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401k Management: 4 key areas to review

Keys on Key RingMore often than not when I sit down with a new client, some of the first questions I ask are about their 401k. Most of the time, they haven’t reviewed or even looked at it in years. It’s not necessarily a bad thing; many investors are very much aware of how they have set things up. However, many other investors have been “auto-enrolled” in their plans and are not aware of many key areas of 401k management. If this describes you, no need to worry — the next step is to check in on your 401k as soon as you can — with special focus on these main areas.

Review your 401k contributions: don’t leave money on the table

Some companies will match your contributions dollar-for-dollar, up to a limit. Usually it’s somewhere around three percent but can be higher or lower. This means the company will give you a match of three percent as long as you are contributing that much — 100% return on your money, instantly. Other companies make it a bit more confusion, though — so reach out to your HR team or a financial advisor to get the full explanation. You want to make sure you’re not leaving money on the table.

If you can afford to, consider saving more than that. If you have no other major debts like credit cards or auto loans, and you have 3-6 months of savings set aside, consider adding 10% or a bit more to your 401k. There are some simple savings calculators out there to show you what your savings could add up to when you reach retirement.

Dart Board401k management: are your allocations meeting your needs?

If you auto enrolled, chances are your money was put into a “Target Date” fund. There is nothing wrong with funds like this when you are sure they fit your needs. Keep in mind they have a “Year” in the title, like “2050.” That means the closer you get to that date, the more “conservative” the managers tune the

objectives and investment strategies of the fund to be since this date is when investors plan to start withdrawing their money.

For example, they may add more bonds to the portfolio as you go. Give your advisor a call to review your funds or help pick an allocation that fits your need, risk and timeline for retirement.

Remember, the principal value of a target fund is not guaranteed at any time, including at the target date.

Does your 401k have a Roth option?

Some 401ks have added a Roth option. That may be better for you if you if you’d rather pay your taxes up front and have access to your funds tax-free after retirement. However — if you’re in a higher income tax bracket — the traditional option may be better to help keep your taxable income level a touch lower. Talk with your financial advisor and your CPA for guidance on this component of 401k management.

Spending CashDon’t forget your 401k beneficiaries

if you were auto enrolled, you likely don’t have any beneficiaries listed. if you have had any major life changes like having kids or getting married, this is an important area to check. This ensures that your funds will be distributed the way you prefer if something were to happen to you. Too many times, I’ve seen too many plans missing beneficiaries — or that haven’t been updated when a major life event occurs.

Education is also key to 401k management

As you can see, getting in touch with your 401k is important. Educating yourself as much as possible, and getting familiar with your specific program, will help you for years to come. All retirement plans are not equal, so make sure you know yours — or find a financial advisor that can help you. If you have any questions, I’m happy to be of service.

August 2020

Content in this material is for general information only and not intended to provide specific investment, tax, or legal advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal. Distributions from a traditional 401(k) plan are taxed as ordinary income upon withdrawal. Withdrawals prior to age 59 may result in a 10% IRS penalty tax in addition to current income tax.

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