Posts Tagged ‘401k’
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
Important Tips for Managing 401k Fees
If you are contributing to a 401k or you are eligible to receive employer contributions to a 401k account, it’s important to educate yourself on the types of fees involved. Many 401k plans are subject to several types of fees, including investment management fees, trust custody fees and administrative fees. You can’t avoid paying these because they are taken right out of your account, but you can find ways to offset some of the fees and costs.
If you are participating in an employer-paid 401k plan, your employer will usually absorb the cost of administrative fees because these fees are imposed to manage and maintain your account. Here are some important tips for managing your 401k fees:
1. Monitor fees when you leave your job. If you do end up leaving your company that made contributions to your 401k plan, make sure you know who is responsible for paying the administrative fees going forward. Most companies will not pay for administrative fees when the employee leaves their job, so you will end up paying a little extra in order to maintain your account.
2. Take a close look at investment fees. Investment fees are the biggest component of most 401k plans and are deducted from your investment returns. Your account may be subject to sales charges or sales “loads” and commissions that are paid out based on the number of shares bought and sold on the account. Other investment fees include front-end load and back-end load fees, Rule 12b-1 fees (usually imposed on mutual funds), target date retirement fund fees, collective investment fund fees and charges on variable annuities. Make sure you have a good understanding of what these fees are and consider shopping around for lower rates to get the most return on your investment.
3. Review your account statements thoroughly. All of the fees and a breakdown of all fees on each account will be posted on your account statement. Take a close look at the paperwork you receive in the mail or online so that you are aware of the total fees you are paying each month and year. Remember that there are a number of different factors that can impact fees and expenses of your 401k plan. You could be eligible to receive lower fees if you have more assets. Costs can be subsidized if your 401k plan and other services are offered through a bundled program.
Taking some time to learn about 401k fees can help you make some wise investment decisions. Use these tips to manage your 401k plans better and ensure you are getting the highest possible return from your investments.
Tags: 401k, 401k account, 401k advice, 401k basics, 401k fees, 401k maximum contribution, 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
Should You Start or Fund a Business with a 401k Rollover?
If you want to start a business, you may have considered tapping into your 401k account or retirement account to cover your startup costs. This technique is known as a Rollovers as Business Start-up (ROBS) and is actually a questionable technique in the eyes of the IRS. It’s considered to be a risky venture because anyone doing this will wipe out their nest egg in hopes of creating a profitable business. Still, this can be an attractive option for someone who isn’t able to get the financing they need from a bank or credit union. It may also be an attractive option for someone who wants to start a company or business and leave it to their children when they pass away.
The IRS has set some very specific guidelines for anyone who wants to fund a business with a 401k rollover. Here are some of the basic guidelines from the IRS:
- The individual must establish a shell corporation sponsoring a qualified retirement plan
- A plan document must be drafted so that all participants can invest their entire account balances in employer stock
- The individual contributing to the company must become an employee of the shell corporation and be the only participant in the plan. They are not considered to be owners or have any shareholder equity interest.
- The individual can then execute a 401k rollover or direct trustee-to-trustee transfer or available funds from a personal IRA to create a new qualified plan. These funds are still not subject to taxes because they have simply moved from one tax-exempt account to another.
- The participant in the plan must direct investment of their account balance into the purchase of employer stock.
- After the business has been established, the plan can be amended to stop any further investments in employer stock.
- A portion of the proceeds of the stock transaction can be remitted back to the individual in the form of professional fees.
Starting or funding a business with an IRA rollover can be an effective way to generate wealth in the long-term and put your retirement fund to good use. However, it is a risky venture and is generally frowned upon by the IRS. Make sure you’re aware of all of the guidelines and limitations of this type of venture so that you can make the most informed decision about your retirement account funds. Consulting with a financial advisor can help you understand the legalities of this situation and make sure you are making the best decision.
Tags: 401k, 401k benefits
Best Retirement Plans for Small Businesses
Having a 401k account or traditional IRA offers a number of tax advantages and can make it easier to save up for retirement. If you’re running a small business, you will need to decide what types of retirement plan or 401k accounts your employees should have. Some employers choose to match their employee’s contributions up to a certain amount, while others set up a simplified employee pension plan.
In many cases, the employees of a small business can still make contributions to their traditional IRA or Roth IRA on top of employer based plans. Here are some of the best retirement plans for small businesses:
Simplified Employee Pension Plans
Simplified Employee Pension plans (SEPs) only allow the employer to make contributions to the account. The tax-deductible contribution limits are much higher than a simple IRA and typically equate to up to 25% of employee compensation. Employers can set up a SEP-IRA up to the date the tax return is due, including extensions, for the year that they claim the tax-deductible employer contribution.
Individual 401k Accounts
An individual 401k account requires less administration and management than a traditional 401k and allow for contributions up to 25% of compensation and an additional salary deferral benefit. Employers are allowed to establish these types of accounts before the end of the year and can make contributions by the tax-filing deadline.
SIMPLE IRA Accounts
Small businesses that want to make a small matching contribution of 1% to 3% of their employee’s compensation can set up a SIMPLE IRA account for each employee. With this account, employees are allowed to contribute 100% of their income up to the annual limit. Employees who are 50 years of age or older are entitled to contribute an additional $2,500 as a “catch-up” contribution for any given year.
Most of these retirement accounts are fairly easy to establish and maintain, and small business owners can work with a personal financial advisor or accountant for recommendations on a plan that best fits their needs. Different types of plans and accounts are subject to various types of tax benefits and advantages, and each has its own set of contribution limits. Small business owners who want to set up their own retirement savings account or contribute to a self-employed retirement plan also have several options available.
If you’re running a small business and want to offer a more comprehensive benefits package to your employees, consider any of these attractive retirement plans.
Tags: 401k, ira account, retirement accounts
How to Increase Your 401k Performance
Gauging the performance of your 401k can be difficult, especially if you don’t manage your 401k accounts yourself or if you’ve hired a financial advisor to handle your 401k accounts on your behalf. Still, it pays to check the performance of your accounts from time to time, and look for any patterns that may indicate it’s time to change up your portfolio. There are several things you can do to increase your 401k performance, and the first step is to review your accounts periodically.
Some of the best ways to increase your 401k performance include:
1. Never borrow out of your 401k account. Keep on building up that account and avoid the temptation to withdraw some funds or the entire amount in your 401k at any time. Withdrawing early can lead to penalties and eliminate the net worth of your retirement account. The government will make you pay penalties plus interest on an early withdrawal, so the best way to maximize your 401k investment is to keep all of those funds as safe as possible.
2. Always contribute the maximum amount year after year. Each year, the IRS sets a maximum contribution amount for 401k accounts. Make sure you know what this amount is so that you are contributing as much as possible to your 401k retirement. You’ll enjoy ongoing tax benefits and can look forward to a great retirement fund in a few years or decades.
3. Learn about options to diversify your portfolio. Talk with a financial advisor about your options for diversifying your portfolio. You have to make some solid decisions about investing your funds month after month, and want to stick with high-performing, low-risk investments whenever possible. You won’t know what these are until you speak with a professional. Do your homework and find out what your options are so that you can make the most informed decisions about your 401k accounts.
4. Avoid buying company stock with your 401k. Some people choose to diversify their 401k investments by buying company stock. This can be very risky, especially during a turbulent economy. Avoid taking this risk and maximize your 401k performance by investing elsewhere.
5. Don’t underestimate your losses. If you are monitoring your 401k performance year after year but are only comparing the gain or loss between periods, you could be seriously underestimating your losses. Take the time to really learn how your 401k accounts are performing so that you can decide if you are making the wisest financial decisions for the long-term.
Tags: 401k, 401k accounts, retirement, retirement accounts
5 Tips to Manage Your Personal 401k Accounts Better
Whether you’ve just started investing in a 401k or have been contributing to a retirement account for several years, there are several things you can do to manage your personal accounts better.
Use these five tips to manage your personal 401k accounts so that you maximize your return:
#1: Ignore Market Panic
The media is very good at creating a sense of panic and urgency when the stock market tumbles or when investment accounts seem to be taking a nosedive. Don’t fall into the habit of keeping up with news from Wall Street because this will only make you more fearful than you need to be. Ignore the market panic and get yourself ahead by talking to a financial advisor.
#2: Get Help from a Financial Management Company
Some employers have partnered with financial management companies or offer financial planning services to their employees. You may also be able to get some professional help from a financial advisor from your local bank or credit union. Getting help from a financial management company can make it easier to review your options and really gauge the performance of your 401k accounts.
#3: Choose Your Investments Wisely
If you’re a first-time investor, make sure you’re investing your 401k in funds that have a strong return history. It can be tempting to invest in the latest stocks that seem to be doing so well out of the blue, but these can also be more risky. Stick with funds that have shown a good return history for at least three to five years so that you can play it safe while still getting a solid return on your investment.
#4: Focus on Long-Term Goals
Investing in a 401k account is a long-term financial decision, not a get-rich-quick strategy. You will need to focus on contributing the maximum amount possible each year and avoid the temptation of withdrawing some funds or the entire amount from your 401k early. As long as you focus on the long-term returns, you won’t have a need to withdraw early – and pay heavy penalties and taxes on the withdrawal.
#5: Don’t Wait for the “Right Time”
There really is no perfect time to start investing in a 401k account, so don’t wait for the “right time” to open a 401k account and start investing. Get into the habit of contributing to a growing 401k account so that you can build a solid investment for your retirement. The sooner you begin, the easier it will be stick with your long-term financial goals.
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