Easy Ways to Strengthen Your 401k Accounts

You probably already know how important it is to save for retirement, and when you’re doing your best to build up your 401k account, you can improve your financial standing by making a few key decisions. Strengthening your 401k accounts will help you maximize your investment and ensure that you have a solid amount of funds available when you retire. Here are some easy ways to strengthen your 401k accounts:

1. Keep on contributing no matter what the economy looks like. Many people make the mistake of stopping or reducing their contributions to their 401k during a recession or economic downturn, but you don’t have to be fearful about investing during turbulent times. You may have lost some of your investment, but it’s important to keep on contributing and “ride out the storm”. In most cases, a recession makes it a great time to buy, so if you have the funds available, consider expanding your portfolio and making larger investments – and look forward to a higher return.

2. Understand your risks. If you are within a few years of retirement, make sure you understand the risks involved with withdrawing from your account and overinvesting. Consider how your actions now would affect an account you have spent decades to build. You can learn more about this by talking to a financial advisor.

3. Be patient. Don’t expect too much too soon from your 401k. Take small steps to build a solid account and invest in the lowest-risk investments as you build so you that are not vulnerable to market turbulence. Be patient as you watch your investment grow and you will get the highest returns on your investment.

4. Don’t borrow from your 401k account. Even when times get tough and you are low on funds, don’t make borrowing from your 401k account an option. Protecting your account should always be a priority, and you need to find other ways to stay ahead financially if you want to make the most of your long-term investments. Take the time to review all of your financial options when you need financial assistance so that your 401k account remains untouched.

5. Learn about your 401k fee structure and options. Sit down with a financial advisor to learn about the fee structure of your 401k account and review your options for investments. Find out if you are paying excessive service fees, and consider shopping around for better account options. Your financial advisor can introduce you to several plans that meet your objectives at the lowest possible cost.

Tags: 401k, 401k account, 401k benefits

Roth 401k Versus Traditional 401k Plans

The Roth 401k became available to employees interested in a retirement plan in January 2006. Since then, thousands of employers have added the Roth 401k to their list of employee benefits, and many employees are enjoying the value of tax-free withdrawals and the flexibility of this type retirement account.

The Roth 401k plan has many similarities to a traditional 401k, and can help you to increase your savings potential as you work towards retirement. Here’s a close look at the Roth 401k and its similarities and differences to traditional 401k plans:

How Roth 401k Plans Work

As long as you follow IRS rules, having a Roth 401k account allows you to enjoy tax-free income upon retirement. Roth 401k plans are investment accounts and is now offered as a benefit by many employers. The plan allows account holders to defer a certain amount of their after-tax income to build up a solid savings account for retirement. The contribution limits for Roth 401k are the same as those for traditional 401k plans, and this limit changes from year to year.

The Roth 401k is only available for employee deferrals, which means that any employer contributions, such as profit sharing, employer matching are not included.

Anyone who chooses to participate in an employer’s 401k or 403b plan is eligible for a Roth IRA account, and you will not lose eligibility if your income increases to a certain level. Employers simply provide a form where you can designate whether all or some of your contributions should go to a Roth 401k account.

Roth 401k Plans vs. Traditional 401k Plans

The simplest reason to choose a Roth 401k plan is that you will be able to maximize your tax-free income received after retirement. Roth accounts are typically more valuable because distributions from these types of accounts are not taxable. Building up savings in a Roth account can make you much wealthier than traditional savings accounts during retirement.  Many financial experts emphasize that the Roth 401k plan will make you wealthier in the long run.

Some of the similarities between the Roth 401k and a traditional 401k plan are:

• Rollovers allowed
• Account holders can begin withdrawing funds after 59 ½ and are required to withdraw funds after 70 ½
• An early withdrawal penalty of 10% plus taxes is imposed
• Account holders can withdraw funds if they experience financial hardship, early retirement or termination of service

Making some sound investment decisions well before retirement can help you grow your savings within a few short years, and ensure that you will be paying less taxes on your income, no matter what your tax bracket ends up being.

Choosing a Roth plan may mean paying more tax in the year of the contribution, but this won’t reduce your taxable income. The main difference will be in the total amount you end up saving, so there is a very positive cumulative effect from this investment approach.

Tags: 401k, 401k advice, retirement plans, roth plans

How to Move 401k Funds to a Roth IRA

If you are enrolled in a traditional 401k plan or employer based 401k plan, you may be able to look forward to a solid retirement fund. However, some people choose to convert a 401k to a Roth IRA to enjoy all the tax benefits. In order to execute this financial maneuver, you will need to first roll over your 401k into a traditional IRA account. Both of these accounts are not taxed as they are built, and a financial advisor can help to transfer the amounts to a traditional IRA.

There are several pros and cons you need to consider with a Roth conversion. You will need to consider your current marginal income tax rate and the tax rate you expect to reach during retirement so that you are making the best financial decision. With a Roth IRA account, there is no requirement to make minimum distributions and you will be able to pass the investment on to your heirs. If you can anticipate your taxable income during retirement, you may be able to make a more solid financial decision.

Another important thing to consider when you are moving 401k funds to a Roth IRA is the number of years you have before retiring. IF you have a long time until retirement, you will spend more time earning back the taxes you paid at the time of conversion. Consider this factor when you are taking the steps to rollover your account.

The IRS has determined that anyone is allowed to convert their IRA funds to a Roth IRA account without penalty. You will be required to pay income tax on these assets, and will need to work directly with a financial advisor to begin the conversion process. The tax will be based on your marginal tax rate, and you need to make sure all of these transfers are made from one account to the next. It’s best to avoid taking control of these assets personally, or you risk taxation.

If you want to optimize the IRA and Roth IRA conversion process, keep in mind that you don’t have to convert your entire account in a single year. It can be better to spread out the conversion over three to five years. To make the most of your conversion process, check your current year’s taxable income and compare it with next year’s rates, based on your estimated income.

Moving 401k funds to a Roth IRA isn’t the best financial strategy for everyone, but there are some benefits to performing the conversion. Check with your financial advisor to find out if you may be a good candidate for this type of financial strategy.

Tags: 401k, 401k rollover, roth ira

Benefits of Investing in a 401k versus an IRA

Many people open an IRA account in their early twenties in hopes of saving a significant amount of money for their retirement and cashing in on the tax-free benefits. IRA accounts do offer several benefits, but so do 401k plans. Company 401k plans are very similar in scope to traditional IRA accounts because the contributions are invested before any taxes are taken out.

This lowers the account holder’s adjusted gross income, which means the account holder pays less taxes each year without any penalties. However, there are a number of benefits of shifting contributions to a 401k plan. Here’s a close look at the benefits of investing in a 401k when compared to an IRA:

Understanding Types of IRA Accounts

Individual Retirement Accounts (IRAs) are a popular investment strategy for many people. These are individual investment accounts, so there are no company matches involved. The two types of IRA accounts available are Traditional IRA and Roth IRA accounts. The biggest benefit of having a traditional IRA account is that the funds can be deductible and any money invested before taxes will give you an immediate tax break.

Roth IRAs are non-deductible, but the distributions made during retirement are exempt from taxes. This is one of the key reasons why people choose a Roth IRA instead of a traditional IRA. If you are interested in becoming an IRA account holder, you need to meet certain tax and income requirements, and eligibility is based on your overall income, marital status and filing status.

Choosing Between 401k and IRA Accounts

One of the key reasons why people choose a 401k plan is because many employers will be able to match contributions throughout the individual’s career. However, some company 401k plans have several limitations and may end up costing you more in the long run. IRAs are attractive investment accounts for others, because they are individually-owned and controlled. The account holder gets to choose how much they want to invest each month, and where their investments are going. For example, IRA account holders decide whether they want to invest their money in ETFs, stocks, bonds, or other types of funds. Roth IRA plans have the added benefit of allowing for tax-free withdrawals.

If the company you are working for doesn’t offer a company 401k plan or contribution match, your best option may be to open a Roth IRA account. Roth IRA accounts give you a lot of flexibility and allow you to withdraw your money without paying taxes during retirement.

There are a number of benefits of investing in a 401k, instead of a traditional IRA or Roth IRA. However, 401k plans may have some limitations. Talk to your financial advisor or human resources department at your company to discuss the benefits and drawbacks of these accounts, and make the most informed financial decisions for your future.

Tags: 401k advice, 401k plans, retirement plans, roth ira