How's your 401(k)? If you're like many Americans, you may not have thought about your employer-sponsored retirement savings account in a while.
And while many take a "set it and forget it" approach to their 401(k), that could mean they are not taking full advantage of this retirement planning opportunity. As more Americans rely on their own savings for retirement, it is very important to consider ways to maximize the performance of your 401(k).
These plans often offer a number of benefits to the rational investor, including:
- Pre-tax savings
- Automatic contributions
- Employer matches
Is it time for you to take control of your 401(k)'s health? Our 401(k) advisors share their top 10 tips to whip that retirement plan into shape.
1. Financial Planning - Start 401(k) Savings Early: If your employer offers a 401(k) plan, you should participate in it. Even if you have to start small, the sooner you begin saving, the more your investments will have time to grow -- thanks to the "magic" of compounding interest.
2. Take Advantage of Employer Match: Many employers will match your 401(k) contributions, up to a certain percentage of your paycheck. If you don't take full advantage of this, you're essentially turning down free money. Contribute up to the max employer match.
3. Know Your Numbers: In 2015, you can contribute up to $18,000 to your 401(k). If you're 50 or older in 2015, you can contribute up to $24,000 in order to play catch-up. Hint: Many retirement plan advisors recommend contributing 10 percent of your income to a 401(k).
4. Educate Yourself: It's essential that you understand how your 401(k) works. Don't simply trust that your 401(k) administrator will make the right decisions; it's your retirement, and you must educate yourself as to how to best plan and prepare for it.
5. Utilize Investment Guidance: Work with a trusted wealth advisor or retirement investment advisor and educate yourself as to your 401(k)'s workings. They'll be able to help you allocate your assets to make the most of your contributions and work toward your retirement goals.
6. Rebalance Regularly: If your 401(k) plan offers an automatic rebalance feature, set it to rebalance at least once per year. This will help ensure proper diversification across asset classes, keeping your portfolio in alignment and removing the temptation to emotionally react to market ups and downs.
7. Avoid 401(k) Loans: While some employers allow you to take out loans on your 401(k), try to avoid this if possible. For one thing, the money you remove from your account isn't accumulating compounded interest. Plus, you'll likely pay your account back with after tax dollars, so you're losing a large tax advantage. And finally, if you don't pay it back on time, the loan is treated as a withdrawal making taxes and penalties a possibility.
8. Make Increases Automatic: If you plan allows it, set up your account to automatically increase contributions over time. Whenever you get a raise, your contributions will increase and you won't have to think about it -- just one less thing to keep track of. Automatic increases make the process painless.
9. Be Aware of Fees: Speak with your plan administrator about the fees and costs associated with your 401(k) plan. If you're paying more than one percent, consider making a change.
10. 401(k) Rollover: Got a 401(k) from a previous job? Roll it over into your current 401(k) plan. Just be sure to transfer the funds directly from your previous account into your current account to avoid taxes and other fees.
If you have questions about your 401(k) retirement plan we encourage you to speak with your financial advisor, or give us a call... we'd be glad to help.