9 Steps To Make The Most Of Your 401k
1. Determine How Much Of Your Gross İncome You Can Save, Up To Current Limits Set By The Irs
2. Talk To A Benefits Counselor Of Your Company To Get İnformation About How To Set Up Your 401k Account
3.
Study The Various Savings And İnvestment Options (usually Mutual Funds) Available To You And Determine How You Want Your Regular Contribution Distributed To Those Options
4. Consider Talking To A Representative Or İnvestment Advisors That May Visit Your Worksite For Details About Particular İnvestments
5.
Find Out How "portable" Your Account İs, That İs, How Much Of İt You Can Take With You İf You Leave And When You Will Be "vested"
6. Read Carefully All Prospectuses And Know How Much You Will Be Paying For Mutual Fund Management Of Your Money
7.
Go To The Library And Ask The Reference Librarian To Direct You To Current Sources Of İnformation About Your İnvestment Choices, Or Search The İnternet
8. When You Feel Comfortable With Your Decision, Sign The Necessary Paperwork To Have Your 401k Contribution Automatically Deducted From Your Regular Paycheck
9.
Carefully Review Your 401k Statements, Which Usually Come To You On A Quarterly Basis, And Make Sure You Are Comfortable With Your İnvestment Choices And Their Performance
Tips and Warnings
- If you can afford it, maximize your 401k contributions because they immediately reduce the amount of money the IRS will tax, and all of your gains grow tax-deferred.
- With most plans, you can borrow money for emergencies or special circumstances from your 401k account.
- Most companies will allow you to purchase company stock within your account.
- If your company provides "matching"
- putting into your account what you put in
- contribute at least what your company will match (usually a percentage of your gross income, for instance, 3%).
- Remember that this money is for your retirement, so long-term investment strategies are appropriate.
- When you approach retirement years, begin to study ways of managing your 401k account when you leave and make sure that you know all of your options and their tax consequences, if any.
- Mutual funds are securities and are market-sensitive; the value of your account may fall in value.
- Watch your funds' performance, but don't panic if you see a precipitous drop in value, especially in the more aggressively-invested funds; remember, when the value of the fund drops, so do "share prices," so, in a way, you bought them "on sale."
- Don't just "set and forget" your fund allocation; stay current, and if there has been a change of fund managers, or a significant change in how the money in the fund is invested, further research is called for.
- If you plan to leave the employer that provides your 401k plan, find out well in advance exactly what options you have in moving your money to another employer's plan, or rolling it into an a personal IRA account.
- Be careful if you buy company stock in your 401k; if you have a high percentage of your money in company stock and the company fails, you could see virtually all of your retirement savings disappear (drop to zero in value).
- Don't borrow from this account unless it is absolutely necessary.
- Cashing out part or all of your 401k account before 59 1/2 years old will trigger a tax-event and penalties in the year that you take the money.
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