The Health 401(K)

At the intersection of wealth and health lies a profound insight: the greatest asset you can possess isn’t in your bank or brokerage account, but in your body and mind.

Enter the concept of the “Health 401(k)” – a mindset shift that could redefine how we approach our well-being.

For decades, the 401(k) has been emblematic of the American dream and the promise of a comfortable retirement.

It’s all about playing the long game, about making consistent investments today for a return that’s realized years down the line.

Given that our body is the vessel carrying us through this marathon of life, why not apply this forward-thinking approach to our health?

The Economics of Health

First off, let’s dispense with the notion that health and finance are distinct realms.

In the 21st century, it’s hard to underestimate just how much they’re intertwined. Also, lest we forget, medical bills remain one of the leading causes of bankruptcy in the U.S.

Conversely, good health can be one of the most potent wealth multipliers.

Here’s why:

  1. Increased Productivity: A healthier individual is, more often than not, a more productive individual. This isn’t just about the days you don’t call in sick but about the enhanced cognitive and physical performance. It’s an edge in a hyper-competitive economy.
  2. Longevity Dividend: Living longer gives you more time in the market, amplifying the effects of compound interest. Imagine adding another decade of investment returns to your portfolio because you took your health seriously.
  3. Reduced Medical Costs: This one’s a no-brainer. A healthier life today translates to fewer medical interventions tomorrow. The astronomical costs of healthcare treatments can be curbed, or at least postponed, with proactive health management.

Investing in Your Health 401(k)

Embracing a Health 401(k) mindset means prioritizing and investing in your health with the same discipline and foresight you apply to your financial portfolio.

Here’s how to get started:

  1. Regular Check-ups: Think of this as an audit… for your health. Just as you’d periodically review your 401(k) performance, regular health check-ups are vital. These serve as indicators of how well your investments (in diet, exercise, mental well-being) are paying off. Consider working with a doctor who practices integrative and/or functional medicine.
  2. Diversify Investments: A savvy investor wouldn’t put all their funds into a single stock. Similarly, health demands attention across multiple fronts – nutrition, physical activity, mental wellness, sleep, and routine medical care.
  3. Avoid High-Risk Behaviors: Just as you’d be wary of a high-risk, dubious-return investment, avoid health behaviors that pose unnecessary risks. This includes excessive consumption of alcohol, smoking, and neglecting sleep.
  4. Hire the Right Advisors: Seek guidance from professionals. Nutritionists, personal trainers, therapists – these are the ‘financial advisors’ for your Health 401(k), guiding you to make the most optimal decisions.
  5. Long-Term Vision: Good health, like good wealth, is a marathon, not a sprint. Crash diets and extreme fitness regimes can be likened to get-rich-quick schemes. They may offer short-term gains but can be detrimental in the long run.

The ROI of Health

In the digital age, human capital – our cognitive and physical prowess – has become paramount.

The Health 401(k) isn’t just about dodging diseases or living longer; it’s about enhancing the quality of those added years (i.e. maximizing healthspan).

A study by the Journal of the American Medical Association indicated that individuals with healthier lifestyles not only live longer but also experience fewer years of disability.

This means more years doing what you love, be it traveling, playing with your grandkids, or starting that business you always dreamt of.

The Bottom Line

There’s a reason why we respect the 401(k): it represents foresight, discipline, and the promise of delayed gratification.

It’s time we bring the same respect and discipline to our health.

The next time you make a decision about what to eat, whether to exercise, or how much to sleep, think about it as making your daily deposit to your Health 401(k).

In the grand ledger of life, your health and wealth are entries on the same page. And like any smart investor will tell you, it’s always wise to balance and grow both portfolios concurrently.

So, invest in your Health 401(k) today, and reap the dividends for years to come. Your future self will thank you, both in vitality and in net worth.

Virtual Event [Client-only]: The Health 401k

Join us for the final Wellth Webinar of 2023 hosted by certified wellness coach, exercise physiologist, and founder of Grow Wellthy, Stevyn Gunnip.

You will learn:

  1. Why a 401k mindset toward your health is a smart financial move.
  2. Four contributions you can make to maximize your health 401k.
  3. How to automate “deposits” so they happen like clockwork.

SIGN UP USING CODE “WHEALTH”: Webinar Registration – Zoom

Disclaimer: The information provided in this newsletter is for educational purposes only and should not be considered as medical advice. Always consult with your healthcare provider before making any decisions or changes to your healthcare plan.

To 529, or Not to 529?

…THAT is the question.

Like us, you may be debating the best way to save for your child’s education.

You have also probably heard of the most notable account for education saving and investing: The 529.

Named after Section 529 of the Internal Revenue Code, the 529 college savings plan is a tool many parents and grandparents turn to when thinking about funding future educational expenses.

But like every financial instrument, it has its strengths and weaknesses.

Let’s dig into this more.

Pros of the 529 Plan:

  1. Tax Advantages: The 529 is unique in its tax benefits. Contributions grow tax-free and, when used for qualified educational expenses, withdrawals are tax-free too.
  2. State Incentives: Depending on where you reside, your state might offer additional benefits. Many states provide tax deductions or credits for 529 contributions. These incentives can be a cherry on top of your savings strategy, but their value varies by state.
    1. Find out how your state compares: How Much Is Your State’s 529 Plan Tax Deduction Really Worth? –
  3. Flexibility: Contrary to popular belief, 529 funds aren’t limited to just tuition. They can be used for a range of educational expenses, from books to room and board. Moreover, if one child decides not to pursue higher education, the beneficiary can be easily switched to another family member.
  4. K-12 Private Education: Post-2017 tax reform, families can use up to $10,000 per student per year from their 529 plans for tuition expenses at an elementary or secondary public, private, or religious school. This widens the scope of the 529 beyond just higher education.

Cons of the 529 Plan:

  1. Limited Use: If you end up not using the funds for qualified expenses, be prepared to pay taxes and a 10% penalty on earnings (though not on your original contributions).
  2. Impact on Financial Aid: Money in a 529 plan can impact a student’s eligibility for financial aid. It’s not as detrimental as assets directly in a child’s name, but it’s a factor to be aware of when planning.
  3. Lack of Investment Options: Unlike other investment accounts, state 529 plans often have limited investment options.

The Changing Landscape of Education

It’s also important to recognize the shifts in our educational environment.

In the 1970s, roughly 70% of jobs that offered a path to earning middle class income did not require a college degree. Now, nearly all those same jobs require one.

As a college degree became more and more of a necessity, the cost of college rose 497% (more than 2x the rate of inflation) between 1985-86 and 2017-18.

It begs the question of how long this can continue and whether the juice is still worth the squeeze.

Today, with the rise of AI, online courses, and DIY learning platforms, the traditional norms of education are being challenged. We’ve officially entered an era where a college degree might not hold the same weight or necessity it once did.

What if your 529 is overfunded?

  1. Hold for Future Use: Just because a beneficiary doesn’t need the funds immediately after high school doesn’t mean they won’t in the future. Graduate programs, specialized training, or even a decision to return to school later in life could mean the funds come in handy down the road.
  2. Change the Beneficiary: As mentioned previously, one of the most flexible features of a 529 plan is the ability to change the beneficiary without incurring any tax penalty, as long as the new beneficiary is a family member. This could be a sibling, cousin, grandchild, or even yourself if you’re considering furthering your own education.
  3. Non-Educational Withdrawals: If you’re sure the funds won’t be used for education, you can make non-qualified withdrawals. Be prepared to pay income tax and a 10% penalty on the earnings portion of the withdrawal, though. Your contributions, since they were made with after-tax money, are not subject to these penalties.
  4. Fund Beneficiary’s Roth IRA: Starting in 2024, unused funds from a 529 plan can be rolled over into a Roth IRA for the account’s beneficiary without penalty. This new tax-free rollover rule — part of SECURE 2.0 — means you don’t have to worry about the current 10% penalty on the earnings if a) you’ve got money left over and b) are comfortable putting it towards the beneficiary’s financial future. The rollover is limited to $35,000 and is subject to annual Roth IRA contribution limits.

529 Alternatives:

  1. Coverdell Education Savings Accounts (ESA):
    • Pros: Funds can be used for elementary, secondary, and post-secondary educational expenses. They offer tax-free distributions for qualified educational expenses.
    • Cons: Contribution limits are relatively low ($2,000 per beneficiary per year), and there are income restrictions for contributors.
  2. UGMA/UTMA (Uniform Gift/Transfer to Minors Act) Custodial Accounts:
    • Pros: No limit on contributions and can be used for any expense benefiting the child, not just education.
    • Cons: Funds in these accounts are considered the child’s assets, which can impact financial aid eligibility. Additionally, once the child reaches the age of majority (often 18 or 21, depending on the state), they gain full control over the assets.
  3. Savings Bonds (e.g., Series EE and Series I):
    • Pros: Interest from these bonds may be tax-free if used for qualified educational expenses, and they offer a safe, government-backed investment.
    • Cons: They often provide lower returns compared to other investment vehicles.
  4. Prepaid Tuition Plans:
    • Pros: Allows parents to pay today’s tuition rates for future education, effectively “locking in” the current rates.
    • Cons: Typically limited to state public universities, and if the child attends an out-of-state or private college, the plan may not cover all costs.

The Bottom Line

To 529 or not to 529, that is indeed the question.

The landscape of education and financial planning is complex and ever-changing. While 529 plans offer unique benefits, they may not be the perfect fit for every family.

As you consider the future of your child’s education, take into account the myriad of options available and weigh their pros and cons carefully.

There are no one-size-fits-all solutions.

Whether you opt for a 529, explore alternative savings methods, or combine multiple approaches, the key is to be informed, proactive, and always keep the best interests of your child at heart.