Managing your 401(k) can seem like a terrible hassle.
Not only do you not have control over which brokerage your employer plan is held, you may have limited access to investment options as well.
Enter Blooom. This new style of robo-advisor works directly with your employer sponsored retirement and gives you the simple 411 on your 401.
How Does Blooom Work?
If you work in a company, you may have signed up for your employer’s retirement plans, such as a 401(k), a 403(b), a 401(a), or others and Blooom is a service that helps you automatically manage that account. The service is entirely online and the optimization and analysis help you understand your portfolio options. If you want a retirement account analysis, it is completely free and as the company puts it, “no strings attached.”
Naturally, you will have to sign up first, and from there, the process is pretty straightforward. On the landing page, you are asked a few simple questions, following which you will be asked to create a password and then log into your 401(k) or eligible retirement account(s). Blooom, in turn, will analyze each of your documents (according to their website, it analyzes your options across 25,000 different funds), telling you their strengths and weaknesses.
A flower represents the strengths and weaknesses of your 401(k), and the graphics that follow are easy to understand. It will show you things such as the hidden fees in your 401(k), do you have the right amount of bonds and stocks, or how to go about reducing your volatility and risk and if you are performing aggressively or conservatively.
Blooom will then make suggestions on ways to fix the problems with your current 40(k) investments, or how to save money on hidden fees, using easy-to-understand comparisons. From then on, the service will take over your 401(k) and will select the investor profile that suits you best. It makes the changes, rebalances your account (on a quarterly basis) and monitors the portfolio.
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Remember that Blooom does not have the power to withdraw from your account, but has the legal power of attorney to manage your account on your behalf. You remain in control of your account and Blooom will inform you if any changes are being made to your account, whether it is you who has made the changes or if it’s Blooom themselves.
Pricing
Regardless of your account size, Blooom will charge you $10 monthly, paid through debit or credit cards, or your bank account. The best part about this is that there is no account closure fees and can be closed anytime without a penalty.
All the changes are done to the account automatically as the market changes. If you have any questions, you have access to a financial advisor through an online chat session.
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Types of Accounts That Work with Blooom
Blooom concentrates on 401(k) retirement plans but also works with 401(a), 401(k), 457 and 403(b) plans in the United States. Your Individual Retirement Plans (IRAs) and other accounts are left untouched. Blooom also works for Thrift Savings Plan (TSPs), which are a contribution plan for members of the uniformed services and United Civil Services. Let’s take a look at these:
401(k)
Simply put, this is a workplace savings plan, that allows employees to invest a part of their earnings before tax cuts. These savings can increase over the years, tax-free and later on, taxed as income upon withdrawal. It is called so because of a section of the Internal Revenue Service code. The savings are boosted by the employer (until a point), who will match the employee’s contribution to these savings. The maximum employee elective deferral to this plan is $18,500, and the defined contribution maximum limit is $55,000.
401(a)
Frequently called money purchase plans, the employer solely directs 401(a)s. With this, the employer will decide on the amount contributed and if that amount is in percentage or a set figure. The most common employers using these types of plans are:
- non-profit organizations
- government agencies
- educational institutes
Similar to the better known 401(k), the amount is taxable once you decide to start taking money out of the plan.
457
Using the same in principle as the other two, with the difference being that it applies to people who are employees of a township, park board, the police, the fire services and senior employees of a hospital, or a union, or a charity.
403(b)
Also known as a Tax Deferred Annuity (TDA) or a Tax Sheltered Annuity (TSA), these have the same characteristics as the 401(k). those eligible for an account must be employees of a public school , corporate hospital service organizations, religious institutions, or any organization that qualifies under 501(c)(3) of the tax code.
The elective deferral limit to this is around $18,000, and annual additions are $54,000.
Thrift Savings Plan
The purpose of a Thrift Saving Plan is to provide retirement income to federal employees and members of the military and offers the same kind of savings like a 401(k) plan.
Company History
Blooom was founded by Chris Costello, Randy AufDerHeide and Kevin Conard, three financial advisors in 2013. The three had around 15 years of managing investment portfolios for wealthy clients but felt that those clients needed the least help to retire comfortably.
The idea came from Kevin, who first thought of building technology for people who Wall Street won’t help (managing their 401ks). The first customers of Blooom were family and friends who were asked to link their retirement accounts to Blooom.
What the trio realized was that most people showed an indifference when it came to their 401ks (they didn’t want to “mess with them”). Soon they were managing 401ks for more than family and friends and others started to notice. Blooom now employs more than 20 people and manages over $200 million in investments.
Pros
Free Analysis
Blooom will not charge you for an analysis of your retirement documents. So, if you like doing things on your own, you can get a free analysis and based on Blooom’s recommendations, you can make those implementations yourself if you agree with them. Alternatively, you get an analysis free anyway even if you do not agree with the recommendations.
Free Cancellation, Any Time!
Blooom’s plans work from month to month, meaning you pay for services every month. Since there is no contract when you sign up, you can cancel its services two days before the next month starts. It is that simple.
Option to Pay with Debit or Credit Card
Most online services are linked to your account and will typically deduct their fee from your investments. Blooom, on the other hand, is connected to your debit or credit card and will deduct $10 every month, without touching your investment.
Review Every 90 Days
If need be, Blooom will rebalance your account every three months. Because of this, you can be sure that your account will remain within the recommended allocations and your targeted goals.
Cons
Too Aggressive about Stocks
A lot of users have felt that by default the service recommends that you invest in stocks aggressively. Even if you want to decrease the percentage of your portfolio invested in stocks, the allocation still favors the stocks.
The emphasis on stock investing leads some users to feel that their risk tolerance is ignored. If you are not someone who is comfortable with investing in stocks, you may want to use some other service.
Limited Options
Blooom does not offer any other accounts other than employer-sponsored plans. There is no option of taxable investment accounts and IRAs yet. So if you have IRA accounts, you will have to look elsewhere. Also, some customers may feel that the free assessment is not comprehensive enough.
Blooom Review Bottom Line
Blooom has stormed onto the scene of robo-advisors with a very unique target market. While they may be too aggressive for some people with stocks, most people will greatly benefit from using the platform.
If you are a person who has no interest or no time to really work on making sure you are in the right investments, then Blooom is a solid platform to help you make good decisions and manage that portfolio.
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