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.

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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

How to Make the Most of Your 401k

Investing in a 401k is an important financial decision and it’s in your best interest to start making contributions as early as possible. The American Savings Education Council reports that almost 25 percent of people with access to a 401k don’t even participate, so it’s important that you take control of your finances and take advantage of a 401k plan when it’s available.

Here are some essential tips for making the most of your 401k:

1. Contribute as much as you can, as often as you can. Plan limits change by year, but you will be helping yourself by contributing as much as you can as frequently as possible. Put in the maximum amount each year if you can afford it.

2. Diversify your portfolio. If you want to enjoy the fruits of your labor during retirement, take the time to meet with a financial advisor so that you can spread your assets. It’s usually a good idea to invest in your own company’s stock, but you should also branch out to other investments if you want to maximize the return on your investment.

3. Consider investing in equity mutual funds as part of your 401k plan. Even though the stock market fluctuates a lot in the short term, you can still get a solid return on your investments when you invest in equity mutual funds as part of your 401k plan. Discuss your options with a financial advisor so that you can make the best financial decisions.

4. Find out about employer contributions. Many employers will match your 401k contribution each year that you are building up your retirement fund. Make sure you have submitted all the paperwork and have a copy of all contributions each year so that you know what your 401k looks like at any given time. Make the employee contribution a part of your asset allocation strategy.

5. Don’t withdraw before the withdrawal period. The only way you will be able to get the best return from your lifelong 401k contributions is to leave it there until you reach retirement age. If you withdraw from your 401k early, you will have to pay a penalty and pay taxes on all of your funds. Financial experts recommend making changes to your spending habits and turning to other sources of cash if you need to so that you can leave your 401k fund intact.

There are several ways to maximize the return your 401k, and working with a financial planner or financial advisor can help. Use these tips to make the most of your 401k investment.

Tags: 401k advice, 401k investments, 401k planning

Tips to Avoid the Most Common 401K Planning Mistakes

Planning your 401k is a responsibility you can’t take lightly. Even though 401k planning can feel a little intimidating, there are several things you can do to navigate your way through the process with ease. Many people make the mistake of simply not bothering about 401k planning until it’s too late – you don’t have to be one of them. Here are some ways to avoid the most common 401k planning mistakes:

1. Overlooking your company’s 401K policy. Does your employer offer a 100% or 50% employer match? What paperwork do you need to file to create your 401K plan? Do you get tax benefits? It’s important to learn about what your employer is providing, because 401k benefits vary significantly from company to company. Sit down with HR so you can learn about everything you are eligible for.

2. Borrowing from your 401k. It’s tempting to dip into your 401k when you need some extra money, but you’ll be losing a very valuable investment. Not only will you end up paying penalties and fees, but you will miss out on some tax advantages. Leave the 401k account alone and figure out other ways to obtain the funds you need.

3. Forgetting to rollover your 401k. When you leave a job, it’s critical that you rollover your 401k account to your new employer as soon as possible. Messing up this process can cost you, and you may end up paying  a fee just because your previous employer had to ‘hold’ your account. Get in touch with the HR department at both companies to make sure this transition is as smooth as possible.

4. Waiting too long to make a withdrawal. While it doesn’t pay to withdraw too early, you can also make the mistake of withdrawing too late. The IRS demands that all 401k account holders withdraw from their account the year they turn 70 ½. If you don’t make the required withdrawal by this time, you will end up paying a penalty of as much as 50% of your balance. Talk to your financial advisor to find out exactly what you need to do to initiate the withdrawal.

5. Failing to pay a 401k loan. If you do end up borrowing from your 401k, you have to make the repayment schedule a top priority. Missing a loan payment will result in a penalty and you may end up paying extra taxes.

Tags: 401k planning, 401k tips, financial planning