in a Roth 401(k) account, your wages

are taxed before your contribution goes into your 401(k)

account, meaning your contributions are made post-tax.

At year’s end, your W-2 will reflect the entire amount you

earned for the year—not including any other deductions—

leaving your AGI unaffected by your 401(k) contributions.

And withdraw your money tax-free laterWhen you retire and withdraw money from a Roth 401(k)

account, your withdrawals will not be taxed or count as

taxable income because you paid taxes back when you

made your original contributions. And because you already

paid taxes, any investment earnings from a Roth 401(k)

account will not be taxed when you withdraw your money.

So which is better?

Making important decisions is seldom simple, and this is

no exception. You can start figuring out which path is right

for you by considering these three questions:

1. What do you expect overall income tax rates to be

when you retire and start taking withdrawals?

If income tax brackets are lower today than when

you retire, then the taxes you pay now on your

contributions will be less. That means you could

end up paying a smaller tax bill overall by choosing

to save in a Roth account. However, if tax brackets

are lower in the future, you could lose investment

earnings because your original investment amount

will be less. And less money invested could lower

your long-term earnings because less money is

gathering compounding interest.

2. Do you expect your personal income tax bracket

at retirement to be higher, lower, or the same as it

is now?

If your retirement income tax bracket will be lower

than your current tax bracket, you may be better

off saving in a traditional 401(k) account. But if

you expect to earn more in retirement than you

do today, you may also be required to pay more in

income taxes. In this instance, a Roth 401(k) account

may be a better choice, because your overall tax bill

could be less.

3. How old are you, and how long do you plan to be

invested in the market?

Younger employees who expect to be in the market

for a long time will likely see their wages and tax

bracket go up over the long run. Paying taxes early

with a Roth 401(k) at a lower rate may benefit these

folks. Older employees who make more and like

additional tax deductions may prefer a traditional

401(k). Call the Fisher 401(k) Help Desk to discuss

how time can affect your 401(k) choice.

There are many things to consider when choosing

between a Roth and traditional 401(k), like your age,

when you begin saving, federal and state income taxes,

your other investments, and changing life circumstances,

just to name a few. We urge you to explore this topic

further and discuss your situation with your tax advisor

today. Keep in mind that your decision doesn’t have to

be all or nothing—you can also choose to save in both

kinds of accounts, potentially reaping the benefits of each

strategy.

Which path will you take? The choice is yours.

4 AUGUST 2016

®

401(k) SOLUTIONS

Quarterly Market Update from Fisher’s Investment Policy Committee Q2’s finale didn’t lack drama, yet for all the wildness, global

markets rose 1.0% in the quarter.1 While there may be

volatility—both up and down—along the way, we expect

stocks to reward patient investors in 2016’s second half.

Many pundits bemoan “flat” market returns since mid-

2015, suggesting the seven-year-old bull market is running

out of steam. However, no bull market in history has died

of old age or because it lacked momentum. This line of

thinking is dangerous for investors—past returns and

market direction are never predictive—flat market returns

recently don’t foretell future flatness. Besides, the flatness

pundits bemoan is actually just the impact of 2015 and

early 2016’s correction, a not-uncommon occurrence

historically. Since 1930, the S&P 500 has had nine flat

periods exceeding 300 days during bull markets (including

the present).2 Eight of them included corrections.

Sudden, unforeseeable dips and corrections (short, sharp,

sentiment-driven dips exceeding -10%) are routine in bull

markets. Several have come and gone in this expansion,

rewarding those who stayed cool or bought while stocks

wobbled. Early 2016’s downdraft illustrates this perfectly.

While volatility can always come, we do not see a bear

market—a fundamentally driven, lasting decline of more

than 20%—drawing near. In the absence of a bear market,

we believe those needing equity-like returns on some or

all of their portfolios to reach their long-term goals should

maintain equity exposure. This, not timing myopic market

jumps and falls, is the best way to capitalize on stocks’

superior long-term returns.

Many remain stunned by Britain’s June 23 vote to leave the

European Union. Yet the media glare exaggerates Brexit’s

fallout. While markets gyrated immediately after the vote,

by day three they were recovering. At quarter end, global

stocks were down just -0.8% from their pre-Brexit level,

and US stocks -0.7%.3 UK stocks were up 2.8% in sterling.4

This wasn’t a crash, and we don’t believe Brexit will end

the global bull market.

Brexit’s primary near-term impact is political, not economic.

Headlines dwell on Prime Minister David Cameron’s

resignation, the wild race to replace him, and the chaos in

the opposition Labour Party. The tumult has many investors

on edge, but keeping a cool head is key. Stocks care about

policy and economics, not personalities. Most importantly,

Britain stays in the EU throughout exit negotiations, a

multi-year process that hasn’t begun, so little has changed

economically. The politicians who begin talks may not

even be those that finish them. The final agreement may

be great, or it may contain unintended consequences—it

is unknowable now. Importantly, though, talks will proceed

slowly and publicly, mitigating shocks.

5AUGUST 2016

Gradually falling uncertainty should lift stocks this year.

Brexit was a setback, but a temporary one—its impact

seemingly waning already. The near-term political

uncertainty it caused should fade with time.

Uncertainty over America’s election

has already fallen, as the field has

narrowed to two—Hillary Clinton

and Donald Trump. The Republican

and Democratic conventions mark

the official beginning the general

election—a stretch where stocks

typically do well, with America

outperforming non-US stocks.

As a reminder, our election analysis

is solely focused on the investment

implications over the next 12 to 18 months.

We have no favorite candidate or party and can paint

a scenario for either candidate winning. Historically,

election years have been better when Republicans win

and inaugural years have been better under Democrats,

but this year any resolution to the political circus may

reduce uncertainty and investor angst. Crucially, always

remember: Love or hate either candidate, they can’t do

much to impact markets unilaterally. Presidential power is

more limited than many think, and gridlock likely persists.

Also, candidates often promise big, only to backtrack

post-election. Watch what they do, not what they say.

Economically, most data points to reaccelerating US

growth, underpinned by healthy consumption, a strong

services industry, and improving manufacturing data. US

earnings fell less than expected in Q1, and the Energy

sector accounted for most of the decline. Energy’s drag

should wane as early-2015’s higher profits fall out of

the year-over-year comparisons. Looking ahead, The

Conference Board Leading Economic Index (LEI) is in a

long uptrend, suggesting growth should continue. Since its

1959 inception, no recession has begun when LEI is rising.

Most major foreign economies are growing.

Despite Brexit fears, UK economic data

were mostly expansionary throughout

Q2. After eurozone GDP accelerated

in Q1, newer data suggest growth

continues, countering lingering

debt fears and bank jitters. The

disconnect between Europe’s positive

fundamentals and negative sentiment

is bullishly wide. Commodity-heavy

nations aside, most Emerging Markets

are growing nicely, boosting global growth.

The lifting uncertainty fog should reveal a much

more positive world than investors appreciate. Negatives

exist, as always, but are too small or widely discussed to

end this bull market.

We know that election year jitters are common. If you

would like to learn more about the stock market, have

any questions, or need assistance with your 401(k), we

encourage you to contact your company’s Fisher Retirement

Counselor or call the Fisher 401(k) Solutions Help Desk at

888-322-7586.

-The Investment Policy Committee

While volatility can

always come, we do not see a bear market drawing

near.

1FactSet, as of 06/30/2016. MSCI World Index returns with net dividends, 03/31/2016 – 06/30/2016.2Global Financial Data, Inc., as of 04/28/2016. S&P 500 price returns, 01/02/1930 – 04/27/2016.3Ibid. MSCI World Index with net dividends, S&P 500 total return, 06/23/2016 – 06/30/2016.4Ibid. MSCI UK total return (in sterling), 06/23/2016 – 06/30/2016.

6 AUGUST 2016

®

401(k) SOLUTIONS

FAQ Check—Ask a Retirement Counselor What happens to your 401(k) if you leave your job?

One of the many decisions people face when leaving a

job is what to do with their retirement savings account or

401(k) account. Here are four options to consider:

Leave your balance in your current accountDepending on your plan requirements, you may be able to

leave your money in your 401(k) account after terminating

employment. If your previous company’s plan has good

investment options, you may choose to leave your money

where it is. However, most 401(k) plans have minimum

required balances—if you don’t meet the minimum, you

may be forced to withdraw your funds. Contact your

company’s 401(k) plan representative to learn more about

your options.

Rollover your balance to your new company’s retirement accountTo determine if this is a good option for you, examine

your new company’s 401(k) to ensure that it offers

diversified investment options, preferably at a lower cost

than your current plan. Rolling your balance(s) into your

new employer’s plan will also mean you only have one

investment strategy to monitor.

Rollover your balance to an Individual Retirement Account (IRA)IRAs occasionally offer more investment options than an

employer-sponsored plan. However, this flexibility may

come at a cost. IRAs often cost more per year, typically

charging maintenance and trade fees not usually associated

with employer-sponsored plans.

Withdraw your balanceDue to taxes and penalties, this is the least favorable

option. For starters, your withdrawal will be taxed at the

ordinary income tax rate and considered part of your yearly

income, potentially raising your taxes. Also, distributions

taken by employees under 59½ are subject to a 10 percent

early withdrawal penalty from the IRS. Because of the costs,

withdrawing your balance should only be considered as a

last resort.

There are many things to consider when deciding what

to do with your 401(k) balance when you terminate

employment. If you’re contemplating which option is best

for you, contact your Fisher Retirement Counselor. We’re

here to provide you with the education and support you

need to make an informed decision.

About Tim KroonTim Kroon joined Fisher 401(k) Solutions in 2016. He is dedicated to providing quality investment education and has spent more than 14 years helping clients and employees prepare for their financial and retirement goals.

Tim earned his B.S. in Business Administration with dual concentrations in Finance and Accounting from the Charles H. Lundquist School of Business at the University of Oregon.

7AUGUST 2016

Back to School Saving Basics

Heading back to school can be expensive. In 2014, U.S. families spent an average of about $669 on school supplies, clothing, and technology.* How can you cut your back to school spending and reclaim money for your retirement savings? Here are some handy tips:

1. Review what you have. Start off on the right foot—sort and identify what your kids have, what still fits, and what they need. Then get ready to…

2. Make some money! Have a tag sale, consign, or donate unwanted items to a charity. Your donations could also mean a write-off on your year end taxes.

3. Make a list. Avoid pointless purchases and save money at the register by knowing what your kids really need.

4. Set a budget and stick to it. Just like your regular monthly budget has helped you save more in your 401(k), shopping with a back to school budget can equal big savings too.

5. Leave the kids at home. Kids love flashy, trendy items. When selecting school supplies and basics like socks and jeans, know what they like and just go alone.

6. Buy online. Shopping online allows you to comparison shop without stress and saves you the time searching empty store shelves. And some of your best tech deals can be found online!

7. Timing is everything. Avoid seasonal markups and missing items—shopping off-season can help you get the best deals and avoid long lines.

Check It Out

*Grannis Allen, Kathy. “After Splurging in 2014, Families Trim Back-To-School Spending for 2015.” National Retail Federation, 15 July 2015.

CONTACT US

If you have a 401(k) account serviced by Fisher Investments 401(k) Solutions and need help or have

any questions, please contact us at 888-322-7586. We can help you with your 401(k) account, including

assistance with technical issues, as well as other service needs. We can also help answer questions about

the latest news developments and what it may mean in terms of investments and retirement planning.

ABOUT FISHER

Fisher Investments 401(k) Solutions is dedicated to helping business owners and their employees successfully

reach their retirement goals. We help people better optimize their retirement savings opportunities and

understand their retirement plan options through in-person enrollments, ongoing education and our live-

person Help Desk.

8

K02163V August 2016©2016 Fisher Investments.

Investing in stock markets involves the risk of loss. Past performance is never a guarantee of future returns. This newsletter is intended for educational purposes only. It constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of investment performance. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts may be, as accurate as any contained herein.