401k Plans: Good Concept - Bad Management

Unless you're younger than 50 or an employee of the U.S. Government, you are probably only familiar with the term "pension" because you might have heard your grandparents or parents talk about it.

Ahh...the pension, the idea of it brings back nostalgic thoughts of a time when companies actually hosted annual rubber chicken retirement dinners and handed out wooden plaques and gold watches.

Well wake up Dorthy cuz you ain't in Kansas anymore! The time of the pension (and corporate loyalty) is long gone and in it's place is it's less attractive but not horrible cousin, 401k plans.

Actually, I am a big fan of these self managed retirement plans. In fact during my stint in Corporate America I maxed my annual contribution and considered it a cool gift to get "free money" from my employer as an incentive to save for me future - how cool is that?

Cool indeed, however the downside to 401k's - especially in the hands of individuals who have a huge fear of the financial unknown coupled with economic uncertainty - is that the good concept can and is being managed poorly.

The purpose of a pension, 401k plan, rainy day fund or even money under your mattress is never intended for use today. The idea is that it will be available for the inevitable "tomorrow" when you have come to the end of your work years and are ready to live off of what you saved.

The concept is simple, you the contributor are encouraged to deposit a pre-set amount of money into the plan and for doing so the money you invest is deducted before taxes are calculated.

This is great for you because you lower your monthly taxable income by the amount you contribute. Once deposited, this money remains non-taxable and so does anything earned through the 401K plan you are contributing to.

At the time of retirement or withdrawal - whichever comes first - the funds will be treated as taxable income. The assumption is that you will not touch the money until you are no longer receiving a regular paycheck. By that time your tax bracket will be significantly lower which will result in paying less tax on the money you contributed to the plan.

Pain at the pump (gas is now more than $4 per gallon in 11 U.S. cities, skyrocketing food prices (the cost of eggs, milk, bread and cheese are all increased) and record job losses (more than 240,000 net jobs were lost this year) have all created an eerie uneasiness in employees who had not fully embraced the 401k concept in the first place.

It is estimated that only 1 out of 4 eligible employees contribute to this voluntary retirement plan and of those who do contribute, only 1 in 10 contributes the maximum allowed.

The result is millions of Americans are not saving nearly enough for retirement and now they're not even waiting until retirement to withdraw the money they earmarked for their "golden years."

Now thanks to the Reserve Plus Loan program employees can be issued a debit card or checks to tap into their retirement account early. Individuals can transfer funds from their 401k assets into a money market fund for immediate withdrawal purposes.

The program works similar to a home equity line of credit and there is a cost to borrow from your plan plus an account setup and maintenance fee will be charged as well.

While this is a sign of the times and certainly makes it easier for 401k contributors to borrow from their voluntary savings plan it's also contrary to the purpose of the plan in the first place.

Before you let this good concept be lost to bad management, remember that if you tap into your plan now you will be:

1. Paying for money that they have already saved

2. You will be making money on your borrowed money

3. You will be taxed on the money you borrow now - and when you take it out later

4. You may not be able to play "catch up" in time for when you really need it

There are pros and cons to early withdrawal of your 401k assets and there are certainly pressing immediate needs that are undeniable. However, before you see this option as a "no brainier," I caution you to use it as a measure of last resort.

Money Mondays with Sanyika

I have enjoyed being a regular guest expert of The Morning Show with Mike & Juliet (FOX) for more than six months now and my favorite part by far is hearing from viewers of the show who are touched, inspired and most of all supported by the information I share on the show.



The feedback has been so frequent that the show has graciously made me a featured part of their website and has created a place where you can submit your money questions which I answer in the "Money Mondays" series each week.

Find answers to your money questions, from how your negative credit history will effect your child if you co-sign for them to some of the best ways to beat the rising food prices.

If you have a money question, allow me to provide you an answer. You can also read answers to past questions and get the information you need to move your financial life forward.

Money Mondays with Sanyika Calloway Boyce on MandJShow.com - submit your questions and check back for the answers each Monday!

Credit Card Companies Exposed

Let me start by saying that I strongly believe credit isn't evil, it is a necessary tool and I believe that it should be in the everyone's toolbox.

However, there are some things that credit card companies have done that can be downright devious.

It is important to know what you're saying yes to, after all you are signing a legal contract when you by-pass the fine print and put your name on the dotted line. The responsibly lies on both parties.

Your responsibility is to read the fine print, ask questions and be informed about your rights as well as the terms you are agreeing to.

The credit card company has a responsibility to present the information in clear and understandable language that you can actually understand...this is often where things get complicated.

Today I appeared on The Morning Show with Mike & Juliet (FOX) as part of their M&J Investigates series with a group of experts to discuss some completely legal (albeit questionable) credit card company practices that you should be aware of:

Over the Limit Charges - Over the limit means you have $3,000 available to spend and you charge anything over that amount, like 3000.01 - you are over the limit.

Credit card companies have two choices:

A. They can choose to deny the charge, or
B. They can process the transaction and charge you an over the limit or "convenience fee"

As a credit conscious consumer you must strive to only have 30 to 50 percent of your available balance in use so you won't get hit with a fee that you didn't expect or can't afford.


Late Fees - Credit card companies put this fee in place to get you to acknowledge the importance of paying your bill on time. Generally, if it's your first offense, or there has been a significant amount of time between incidents a late fee can be waived by a customer service representative.

The average late fee is between $29 and $49 per incident, however you might not be aware that your payment could be considered late if...

1) You fail to pay by a specific time of day. Be sure that you send your payment in way before the day it is due because there may be a cut-off time associated with processing it to ensure it is received on time (i.e. your payment is due on the 3rd by 3:00PM EST)

2) We are creatures of habit but don't just assume that your payment will be due on the same time every month just because that's how it's always been. Your due date could change at anytime and it's your responsibility to read your statement and know the exact date your bill is due.

3) Be sure you're mailing your payment to the correct address because your credit card company could change the internal postal address for your particular payment center. To ensure that you are always sending it to the payment to the right place only use the pre-addressed payment envelope provided for the most recent bill you've received.


Interest Rate Increase - The average interest rate is about 12 percent, however the devil is in the details because your rate depends on the type of card you have and what you have agreed to in the terms of agreement.

Introductory offers (also known as "teaser rates") tend to be a particularly problematic for credit consumers. The fine print often says that if you do not stay within the terms agreement, for example if you go over the limit, or pay bill late even once that the company has the right to instantly to go to a new and much higher rate.


Universal Default - While several credit card companies have agreed to stop this practice, there are many more that defend and continue to use it. Basically what universal default means is that you are not late with payments on "credit card X" but you've missed a few payments with "credit card Y" and therefore BOTH credit card companies raise your rates.

While this practice is legal, it is being strongly debated in congress because credit card companies can periodically review your credit report to see how you interact with other card companies as as a result may choose to increase your interest rate because of a problem with another creditor.

Student Cards - Almost every major credit card issuer has a "student credit card" which has is slightly different than a card offered to the average credit consumer. A few noticeable differences are:

* The interest rates are often higher – first time credit users are considered a "credit risk" because they have not established a credit history yet so as a "safe guard" creditors charger a higher interest rate for these cards

* There is usually no minimum income required – these cards are usually fairly easy to get, provided the student hasn't encountered any troubles with credit before because credit card companies bank on the future earning potential and know that while students may not have a large or steady income now, their circumstances are greatly improved post college

* Rarely are there any annual fees – credit card fees are waived because there is so much competition in the market for student cards

* Low credit limits, at first. Generally first time card users are given a limit of between $500 and $1000, but once the student has proven themselves as a responsible creditor, the limit will usually rise accordingly – often every three to six months.

It's hard to choose from the large number of student credit card offers. The best way to make sense of it all is to compare credit card offers online: www.ChooseCreditWisely.com

Watch the M&J Investigates: Credit Card Companies and check out the additional footage filmed after the show in the Green Room Interview

Financial Infidelity: The Other Adultery

According to a survey by Yahoo Finance and research firm Decipher, about half of people in serious relationships have committed some kind of financial deception. Their activities include lying about the actual cost of a purchase or hiding it from their partners to covertly running up credit card debt or even maintaining a secret savings stash.

Women are more likely to be dishonest about money than men (or at least admit to it in the survey):

55 percent of women versus 41 percent of men say they've committed financial infidelity.

These secrets and lies tend to occur most often among couples in the 35-to-44 age group but no matter the age or the reason, the deception hurts partners as well as the relationship - emotionally and financially.

Watch my interview on The Today Show(NBC) to find out why telling a "little white lie" about how much you spend could ruin your marriage and learn the 5 things you can do to talk to your honey about money.

When Forever is Fleeting: Why The Cost of a Postage Stamp is on the Rise Again and Why It Really Does't Matter

Today the United States Post office will increase the cost of a postage stamp for a basic letter to forty-two cents. This change in price represents looks like it will become an annual tradition.

By law, the USPS is required to maintain a schedule for future price increases. This schedule is posted on the Postal Regulatory Commission website, www.prc.gov and you can expect to see price changes for postage in mid-May of each year.

If you're wondering what the heck to do with all of those "Forever Stamps" you purchased as an "investment" in 2007 when it was announced postage would increase from a mere thirty-nine cents to a skyrocketing forty-one cents not to worry.

The forever stamp is still valid, however it's arguable if you should invest in them when your current supply runs out because postage hikes will never surpass inflation as per the Postal Accountability and Enhancement Act.

Therefore a large glut of forever stamp "stock" will simply tie up your cash flow right now and won't save you any money in the future.

Besides if you're like the millions of American's (including me) who admit to misplacing "good-as-cash" gift certificates and loosing those mail-in-rebate checks that we actually take the time to cut the UPC code off the back of the carton for - the forever stamps will probably not see a better fate.

If you mail letters and packages regularly for your business or are mailing invitations for a large event I suggest you look into a few of these ways you can save on postage

BTW, did you send your Mom a card last week for Mother's Day?

If the guilt doesn't get you - the challenge of waiting in a long line to buy extra postage for a penny just might.

Maybe having a couple of forever stamps in your back pocket wouldn't hurt - at least for the convenience of it.