Betterment 401(k) Employee Resources

Your Betterment 401(k) - One Amazing Benefit

Your Betterment 401(k) - One Amazing Benefit Jun 14, 2022 9:29:33 AM Your employer chose Betterment as its 401(k) provider - so come on in and be invested for your future. Traveling around the world. Taking up a new hobby. Spending more time with family and friends. Whatever your retirement dreams are, a 401(k) can help you make them a reality. And luckily for you, your employer chose Betterment to manage its 401(k) plan. Top 3 perks of a 401(k) Participating in your employer’s 401(k) plan is a good idea for many reasons – here are the top three. With a 401(k), you can: Contribute via convenient, automatic payroll deductions (one less thing to think about!). Save on taxes, whether those savings happen today with a traditional 401(k) or at retirement with a Roth 401(k) (and the cool thing is that you can use both!). Invest more than with other retirement vehicles (individual retirement accounts (IRAs) have lower caps on how much you can put in). All said, saving for retirement with a 401(k) is basically a no-brainer. Without a regular paycheck in retirement, you’re going to rely on your own savings. And we’re not talking about cash-under-the-mattress savings or even safe-in-the-bank savings - but invested savings, which is what you get with a 401(k). (Why is it so critical to invest for long-term goals, rather than simply saving money in the bank? To tackle one word: Inflation.) Top Betterment features Not your average 401(k) plan, Betterment offers several features to help you pursue your retirement goals: Goal based – Your 401(k) will automatically be a “Retirement” goal on the Betterment platform (you could add additional goals for other things if you want). Our goal-based platform looks at your timeline until retirement and the desired amount you want to save, to help you invest in a globally diversified portfolio. Low cost – Our approach uses low-cost exchange-traded funds (ETFs) so more of your money stays invested in your account. High tech – Certain portfolio strategies and goal types are automatically rebalanced and adjusted over time, and our tax coordination feature offers tax-smart investing through automated asset location. Personalized – Betterment helps you work towards your long- and short-term financial goals with personalized advice. It’s easy to get started Betterment will contact you via email to set up your account via a secure link that’s unique to you. If you haven’t received an invitation from us to set up your account, please contact us. Once you’ve set up your account, be sure to set a contribution rate high enough to help you pursue your goals (although starting with anything is far better than nothing!) and you’ll want to initiate a rollover of any old 401(k)s into your new Betterment 401(k). Were you automatically enrolled in your plan? If so, you still need to set up your account with a username and password. Your employer has determined an automatic contribution rate for your organization, but you can adjust this in your account at any time. Betterment strives to make saving and investing for retirement easy. But we know you still might have questions, so we’re here to help: Explore our 401(k) employee resources Send us an email: support@betterment.com Give us a call: (718) 400-6898, Monday through Friday, 9:00am-6:00pm ET

How to pick a 401(k) contribution rate

How to pick a 401(k) contribution rate Jun 14, 2022 9:08:01 AM Your 401(k) contribution rate - also known as a deferral rate or savings rate - is a key part of a successful retirement strategy. You’ve taken that first step and have set up your Betterment 401(k) account - well done! One important piece to consider next is your contribution rate - how much from each paycheck will go into your account? With your Betterment 401(k), you could use a percentage or a fixed dollar amount, whichever you prefer. Here are a few things to consider: Were you automatically enrolled? Many employers choose to automatically enroll their employees in the plan with a default contribution rate of 3% – if you're not sure, please check with your employer. Keep in mind, whatever the default contribution rate is, it’s just a starting point. You can (and probably should) increase that contribution rate at any time in your account. At least a decade without a paycheck Most experts recommend contributing 10%–15% of your paycheck to have enough to last you through retirement - which could be 20-30 years considering how long people are living! If you retire at age 65, with a healthy lifestyle and no major risk factors, you could live well into your 80s or 90s. You want to set yourself up for living off your personal savings and investments for about 20 years! Starting small is better than nothing If 10-15% of your paycheck sounds absurd to you right now - deep breath, think of that as something to aim for. You can start with something smaller, maybe 5 or 6%, and slowly but surely increase your savings rate every year – your birthday? Give yourself a gift and increase it by 1%. Your work anniversary? Cheers to you, bump it up again. And those 1% increases can actually be a big deal as this next chart illustrates. Go for the max Because of its tax benefits, the IRS sets a limit on how much you can put into your 401(k) every year. So you could aim to contribute as much as the IRS allows! For people 50 and over, the limit is higher, which is referred to as “catch-up contributions.” And if you really want to be an over-achiever, you can also contribute to an IRA, an individual retirement account, to save even more. Tax considerations With your Betterment 401(k), you can make contributions into a traditional 401(k) account and/or a Roth 401(k). There are tax benefits to both: Traditional 401(k): Contributions are deducted from your paycheck before taxes are withheld, which can lower your taxable income. Both your contributions and investment earnings are “tax-deferred,” meaning you won’t pay taxes on what you contributed to the account as well as any earnings until you withdraw the money at retirement. In other words, save on taxes now, pay taxes later. Roth 401(k): Contributions are made with after-tax dollars so your withdrawals—both the contributions and earnings—are tax-free once you decide to retire (minimum age, 59½), and as long as you’ve held the Roth account for at least five years. In other words, pay taxes now, no taxes later. A common strategy is to split your total contributions between the two! Say you want to contribute 10% towards your retirement? You can put 5% into a traditional 401(k) and 5% into the Roth 401(k). This is one way you can balance your tax exposure. If you already have your account set up, log in today to increase your contribution rate or reassess your traditional and Roth contributions. Haven’t started saving in your Betterment 401(k) yet? Check your email for an access link from Betterment, or get in touch: Send us an email: support@betterment.com Give us a call: (718) 400-6898, Monday through Friday, 9:00am-6:00pm ET

Rolling over is more than a dog trick

Rolling over is more than a dog trick Jun 14, 2022 8:45:40 AM Three reasons why rolling over 401(k)s from former employers makes sense. Have money sitting in 401(k) accounts from former employers? If so, you’re not alone. Recent research estimates that there are more than 24 million “forgotten” 401(k) accounts, holding approximately $1.35 trillion dollars. Are any of those dollars yours? If so, you should consider rolling any old 401(k) into your new Betterment 401(k) – here’s why: 1. Get a comprehensive view of your retirement saving When you have accounts here, there and anywhere, it’s hard to get a handle on where you stand. By rolling them over to your Betterment account and consolidating your retirement assets in one place, you can ensure your portfolio is appropriately diversified, monitor your progress, and rest assured that your investments aren’t competing or canceling each other out. 2. Avoid fees! Every 401(k) plan comes with fees. If you have multiple 401(k)s, you are paying fees for all of those accounts! Betterment has fees too – but we offer one of the most affordable plans in the industry (which is probably one reason why your employer chose to offer the plan through us). Betterment uses low-cost exchange-traded funds (ETFs) in our portfolios, helping to keep fees low. 3. Access personalized financial advice and service Whether you want to talk investment strategy or review your retirement account, Betterment has CERTIFIED FINANCIAL PLANNER™ professionals and a customer support team that’s easy to reach when you need them. Other options Since you have access to a Betterment 401(k) through your employer, it could make sense for you to roll old 401(ks) into your Betterment 401(k) for all the reasons outlined above. But you do have other options: Leave it where it is. Roll it into an IRA (Individual Retirement Account), either with Betterment or another financial institution. Cash it out – this will come with taxes and potentially fees, and your money will no longer be invested (and potentially growing) for your retirement. Ready to roll? In just a few clicks, you can start the rollover process to Betterment and be set up with an appropriate investment strategy for you. You’ll receive a personalized set of rollover instructions via email, with no paperwork required by us. Have a different kind of account to roll over? No problem. You can roll over your IRAs, pensions, 401(a)s, 457(b)s, profit sharing plans, stock plans, and Thrift Savings Plans (TSPs) to Betterment using the same simple process. If you've already claimed your account, you can click here to start your rollover. If you have any questions along the way, our team is ready to help: Send us an email: support@betterment.com Give us a call: (718) 400-6898, Monday through Friday, 9:00am-6:00pm ET

When’s the best time to invest for retirement? Now.

When’s the best time to invest for retirement? Now. Jun 13, 2022 4:02:07 PM Should you start saving for retirement? Unless you are on one of those richest-people-in-the-world lists - then the answer is, most likely, yes. From paying the rent or mortgage, credit card bills, student loans, daily living expenses - there are a lot of things competing for your money’s attention! The idea of saving for retirement can easily be pushed to the backburner for all of those other - completely understandable! - reasons. But we’re here to say - hold the phone. Even a little bit into a 401(k) can make a huge difference for your retirement. Rock and roll When a rock rolls down a hill, it goes faster and faster on its way down. It has something to do with momentum and physics – we’re not scientists here, we’re investment professionals. But the same concept applies to your 401(k) - not because of physics, but because of compounding interest. Compounding interest means that not only are your original dollars growing based on potential stock market gains, but that newly earned money also grows whenever the stock market goes up! Give compounding time to shine If the magic of compounding interest isn’t enough to get you going right away, there is one other chart that should do the job. If someone starts saving 6% of their paycheck at age 25, they are expected to end up with more money at age 65 than someone who contributes 10% starting at age 40. And here’s the real kicker - the person who’s doing 10% starting at age 40 will put in more of their own dollars, and is still expected to end up with less by the time they reach age 65. How is that possible? The 6% contributions had more time to grow – more time to roll down that hill gathering speed – or in this case – money. Starting sooner than later really pays off If you already have an account, log in today to increase your contribution rate. Haven’t started saving in your Betterment 401(k) yet? Check your email for an access link from Betterment, or get in touch: Send us an email: support@betterment.com Give us a call: (718) 400-6898, Monday through Friday, 9:00am-6:00pm ET

What does inflation mean for your retirement savings?

What does inflation mean for your retirement savings? Apr 14, 2022 5:43:42 PM Rising prices constitute a concerning development for retirement nest eggs. Inflation has reached levels not seen in decades, showing up in the prices paid at the gas pump, at the grocery store register, and elsewhere. Savers increasingly question whether the higher future cost of living will mean that their current savings won’t go far enough, even if they grow in the meantime via a portfolio of investments. Below, we address these developments and suggest ways to think about what inflation can mean for retirement. Keep things in perspective: today’s high inflation likely won’t last forever It makes sense to be concerned about inflation, but we caution against panicking and potentially taking risks in the face of the recent increase in prices. Inflation, though it has been low over the past decade (often dipping below 2% on an annual basis), has had a consistent presence for much of the history of the US economy. The alternative of stagnant or even falling prices can throw a wrench into economic activity, depressing incomes, employment, and the value of investments. We also don’t think that this bout of high inflation will ultimately last as long or be as dire as historical periods such as the 1970s in the US, when a wage-price spiral and commodity price shocks caused volatile inflation that contributed to a long-lasting economic malaise. The current inflationary environment appears to be driven by supply chain issues associated with operating an economy during a pandemic, though commodities have also been a major factor. This can be seen in the out-sized contribution of goods prices to the levels of inflation we see. We would expect goods prices to return to their longer-term trend of more modest contributions to price increases after the market takes its time to work out kinks in supply chains. Source: BLS, FRED. Core goods represent goods prices excluding food and energy. Core services prices represent service prices excluding food and energy. Should I be concerned if I’m not retiring yet? The short answer is that you should not be overly concerned. A major goal of any portfolio invested for the long-term should be the preservation of purchasing power, which can be eroded by inflation. The following are some of the ways that Betterment attempts to help you navigate through this environment. 1. Maintaining a well diversified portfolio. Within the Betterment investing experience you have the ability to incorporate your risk tolerance (your ability and willingness to take risk), and time horizon (years left before you need your savings). If you’ve indicated that you are saving for retirement and you have a longer time horizon, we will recommend a Betterment Core portfolio allocation that has more stocks than bonds since you are able to take on more risk for the potential to generate greater growth compared to someone who is nearing or in retirement. Having a higher allocation to stocks not only helps serve this purpose, but inflation also flows through to company earnings and ultimately to the valuation of the stock market. During these earlier stages when the focus is on accumulation, we will also recommend asset classes that have historically seen higher growth, such as emerging markets, within stocks. In the case of inflation surprising to the upside, there is an increased likelihood that monetary policymakers including the Federal Reserve in the U.S., may take steps to raise interest rates in the economy in order to dampen borrowing and inflationary pressures. This rise in interest rates can adversely affect the returns of bonds. The recommended bond allocations in the Core portfolio strategy, however, are well diversified across geographies and credit quality. They have sources of return outside of markets which may face higher inflation than others. For example, most of the portfolios in the Core strategy hold an allocation to Treasury Inflation Protected Securities (TIPS), where the amount of the allocation varies according to the stock/bond split and overall risk level of the portfolio. TIPS are “inflation protected” in that the securities’ principal will be adjusted higher based on the increase in a consumer price index and the interest paid will be based on the inflation adjusted principal, shielding the return on the bonds from declining in real (inflation-adjusted) terms. Where and how you stay invested over time is important. 2. Inflation assumptions built into our advice It is better to overshoot than undershoot your retirement savings. Building in inflation assumptions can help paint a better picture in estimating your future spending power. The advice we provide in our goal forecaster takes into account 2% annual inflation, and the projected retirement balances are adjusted after inflation. We regularly review this inflation assumption, and Betterment users have the ability to override it with their own expectation of annual inflation if desired. Our advice tool highlights if you’re on or off track and whether there is a risk of shortfall from meeting retirement goals. It then provides guidance on how much you should be contributing in order to meet these goals. Something to note is that within this guidance, we will reflect any regulation changes that allow for greater retirement contributions. In 2022, the IRS is increasing the employee contribution limit for 401(k) plans from $19,500 to $20,500. What if I’m nearing or in retirement? Don’t worry, there are ways that you can bolster your retirement savings in this environment. Increase contributions: Those who are 50 years or older have the ability to make “catch-up” contributions of $6,500 on top of the $20,500, allowing a total of $27,000 in retirement contributions. This is a great opportunity for those nearing retirement who are concerned about their future retirement spending to contribute more. Additionally, Social Security general benefits increase based on cost-of-living adjustments over time. Hold off on taking required minimum distributions (RMDs): The 2019 Secure Act increased the age for when you would need to take RMDs from 70 ½ to 72. However, if you are 72 and meet certain requirements you do not need to take the RMDs right away, allowing your retirement savings to continue growing in the market. Maintain an appropriate level of investment risk: If you choose to follow Betterment’s advice, Betterment can automatically adjust your allocation through time to control risk based on your time horizon. Also, although Betterment’s qualified default investment alternative (QDIA) is the Core portfolio strategy, we have other investment options that are built for more conservative investing. Betterment offers the BlackRock Target Income portfolio strategy for those who may prefer not to be exposed to the risk of stocks. It is an all bond portfolio meant for generating income while preserving capital. This portfolio has four different risk levels which are associated with different income yield targets to help you generate a desired level of income. Retirement is a long-term goal. Betterment will continuously guide you throughout different market environments and provide solutions to help you accomplish this goal.

Why diversify outside of the US?

Why diversify outside of the US? Apr 14, 2022 5:35:55 PM The outperformance of US stocks in recent history has led some investors to question whether they should invest outside the US at all, yet there remains compelling reasons to diversify globally. US investors often think of the S&P 500 Index (an index of the largest companies in the US by market capitalization) when referring to the performance of the stock market. This is not surprising to hear as most US based investors exhibit a “home bias”, where they focus their investing domestically and less on international. In a Vanguard 2020 study, households they surveyed had 81% of their portfolio allocations invested in the US. On top of that, US stocks have set a high bar for performance globally, outpacing the gains in stocks across Europe, Japan, and emerging markets over the last decade. It’s become natural to ask, “Can’t I get better returns just sticking with US stocks? Why would my Betterment portfolio have any allocation to companies outside of the US?” Currently, Betterment’s Core portfolio strategy in the 100% stock allocation has a target allocation of more than 40% in international equities. Below, this piece will cover reasons diversifying internationally makes sense, including: The global market portfolio is a starting point for asset allocation There’s no guarantee that US stocks will continue to outperfor Diversification creates the potential for more consistent returns Investing in the global market portfolio The short answer is that Betterment constructs all of our portfolios to be representative of the makeup of global investable assets as a whole, and you’ll find that around 40% of the world’s equity assets are invested outside of the US. International investments play an important role in reducing the risk of concentration in any one particular country within your portfolio. There’s no guarantee of continued US outperformance We’ve all heard the phrase “past performance is not indicative of future results.” For instance, stocks of one region can string together multiple years of outperformance relative to others before that trend reverses and it enters a period of underperformance. The chart below illustrates this tug of war between US and international developed stocks. While the outperformance experienced by US stocks over the last decade is striking, international developed stocks dominated in the wake of the dot com bubble in the decade before that. “International stocks” is represented by the MSCI EAFE Index. “US stocks” is represented by the MSCI US Index. Past performance is not indicative of future results. You cannot invest directly in the index. Going back further into history, in the ‘80s international developed stocks actually outperformed US stocks to the same extent that US stocks have outperformed since 2009. We believe, and many on Wall Street will admit, that trying to time these cycles can be extremely difficult and a more consistent return may be achieved by holding exposure to each geographical region’s stocks over the long-term. Before US stocks’ strong run in recent history, investors may have been tempted to allocate more to emerging market stocks based on their momentum during the 2000s. Emerging market stocks had higher returns than US equities in eight of the ten years before 2011. If an investor piled into emerging market stocks in 2011 because of their decade long track record of outperformance, they would have largely missed out on the strong gains in the US over the following 10 years. There also may be reason to believe that markets outside the US have the potential to post strong gains over the next decade. Based on certain valuation metrics, US stocks appear more expensive than their global peers. For example, companies in places such as emerging markets source much of their revenue from quickly growing economies, which may enhance profitability in the future. Diversification helps avoid drawdowns and creates the potential for consistent returns International markets are not perfectly correlated with the US, meaning they do not move in lockstep. Allocating to markets around the world therefore promotes diversification, helping buffer portfolios from the heightened volatility of individual markets. The chart below ranks the returns of Betterment’s tenured Core portfolio strategy against different regions and asset classes across calendar years, illustrating diversification in action. The Core portfolio, with a 90% allocation to stocks and 10% allocation to bonds, consistently avoided losses compared to the poorest performing assets of recent history. This was also evident in 2020 where diversification provided downside protection as the US fell into a short recession and battled a pandemic. Investors focused on using the S&P 500 Index to benchmark performance will highlight that the index outperformed our Core portfolio in the time periods displayed. And while the strength of the US market is undeniable, it is important to not overlook the fact that our Core portfolio still has a sizable allocation to the US. Having a strategic, well-diversified portfolio allows investors to obtain exposure to not only markets that outperform like the US, but also to international stock markets and other asset classes that can dampen the downside in years where US stocks underperform. *See disclosures below At Betterment, we build portfolios and provide advice on portfolio allocations that should be suitable for each investor’s risk tolerance to help them reach their investment goals. Diversifying across stock markets, whether in the US or elsewhere in the world, helps in that continuous effort. It may be tempting to chase the high returns that US stocks have posted in recent history, anticipating that the US equity market will continue to outperform, but investors should recognize that future outperformance is near impossible to predict and that they should position themselves for a wide range of possible outcomes accordingly. This is why as a foundation of Betterment’s portfolio construction process, we start with a diversified global market portfolio.

What is the maximum 401(k) contribution?

What is the maximum 401(k) contribution? Jan 27, 2022 12:00:00 AM Everything you should know to help your employees save smarter this year. Every year, the IRS updates the rules governing 401(k) and IRA contributions, and they recently announced the guidelines for 2022. So what are the updates for 2022? Here’s the big news: The contribution limit for employer-sponsored 401(k) plans is $20,500 for individuals under age 50, up from $19,500. This is the first time the limit has gone up in two years! Now, let’s get into the details. In this article, we’ll discuss the new 2022 limits and rules—and how they may impact your retirement goals. What you need to know about retirement plans (and their contribution rules) As you may know, there are two primary retirement plans: employer-sponsored retirement plans and IRAs. Here’s how they differ: Employer-sponsored plans—like 401(k), 403(b), and 457 plans—are only available if the employer offers one. If they’re eligible, individuals can contribute to both an employer-sponsored plan and an IRA. IRAs are tax-deferred or tax-advantaged retirement accounts that individuals (who qualify) can open up on their own—regardless of their employment situation. Because the IRS offers tax advantages to people who participate in these plans, there are naturally a few strings attached. Specifically, individuals can only contribute a certain amount of money in a given year—and that amount decreases if they earn above a certain threshold. Good news—Most people can contribute more in 2022. If your employees ask “what is the 401(k) limit for 2022?” you’ll be able to share the good news that most people can contribute up to $20,500 in 2022. This is up from $19,500, which was the limit in 2020 and 2021. When you look at the following contribution limits, you’ll notice that some of them take into consideration taxable income, which impacts how much highly compensated employees and low-income earners can save. Estimating taxable income can be complicated, and since Betterment is not a tax advisor, we suggest talking with a qualified tax professional. Let’s take a closer look at the 2022 contribution limits. 1. Employer-sponsored Plan Contribution Limits In 2022, the limit on annual contributions to Roth or Traditional 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plans increases to $20,500. The additional catch-up contribution limit remains unchanged at $6,500 for a total contribution limit of $27,000 for employees 50 years old and older. 2. IRA Contribution Limits In 2022, the limit on annual contributions to an IRA is unchanged at $6,000. The additional catch-up contribution limit for individuals 50 years old and over remains at $1,000. The total contribution limit is $7,000 for employees 50 years old and older. Retirement Account Contribution Limits Contribution Limits Catch-up Contribution Limit (for individuals age 50 and above) Account Type 2021 2022 2021 2022 Traditional IRA Roth IRA $6,000 $6,000 $1,000 $1,000 401(k) 403(b) 457 Plans $19,500 $20,500 $6,500 $6,500 Income Limits for Deductible Traditional IRA Contributions One of the best benefits of a Traditional IRA is that you can deduct contributions on your tax return. However, if you or your spouse are covered by an employer-sponsored retirement plan, Traditional IRA contributions are only deductible if your modified adjusted gross income (MAGI) falls below a certain threshold. Above that threshold, there’s a “phase-out” range in which an individual is eligible for a partial deduction, and after that range, contributions are not deductible. Traditional IRA Deductibility Limits for Individuals with an Employer-sponsored Plan 2021 2022 Filing Status Income (MAGI) Income (MAGI) Deduction Limit Single individuals ≤ $66,000 ≤ $68,000 Full deduction up to the contribution limit $66,000 – $76,000 $68,000 – $78,000 Partial deduction ≥ $76,000 ≥ $78,000 No deduction Married, filing jointly ≤ $105,000 ≤ $109,000 Full deduction up to the contribution limit $105,000 – $125,000 $109,000 – $129,000 Partial deduction ≥ $125,000 ≥ $129,000 No deduction Married, filing separately < $10,000 < $10,000 Partial deduction ≥ $10,000 ≥ $10,000 No deduction Traditional IRA Deductibility Limits for Individuals without an Employer-sponsored Plan 2021 2022 Filing Status Income (MAGI) Income (MAGI) Deduction Limit Single individuals All incomes All incomes Full deduction up to the contribution limit Married, filing jointly + neither individual or spouse has an employer-sponsored plan All incomes All incomes Full deduction up to the contribution limit Married, filing jointly + spouse has an employer-sponsored plan ≤ $198,000 ≤ $204,000 Full deduction up to the contribution limit $198,000 – $208,000 $204,000 – $214,000 Partial deduction ≥ $208,000 ≥ $214,000 No deduction Married, filing separately < $10,000 < $10,000 Partial deduction ≥ $10,000 ≥ $10,000 No deduction 3. Income Limits for Roth IRA Contributions To read more about the IRA deduction limits, refer to details available from the IRS. Roth IRA contributions are not tax deductible. However, qualifying withdrawals (typically in retirement) can be made on a tax-free basis. However, to make the maximum $6,000 Roth IRA contribution, an individual’s income must fall below a certain threshold. In 2022, eligibility to contribute to a Roth IRA starts to phase out at $129,000 for single filers and $204,000 for married couples (filing jointly). That’s a higher start of the phase out threshold than in 2021, which began at $125,000 for single individuals and $198,000 for married couples. 4. Income Ranges for Partial Roth IRA Eligibility Individuals whose incomes fall within the following ranges are limited to making partial Roth IRA contributions. Those whose incomes fall below these ranges can contribute the full amount. Individuals with incomes above the range cannot contribute to a Roth IRA that year. Income Tax Filing Status 2021 MAGI 2022 MAGI Single $125,000 – $140,000 $129,000 – $144,000 Married Filing Jointly $198,000 – $208,000 $204,000 – $214,000 If you are married and file separately and lived with your spouse at any point during the year, you will be completely phased out of making Roth IRA contributions if your MAGI is $10,000 or more. For more information and guidance regarding Roth IRAs, review the expanded IRS rules. Income Limits for the Retirement Savings Contributions Credit (Saver’s Credit) To help low-income people save for retirement, the IRS offers the “Saver’s Credit.” Individuals may be eligible for the credit if they’re saving for retirement and their income falls below specific ranges. This credit offsets the individual’s income-tax liability; however, it phases out as the individual’s adjusted gross income (AGI) increases.

401(k) Required Minimum Distributions (RMDs) now start at age 72

401(k) Required Minimum Distributions (RMDs) now start at age 72 Jul 21, 2021 12:00:00 AM In exchange for all of the tax advantages 401(k)s provided during your accumulation years, by law, you will need to start taking distributions from your account when you turn 72. 401(k) plans can help you save for retirement in a significantly tax-advantaged way. However, the Internal Revenue Service (IRS) requires that you start taking withdrawals from their qualified retirement accounts when you reach the age 72. These withdrawals are called required minimum distributions (RMDs). Why do I have to take RMDs? In exchange for the tax advantages you enjoy by contributing to your 401(k) plan, the IRS requests collection of taxes on these amounts when you turn 72. The IRS taxes RMDs as ordinary income, meaning withdrawals will count towards your total taxable income for the year. Generally, the IRS collects taxes on the gains in retirement accounts such as 401(k)s. However, if Roth 401(k) account assets are held for at least 5 years, Roth 401(k) funds are not taxed. Because there are taxes being paid to the government, these distributions are NOT eligible for rollover to another account. When do I have to start taking RMDs? Before the 2019 SECURE Act, RMDs applied to employees who turned 70 ½. However, this legislation increased the RMD age to 72 starting in 2020. You may remember that the CARES Act, passed in March 2020 in response to the COVID-19 crisis, temporarily waived RMDs for 2020. RMDs resumed for the 2021 plan year with the newly increased age limit of 72. How much do I have to withdraw? RMDs are calculated based on your age and your account balance as of the end of the previous year. To determine the required distribution amount, Betterment divides your previous year’s ending account balance by your life expectancy factor (based on your age) from the uniform lifetime table (shown below). As a note, if you had no balance at the end of the previous year, then your first RMD will not occur until the following year. Uniform Lifetime Table Age of Plan Participant Life Expectancy (in Years) 70 27.4 71 26.5 72 25.6 73 24.7 74 23.8 75 22.9 76 22.0 77 21.2 78 20.3 79 19.5 80 18.7 81 17.9 82 17.1 83 16.3 84 15.5 85 14.8 86 14.1 87 13.4 88 12.7 89 12.0 90 11.4 91 10.8 92 10.2 93 9.6 94 9.1 95 8.6 96 8.1 97 7.6 98 7.1 99 6.7 100 6.3 101 5.9 102 5.5 103 5.2 104 4.9 105 4.5 106 4.2 107 3.9 108 3.7 109 3.4 110 3.1 111 2.9 112 2.6 113 2.4 114 2.1 115 and older 1.9 Additionally, if you have taken a cash distribution from your 401(k) account in any given year you are subject to an RMD, and that distribution amount is equal to or greater than the RMD amount, that distribution will qualify as the required amount and no additional distribution is required. Does everyone who turns 72 need to take an RMD? Turning 72 in a given year doesn’t mean that you have to take an RMD. Only those who turn 72 in a given year AND meet any of the following criteria must take an RMD: You have taken an RMD in previous years. If so, then you must take an RMD by December 31 of every year. You own more than 5% of the company sponsoring the 401(k) plan. If so, then you must take an RMD by December 31 every year. You have left the company (terminated or retired) in the year you turned 72. If so, then the first RMD does not need to occur until April 1 (otherwise known as the Required Beginning Date) of the following year but must occur consecutively by December 31 for every year. Example: John turned 72 on June 1, 2021. John also decided to leave his company on August 1, 2021. He has been continuously contributing to his 401(k) account for the past 5 years. The first RMD must occur by April 1, 2022. The next RMD must occur by December 31, 2022 and every year thereafter. NOTE: that this criteria means that you do NOT need to take an RMD if you meet the RMD age and are still working. You are a beneficiary or alternate payee of an account holder who meets the above criteria. What are the consequences of not taking an RMD? Failure to take an RMD for a given year will result in a penalty of 50% of the amount not taken on time by the IRS. How do I take an RMD? Your employer will notify you that you may be subject to an RMD and provide you with an RMD form. You will need to fill and return this form to your employer for approval. Betterment will process the RMD and the distribution will be delivered via the method of your choice (check or ACH).

How We Built 3 New Socially Responsible Investing Portfolios

How We Built 3 New Socially Responsible Investing Portfolios Oct 22, 2020 12:00:00 AM Betterment is moving the category forward for socially responsible investors by offering SRI portfolios that are fully diversified and keep costs low. It makes sense that some investors try to align their investments with the values and social ideals that shape their worldview. The way they live, the career they choose, and the people they care about align with their personal values; shouldn’t their investments do the same? Socially responsible investing (SRI) is an approach to investing that reduces exposure to companies that are deemed to have a negative social impact—e.g., companies that profit from poor labor standards or environmental devastation—while increasing exposure to companies that are deemed to have a positive social impact—e.g., companies that foster inclusive workplaces or commit to environmentally sustainable practices. The Betterment SRI portfolio strategy aims to maintain the diversified, low-fee approach of Betterment’s core portfolio while increasing investments in companies that meet SRI criteria. Betterment has constructed three SRI portfolios, each with a different focus within the realm of Environmental, Social, and Governance (ESG) investing. Betterment’s Broad Impact portfolio offers increased exposure to companies that rank highly on all ESG criteria equally, while Betterment’s Climate and Social Impact portfolios focus on increasing exposure to companies with positive impact on a specific subset of ESG criteria To learn more about how and why we’ve built the Betterment SRI portfolios, read on to the following sections. The technical details of our approach can be found in our full portfolio methodology as well as in our SRI disclosures. Why Did Betterment Develop SRI Portfolios? Betterment is dedicated to offering a personalized experience for its customers, including participants in Betterment 401(k) plans. This means providing them options that help customers align our advice to their personal values. We decided to develop SRI portfolios because, currently, there are three major ways that investors attempt to execute an SRI strategy, and none meets an investor’s full needs: Some investors buy SRI mutual funds, settling for unreasonably high fees compared to performance and often losing out on important tax and cost optimization opportunities. Others opt for one of several SRI-specific investment managers whose SRI portfolios may fulfill the investors’ desire for SRI screening but do not always provide proper diversification against risk. Still others try to pick their own basket of SRI investments—a challenging, time-intensive, and inaccessible approach for most everyday investors. We set out to do better for SRI investors who should not have to choose between holding an SRI portfolio and following a low-cost, diversified investment strategy (with tax optimization, where applicable) in order to make sure their investments reflect their personal values. The Betterment SRI portfolio strategy is designed to achieve this balance. We allow socially conscious investors to express that preference in their portfolios without sacrificing the aspects of Betterment’s advice that protect their returns the most: proper diversification, tax optimization, and cost control. What Is Betterment’s Approach To SRI? While SRI has been around for decades, especially for institutions like churches and labor unions, the SRI funds available to individual investors have only emerged in the last 20 to 30 years. And most of these SRI products have been actively-managed mutual funds with high fees. Only recently have lower cost options, like ETFs for SRI, emerged in the market. As we developed each of Betterment’s SRI portfolios, we analyzed all low-cost ETFs available which align with the SRI mandate of each portfolio, searching for products that could replace components of our core strategy without disrupting the diversification or cost of the overall portfolio. In each of our SRI portfolios, some bond asset classes are not replaced with an SRI alternative either because an acceptable alternative doesn’t yet exist or because the respective fund’s fees or liquidity levels make for a prohibitively high cost to our customers. Broad Impact Portfolio In 2017, we launched our original SRI portfolio offering, which we’ve been steadily improving over the years. With this release, our original SRI portfolio benefits from a number of additional enhancements, and becomes our “Broad Impact” portfolio, to distinguish it from the new specific focus options, Climate Impact, and Social Impact. As we’ve done since 2017, we continue to iterate on our SRI offerings, even if not all the fund products for an ideal portfolio are currently available. Figure 1 shows that we have increased the allocation to funds screened for ESG criteria each year since we launched our initial offering. Today all primary stock ETFs used in our Broad Impact, Climate Impact, and Social Impact portfolios are screened for some ESG criteria. 100% Stock Allocation in the Broad Impact Portfolio Over Time Figure 1. Calculations by Betterment. Portfolios from 2017-2019 represent Betterment’s original SRI portfolio. The 2020 portfolio represents a 100% stock allocation of Betterment’s Broad Impact portfolio. As additional SRI portfolios were introduced in 2020, Betterment’s SRI portfolio became known as the Broad Impact portfolio. As your portfolio allocation shifts to higher bond allocations, the percentage of your portfolio attributable to SRI funds decreases. Additionally, a 100% stock allocation of the Broad Impact portfolio in a taxable goal with Tax Loss Harvesting enabled may not be comprised of all SRI funds because of the lack of suitable secondary and tertiary SRI tickers in the developed and emerging market stock asset classes. Betterment’s Broad Impact portfolio is Betterment’s general ESG investing option. The portfolio seeks to give investors greater exposure to all of the different dimensions of social responsibility, such as lower carbon emissions, ethical labor management, or greater board diversity. By investing in funds that consider all aspects of ESG investing, we create a portfolio that grades well with respect to a number of dimensions that socially responsible investors consider when making investment decisions. When creating the Broad Impact portfolio, the asset classes (i.e., portfolio component) that we can confidently replace with an SRI alternative are: U.S. Stocks Emerging Market Stocks Developed Market Stocks U.S. High Quality Bonds Four asset classes use SRI-specific funds—the rest remain similar to the Betterment core portfolio—and that difference has an impact on the social responsibility of an individual’s overall portfolio. For one, many investors are most concerned about the social responsibility of the largest U.S. companies in their portfolios, which often set standards for acceptable corporate behavior that other companies try to emulate. In our Broad Impact SRI portfolio, stocks of companies deemed to have strong social responsibility practices, such as Microsoft, Google, Proctor & Gamble, Merck, CocaCola, Intel, Cisco, Disney, and IBM may make up a larger portion of the SRI portfolio than they do for Betterment’s core portfolio. In addition, a major reason why there are no acceptable SRI alternatives for other asset classes is that the demand for these products has not been sufficient to encourage fund managers to create them. By electing to use the Betterment SRI portfolio strategy, plan participants signal to the investing world that there is a demand for high quality SRI investment options and may help to encourage the development of well-diversified, low-cost SRI funds in a wider variety of asset classes. If you’re interested in a more quantitative understanding of how the Broad Impact portfolio compares to our core portfolio in terms of social responsibility, you can review the SRI ratings published by MSCI, shown below. MSCI’s ratings for the SRI funds used in Betterment’s SRI portfolio are higher than the ratings for the funds used in the Betterment portfolio. For more information on what the numbers mean, read our full whitepaper. MSCI ESG Quality Scores U.S. Stocks Betterment Core Portfolio: 5.94 Betterment Broad Impact Portfolio: 7.31 Emerging Markets Stocks Betterment Core Portfolio: 4.22 Betterment Broad Impact Portfolio: 6.31 Developed Markets Stocks Betterment Core Portfolio: 6.81 Betterment Broad Impact Portfolio: 8.33 US High Quality Bonds Betterment Core Portfolio: 6.13 Betterment Broad Impact Portfolio: 6.91 Sources: MSCI ESG Quality Scores courtesy of etf.com, values accurate as of August 25, 2020 and are subject to change. In order to present the most broadly applicable comparison, scores are with respect to each portfolio’s primary tickers exposure, and exclude any secondary or tertiary tickers that may be purchased in connection with tax loss harvesting. Climate Impact Portfolio Betterment’s Climate Impact portfolio offers investors an SRI portfolio that is more focused on being climate-conscious rather than focused on all ESG dimensions equally like the Broad Impact portfolio. The portfolio achieves this objective by investing in ETFs with a specific focus on mitigating climate change. When compared to the core portfolio, all of the stock positions have been replaced with more climate-conscious alternatives. Half of the stocks in the portfolio are invested in a global low-carbon stock ETF, which systematically overweights companies with lower carbon emissions, while also underweighting their high-carbon emitting peers. The other half of the stocks in the portfolio are invested in fossil fuel reserve free ETFs. These ETFs replicate broad market indices, while divesting from owners of fossil fuel reserves, defined as crude oil, natural gas, and thermal coal. By investing in the Climate Impact portfolio, investors are actively divesting assets away from holders of fossil fuel reserves while cutting their investments’ carbon emissions. Carbon emissions per dollar of revenue in the 100% stock Climate Impact portfolio are half of those in the 100% stock Betterment core portfolio, based on weighted average carbon intensity data from MSCI. The other change from the core portfolio is that the Climate Impact portfolio replaces our International Developed Bond and US High Quality Bond exposure by investing in a global green bond ETF. Green bonds, as defined per MSCI, fund projects that support alternative energy, energy efficiency, pollution prevention and control, sustainable water, green building, and climate adaptation. Social Impact Portfolio Betterment’s Social Impact portfolio offers investors an SRI portfolio that is more focused on supporting social equity and minority empowerment compared to the Broad Impact portfolio. The portfolio achieves this objective by augmenting the ESG exposure achieved in the Broad Impact portfolio with two additional ETFs each with a unique focus on diversity, NACP and SHE. NACP is a U.S. stock ETF offered by Impact Shares that tracks the Morningstar Minority Empowerment Index. The National Association for the Advancement of Colored People (NAACP) has developed a methodology for scoring companies based on a number of minority empowerment criteria. These scores are used to create the Morningstar Minority Empowerment Index, an index that seeks to maximize the minority empowerment score while maintaining market-like risk and strong diversification. The end result is an index that provides greater exposure to US companies with strong diversity policies that empower employees irrespective of race or nationality. By investing in NACP, investors are allocating more of their money to companies with a better track record of social equity as defined by the NAACP. SHE is a US Stock ETF that allows investors to invest in more female-led companies compared to the broader market. In order to achieve this objective, companies are ranked within each sector according to their ratio of women in senior leadership positions. Only companies that rank highly within each sector are eligible for inclusion in the fund. By investing in SHE, investors are allocating more of their money to companies that have demonstrated greater gender diversity within senior leadership than other firms in their sector. Let’s Make Investing More Socially Responsible As employees review our SRI portfolios, they might ask themselves, “Is it more important that my portfolio is well-diversified with reasonable costs, or should my money be exclusively invested in SRI funds, regardless of the cost or level of diversification?” These are insightful questions that get at the heart of the tradeoffs involved in socially responsible investing today. Currently, most accessible SRI approaches make investors choose between a well-diversified, low-cost portfolio and an inadequately diversified and/or higher cost portfolio comprised of SRI funds. Diversification and controlled costs are investing fundamentals that all investors—SRI or not—deserve. They’re principles that live at the heart of fiduciary advice. The only reason other SRI solutions settle for higher costs and less diversification is because the industry isn’t challenged to offer something better. We at Betterment believe we can create a future that does not ask SRI investors to choose. We are committed to achieving more socially responsible investing through our research over time and are tracking the availability of better vehicles for these purposes. Since originally launching the Broad Impact SRI portfolio in 2017 with ESG exposure to only U.S. large cap stocks, we’ve been able to expand the exposure to now cover also developed market stocks, emerging market stocks, and US high quality bonds. We’ve also been able to launch the Climate and Social Impact portfolios which add exposure to focused ESG issues by allocating to assets such as green bonds or gender-diverse U.S. Stocks. As always, we will continue to monitor additional ways to improve our portfolios. In the future, we will improve our SRI portfolio even further, iterating and adding new SRI funds that satisfy our cost and diversification requirements as they become available.