Is your 401k feeling lonely? Does it exist somewhere in that no-man's-land between neglected and completely forgotten? If so, you're not alone; many investors have a "set it and forget it" mentality when it comes to their 401k.
However common it may be, ignoring your 401k isn't the best of financial strategies. Without a bit of attention now and then, this retirement plan probably won't work as hard for you as it should. Here's what 401k advisors have to say.
401k Rebalancing: Part of the Financial Planning Process
When was the last time you rebalanced your 401k? This important practice is recommended by 401k advisors and helps keep your assets properly allocated. Why is this important?
Because if your assets aren't balanced, you might be exposing your portfolio to unnecessary risk. Say, for instance, that you've got about 60 percent of your assets invested in stocks and 40 percent in bonds. Now imagine that stocks are providing healthy returns -- but you don't rebalance your allocations. Over time, you're holding about 85 percent of your assets in stocks, as opposed to only 15 percent in bonds.
Regardless of how the market is performing, you're exposed to much more risk than you were when you first allocated your investments. If there's a market correction, your retirement nest egg could take an (unnecessary) hit.
Luckily, this potential problem is relatively easy to address. Simply meet with your 401k advisor every six months or so and bring your asset allocation back in line with the diversified plan you originally instated; this plan should be aligned with your:
- Personal level of risk tolerance
- Your investing goals and time horizon
- Conditions in the market
Financial Strategies: Increase Your Contributions to Your Account
Do you remember the last time you increased your contributions to your employer-sponsored retirement plan? If it's been awhile, it may be time to increase the number.
For 2014, the IRS allows a maximum annual contribution of $17,500 for workers under age 50, for both traditional and safe harbor 401k plans. In 2015, that threshold goes up to $18,000 per year. If you're over age 50, you can contribute $5,500 more in 2014 and $6,000 more in 2015. Take advantage of these limits by saving as much as you can.
If you have to start small, don't worry. Every bit counts over time. You can ask your employer about an automatic increase option, so you don't forget to increase your contributions as your income grows. Aim to increase your contributions by at least 1 percent per year, if possible, and if you pay off debt, get a raise, or alter your budget, consider contributing more.
401k Rollover Options: Have You Forgotten Something?
When you change jobs, do you remember to rollover your 401k? Many Americans forget to bring their 401k plans along to their new place of employment. Instead of helping grow your nest egg, these so-called "orphaned" 401k plans simply sit there.
Don't let your hard-earned money go to waste. If you suspect you have an orphaned 401k, call your former employer and talk to the HR department. They may be able to help you track down your plan provider. You can also search for orphaned accounts online through the Pension Benefit Guaranty Corporation or the National Registry of Unclaimed Benefits.
When you find your old account, you may want to roll it over to your current 401k account, if the balance is under $10,000. If it contains more than $10,000, you may want to consider rolling over to an IRA. Your wealth advisor can help you evaluate your 401k rollover options.