In this video, I discuss the tremendous advantages given to a railroader when he couples up his 401k and Railroad Retirement Annuity into a single retirement portfolio. I also discuss:

1. Using your Railroad Retirement Annuity as a baseline for understanding risk.
2. Social Security vs Railroad Retirement
3. The concept of Risk in your portfolio

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Disclaimer: This video is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.

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If you are a railroad employee, you may be eligible for both a 401k plan and a Railroad Retirement Annuity (RRA). Both these retirement options provide financial security for your golden years. However, it is essential to understand how these plans can work together to maximize your retirement savings and benefits. In this article, we will discuss how you can couple your 401k with your Railroad Retirement Annuity.

1. Understand the basics:
Before delving into the details, let’s establish a foundational understanding of each plan. A 401k is an employer-sponsored retirement savings plan that allows you to contribute a portion of your pre-tax income. These contributions grow tax-free until withdrawal, which typically occurs after the age of 59 ½. On the other hand, the Railroad Retirement Annuity is a pension-like payment that provides monthly income to eligible railroad workers upon retirement. The RRA is based on your years of service and earnings in the railroad industry.

2. Maximize your 401k contributions:
To make the most out of your retirement savings, it is crucial to maximize your 401k contributions. Take advantage of your employer’s matching contribution, if available, as it essentially provides free money toward your retirement. Try to contribute at least the maximum amount permitted by law, which for 2021 is $19,500 (or $26,000 for individuals aged 50 and older). By contributing the maximum, you reduce your taxable income and increase your overall retirement savings.

3. Coordinate benefits with your Railroad Retirement Annuity:
When it comes to coordinating your 401k with your Railroad Retirement Annuity, you need to be aware of the Windfall Elimination Provision (WEP). The WEP may affect your Social Security benefit if you are also eligible for a Railroad Retirement Annuity. However, this provision does not impact your 401k. By strategically planning the coordination of your benefits, you can minimize any reduction in your Social Security payments.

4. Diversify your investment portfolio:
While your Railroad Retirement Annuity provides a steady monthly income, it is essential to maintain a well-diversified investment portfolio through your 401k. Take advantage of the various investment options available within your plan, including stocks, bonds, and mutual funds. Diversification minimizes risk and increases the potential return on your investment. Consider consulting a financial advisor to help you make informed decisions that align with your retirement goals.

5. Adjust your risk tolerance:
As you approach retirement, it is wise to adjust your investment strategy within your 401k. Depending on your risk tolerance and how long you plan to work, you may want to shift your investments toward less volatile options, such as bonds or stable-value funds. This adjustment helps protect your retirement savings from significant market fluctuations as you near your desired retirement age.

6. Explore other retirement savings options:
Besides your 401k and Railroad Retirement Annuity, it is worth considering other retirement savings options, such as Individual Retirement Accounts (IRAs) or Health Savings Accounts (HSAs). These accounts offer additional tax advantages and can further diversify your retirement savings.

In conclusion, coupling your 401k with your Railroad Retirement Annuity can provide a solid foundation for a comfortable retirement. By maximizing your contributions, coordinating benefits, diversifying your investments, and exploring additional savings options, you can optimize your retirement savings and ensure a secure financial future. Remember to consult with financial professionals who specialize in retirement planning to help you make the most informed decisions for your unique circumstances.