Archive for the ‘401k basics’ Category
3 Good Reasons to Participate in a 401K Plan
If you want to enjoy a comfortable retirement, one of the best financial decisions you can make is to participate in a 401k plan. A 401k can protect a significant amount of your savings from taxes and help you build up a sizable nest egg within a few short years. It’s becoming increasingly evident that Social Security payments from the government alone won’t do much for ensuring a comfortable retirement. These benefits are limited and may not even be worth much by the time your retire. Building up a 401k account can be one of the best ways to protect your hard-earned dollars and look forward to your Golden Years with less stress.
Here are three good reasons to participate in a 401k plan:
1. Tax benefits. Perhaps one of the biggest reasons to participate in a 401k plan is that all of the money you put into this account is exempt from taxes. You don’t have to pay a single dollar in federal or state taxes when you leave the money untouched in a 401k account. Any investment earnings you make in your 401k account can also be tax-deferred. This is the perfect example of putting your money to work for you. The tax benefits may seem small at the beginning, but as you contribute more and more money to your retirement account, you’ll find that you’re saving a significant amount just from the relief from taxes.
2. Easier to save in the long-term. You can literally put your savings on autopilot when you’re putting a portion of your paycheck towards a 401k. If your goal is to build wealth and improve your financial situation for the long-term, automating your savings can help you reach your goal that much faster. You simply authorize your employer to deposit a portion of your paycheck directly into a 401k — -instead of a direct deposit checking account – and you can sit back and watch your savings grow. This is valuable money management skill to have and also offers a high return on your investment.
3. Employer matching for your contributions. Find out if your employer will match any 401k contributions. This is a benefit that only some employees end up taking advantage of and could be just what you need to build up that retirement account quickly. Employers typically match your contributions up to a certain limit each year which means you could earn even more per paycheck.
Should You Suspend 401k Contributions to Pay Off Debt?
If you are carrying a heavy debt load and have been making contributions towards a 401k account, you may be wondering if it’s time to suspend 401k contributions and pay off some debt. Adjusting your cash flow to pay down debt is usually a good idea, but how valuable is it for you to stop saving money towards retirement in order to do so? This is a common question that people who are carrying thousands of dollars in debt have, so you need to take an honest look at your finances and decide what debt payoff strategy would be right for you.
Calculating How Long it Takes to Become Debt Free
One of the first things you need to do to determine if suspending your 401k account to pay off debt is a good idea, is to calculate how long it will take you to become debt free. If you are realistically able to pay off your debt within 18 months using the money you were putting towards the 401k account, it might be a good idea. If you will still have a few thousand dollars in debt while eliminating your 401k contributions, you won’t really gain anything from making such a drastic change. In this case, you will be better off continuing making contributions to grow this important savings account, and slowly hacking away at your debt load as you can.
Suspending 401k Contributions
If you do decide to suspend 401k contributions, you must make sure that you are only using those funds to pay down your debt. If you end up spending that money on frivolous purchases or don’t even account for the extra money, you will be giving up more than just the face value of that allocation. Remember that 401k contributions are tax-free and you are making a very valuable investment by building up that account. Stopping payments towards this account and just spending the money now will have a negative impact on your financial future. As long as you are putting the entire sum towards your debt payoff strategy, you will be putting yourself in a much better financial position in the long-run.
Stopping contributions to your 401k account is a personal decision and one you need to make when you have an accurate idea of your financial situation. If you think you can pay off your entire debt load within two years, suspending contributions may be a wise choice.
Tips for Keeping Your 401k in Good Shape in the New Year
If you’re ready to improve your financial situation in the New Year, make sure you don’t neglect the value of your 401k. Your 401k account is a very valuable asset and can help to set you on the path to a comfortable retirement. Saving for retirement doesn’t have to be too much of a struggle when you get your finances in order and make sure you’re being consistent with your contributions. There are also several ways you can keep your 401k in good shape throughout the year. A little planning and budgeting is all it really takes to maintain a healthy retirement account
Here are some essential tips for keeping your 401k in great shape in the New Year:
- Take advantage of employer contributions. Make sure you’re making the most of your employment benefits by participating in a company-sponsored plan right away. The sooner you start contributing to your 401k, the more money you will have available through an employer match. Employers do have limits on how much they can contribute, but they will be able to offer a generous amount as part of your benefits package.
- Don’t touch those funds. While it may be tempting to withdraw from your retirement account when you’re faced with an emergency situation, you’ll miss out on some very significant tax benefits. Remember that all of that money isn’t taxed until you pull your money out, so your investment is much more valuable in this tax-free account than a regular savings account. Avoid tapping into this account at all costs so you can make the most of your investment come retirement time.
- Contribute more this year. If you haven’t been contributing the full amount possible towards your 401k, make this the year that you maximize your contributions. Find out what this year’s contribution limits are and plan to make generous contributions to your account throughout the year. Having the funds directly deposited from your paycheck will make it easier to save this money because you won’t have to make the extra deposit yourself. Just ask your employer to take the money right out of your paycheck so you are only left with take-home pay.
Keeping your 401k account in great shape may take some effort, but your hard work will pay off. Make the most of employee benefits and make sure to leave this account alone for as long as possible to get maximize the rewards.
Tags: 401k, 401k account, 401k tips
Tips for Managing Your 401k Before You Retire
Knowing how to manage your 401k before you retire can help you get the most out of your savings strategy and ensure that you have enough money available throughout your retirement. If you’re not sure how to handle your 401k account and make contributions throughout your working lifetime, check in with a financial advisor to make sure you are on the right track and are getting the most out of your retirement savings account. Some careful planning and being consistent with your savings strategy can help you get the most out of your 401k plan.
Here are some important tips for managing your 401k before you retire:
- Plan out your savings strategy for several years before retirement. The key to building up a solid 401k account is to save well before retirement. You won’t be able to earn a generous return on your investment if you wait right up until you are going to retire. It’s likely that you’ve probably worked most of your lifetime to save for retirement, so it’s important that you continue contributing to the savings account and check your portfolio regularly to make sure you’re on the right track. Planning in advance and keeping yourself in check can help you put aside the amount of money you need to retire comfortably.
- Assess your income sources. Take a good look at your financial situation to determine what types of income you have available during retirement. Will you have access to social security benefits? Income from a side business? Rental income? Or any other sources of income that you haven’t really thought about? Create a list of all possible sources of income and then calculate your total expenses for the month and year. Anything that isn’t covered by your income sources will need to be paid for out of your 401k retirement funds.
- Avoid early distributions. Withdrawing money from your 401k account early will cost you in tax penalties and you could end up paying high early withdrawal fees. Avoid taking money out of your 401k when you can. Remember that those funds will remain tax free as long as you keep them in the account until your official retirement date.
Knowing how to manage your 401k before you retire is essential for saving a decent amount of money for a comfortable retirement. Use the tips above to ensure you are getting the most out of your 401k savings plan and reach your savings goals for the long-term.
Tags: 401k retirement, 401k tips
Tips for Keeping Your 401K on Track
Even when you’re dealing with economic hardship or are troubled by the economy, it’s important to keep your savings strategy on track and keep contributing to your 401k account. 401k plans are designed to provide you with financial security when you are no longer able to earn an income with a regular job. Whether you choose to retire early or are planning for a standard retirement, it’s important to set up a 401k contribution plan and savings strategy that works for you in the long-term.
For many people who are employed full-time, the 401k account is already set up and their company is contributing to the account along with their regular contributions. Those who are self-employed or want more control over their 401k account will need to seek out the help of a financial advisor so that they are making the right choices with their investment strategy.
Here are some important tips for keeping your 401k on track:
- Contribute more when your income goes up. If you get a salary increase at any point in your career, make larger contributions to your 401k. Some employees are subject to automatic increases for their 401k plan contributions when they get a raise, so find out if you are eligible for this by checking with your human resources representative. If the increase is not automatic, you will need to contribute more individually. Talk to a financial advisor on what this process entails so that you don’t miss out on the opportunity to build up your savings account.
- Consider building your portfolio on your own. If you’re willing to take some time to learn about your investment portfolio, learn about the different investment options available to you so that you are making the best choices with your savings account. Sometimes the “default” options aren’t enough to prepare you for a comfortable retirement, so you may need to explore other types of accounts and investments. Talk to a financial advisor to learn more about your options.
- Don’t withdraw money from your 401k at any time. Taking money out of your 401k account prematurely can prevent you from getting the highest return on your investment. Do whatever you can to avoid having to withdraw from your 401k account or you could end up paying high fees and a tax penalty on the balance. Consider as many alternatives as you can for coming up with cash you need, and protect your 401k.
Tags: 401k early withdrawal, 401k tips
5 Steps to a Healthy 401(k) Plan
401(k) plans offer a number of benefits and can help you build up that all-important savings cushion you need for retirement. If your employer is contributing to your 401(k) and you are being consistent with your own contributions, you can build up a healthy savings account and look forward to a comfortable, stress-free retirement.
However, there are several things you need to do to make sure your 401(k) account stays healthy. Here are just five steps to a healthy 401(k) plan:
1. Be aware of your rights. You can start contributing to your 401(k) plan after one year of being with your employer. Take some time to learn about your rights as an employee and the benefits you are eligible to receive after one year of employment.
2. Automate your 401(k). Set up an automatic transfer of your contribution after each paycheck so that you don’t have to take the extra steps to make an actual deposit into the account. Automating your contributions can make it much easier to just “set it and forget it”. You’ll be able to build up that 401(k) account without having to think about it each time you receive your paycheck.
3. Take advantage of employer-matching. Check with your employer’s HR department to learn about your benefits and find out if you are eligible to receive an employer match for all contributions. Many corporations and some small business owners do match employee contributions, and this can be a great benefit for you in the long-run. Remember that these contributions are completely tax free, so you are essentially getting a “tax free raise”.
4. Don’t borrow from your 401(k) when you’re strapped for cash. If you’re running low on funds and need cash fast, don’t borrow from your 401(k) account. You will be paying a price for taking out this loan and will have to pay a penalty for withdrawing from the account. If you do end up leaving your job that is paying for some of your 401(k), you will have to pay the penalty and taxes on the withdrawal, unless you repay the entire amount in full.
5. Contribute up to the maximum amount whenever possible. You are permitted to contribute a certain amount each year and the IRS adjusts this limit on a regular basis. Make sure you know what this amount is so that you are contributing up to this amount year after year. Remember that none of those dollars will be taxed, so it is in your best interest to contribute as much as possible up to the contribution limit.
Tags: 401k, 401k account, 401k advice, 401k basics, 401k plans, 401k rules, 401k tips
Tips for Dealing with a Bad 401(k)
Most employers offer a 401(k) plan to employees as part of their benefits package, but what happens when you find out that your 401(k) really isn’t that good? A good 401(k) plan includes a variety of investments and doesn’t impose extensive fees for maintaining it. A bad 401(k) may only include a couple of weak investments and you may be responsible for paying hefty fees just to keep it. If you find that your 401(k) isn’t as good as you though it would be, and you think you might be better off getting your own account, here’s what you need to do:
1. Assess your current investments’ performance. A good 401(k) plan doesn’t include a lot of your company’s own stock. If yours does, it may be time to find out how well your other investments are performing. Find out how other funds are doing on the stock market by looking for the funds’ ticker symbols online, or in the newspaper.
2. Decide if the employer contribution is enough. A good employer 401(k) account matches about 50 cents for every dollar an employee contributes. If your employer is contributing much less than that, consider other investment options. In the long-run, the employer’s contribution may not be worth it and you could be better off with your own account or different type of investment account.
3. Take a close look at fees. Mutual fund fees should be minimal, but some types of accounts require you to pay very high fees to keep the account active. Many accounts also impose administrative fees. If your employer has set up an account that has very high fees, it may be time to make some changes.
4. Start contributing less to your employer-matched fund. If you do decide that your employer’s 401(k) is costing you more than investing in a regular account, it’s time to reallocate your investment dollars. Talk to a financial advisor about setting up an independent account but continue to contribute to your 401(k) – only much less than you have.
5. Remember you can roll your 401(k) into an IRA. When you leave your company, you do have the right to roll your 401(k) into an IRA, and this could open up even more investment options for you. Keep this in mind as you begin making your financial and investment decisions, and work with a financial advisor for tips and suggestions. Your financial advisor can guide you through the rollover process and ensure that you are making the most of your investment dollars.
Tags: 401k advice, 401k planning, 401k tips, bad 401k
What You Should Know About 401(k) Fees
Whether you’re contributing to a company 401(k) or have set up a plan independently, you need to be aware of the fees that get posted to your account each month and year. Many companies that offer 401(k) plans work with investment companies that charge very high service fees – often much higher than the average. Calculating what these fees, surcharges and administrative costs are can be challenging, but once you’ve identified them, you can take steps to modify your contribution amount or set up a new account with lower fees.
Some of the most common fees associated with today’s most popular 401(k) accounts include:
Trustee fees – these are paid out to an individual who is in charge of handling the contributions. Some employers hire a trustee internally, while others work with a third-party to oversee the account. Whatever the case may be in your situation, trustee fees could be putting a dent in your 401(k) account.
Investment advisory fees – these are a set of ongoing charges and fees imposed to your 401(k) just to manage your assets. These are usually calculated as a percentage of the value of your 401(k), so they do change over time.
Administration fees – these are among the trickiest fees to catch and are often imposed on 401(k) accounts to cover the cost of legal services, customer service and accounting services. Administration fees vary significantly by plan and employer, so take some time to learn what these fees may be.
Recordkeeping fees – some companies impose these types of fees to make sure all transactions are accounted for and documented correctly. Your employer may be paying someone to do this in-house, or they may work with a recordkeeping company or accounting firm. In either case, you may be seeing some extra fees on your account to cover the cost of this extra service.
Sub-transfer agent fees – if you are working with a brokerage firm, the company may subcontract some of the recordkeeping activities and other services to a third party. If they do, you will be footing the bill for the services in the form of fees. These fees will vary by brokerage and may not always be easy to catch. They’re also a type of indirect fee on investment accounts.
Distribution fees – also known as 12b-1 fees, these include commissions to brokers, marketing expenses, and advertising expenses. They usually don’t exceed 1 percent of your 401(k)’s value per year, and are considered to be one of the indirect fees.
Tags: 401k advice, 401k disadvantages, 401k fees, 401k planning, 401k tips
401k Mistakes to Avoid in 2011
If you’re determined to improve your financial situation in 2011 and protect your 401k, you’ll need to make sure you’re not making some costly mistakes this year. Even though the economy has slowed and we are still in the midst of a recession, it’s important to continue contributing to your 401k, up to your contribution limit whenever possible. Many people make the mistake of not contributing when the market is down so that they can save money .However, this can be a risky move and reduce your tax benefits in the long run.
Here are some 401k mistakes to avoid in 2011:
1. Borrowing against your 401k. If you’re strapped for cash and turn to your 401k for help, you could be losing a lot of money in the long-run. Tap into an emergency fund or look for other resources if you need to cover some costs. Borrowing against your 401k in 2011 is not a good idea and you could end up lose lots of tax benefits and money.
2. Putting your 401k funds into a money market account. Even though money market accounts may seem less risky than a 401k and offer a high return on your investment, they don’t have the same tax advantages and benefits as a 401k account. Avoid transferring your 401k funds into a money market account and focus on building up your 401k instead. Use other savings and funds to put towards a money market, if you feel that you have found a good interest rate.
3. Suspending 401k contributions. As stated earlier, many people make the mistake of stopping making contributions to their 401, account because they want to save money, or feel that the market is fluctuating too much and having a 401k is a risky venture. Suspending your 401k contributions can be a risky move itself and will limit the amount you will be able to save over the course of the year. Remember that you can continue contributing to your 401k up to the contribution limit, so be consistent about it and make a commitment to stick with it. Your 401k retirement account will always be a work in progress and something that you will need to keep building, regardless of the state of the economy.
Protecting your 401k account in 2011 and making some wise financial decisions will help to improve your financial position. Keep these 401k mistakes in mind when you are reviewing your 2011 financials, and look forward to a solid retirement plan in the near future.
Tags: 401k advice, 401k mistakes, 401k tips
Tips for Keeping Your 401K on Track
Even when you’re dealing with economic hardship or are troubled by the economy, it’s important to keep your savings strategy on track and keep contributing to your 401k account. 401k plans are designed to provide you with financial security when you are no longer able to earn an income with a regular job. Whether you choose to retire early or are planning for a standard retirement, it’s important to set up a 401k contribution plan and savings strategy that works for you in the long-term.
For many people who are employed full-time, the 401k account is already set up and their company is contributing to the account along with their regular contributions. Those who are self-employed or want more control over their 401k account will need to seek out the help of a financial advisor so that they are making the right choices with their investment strategy.
Here are some important tips for keeping your 401k on track:
- Contribute more when your income goes up. If you get a salary increase at any point in your career, make larger contributions to your 401k. Some employees are subject to automatic increases for their 401k plan contributions when they get a raise, so find out if you are eligible for this by checking with your human resources representative. If the increase is not automatic, you will need to contribute more individually. Talk to a financial advisor on what this process entails so that you don’t miss out on the opportunity to build up your savings account.
- Consider building your portfolio on your own. If you’re willing to take some time to learn about your investment portfolio, learn about the different investment options available to you so that you are making the best choices with your savings account. Sometimes the “default” options aren’t enough to prepare you for a comfortable retirement, so you may need to explore other types of accounts and investments. Talk to a financial advisor to learn more about your options.
- Don’t withdraw money from your 401k at any time. Taking money out of your 401k account prematurely can prevent you from getting the highest return on your investment. Do whatever you can to avoid having to withdraw from your 401k account or you could end up paying high fees and a tax penalty on the balance. Consider as many alternatives as you can for coming up with cash you need, and protect your 401k.
Tags: 401k basics, 401k tips