Posts Tagged ‘retirement planning’
Tips for Managing Your 401k in the New Year
If you’re trying to save money for retirement and build your 401k, the New Year is a great time to evaluate your financial plan and make some important decisions about your finances. Many people don’t even take steps to participate in a 401k retirement plan for several years and miss out on saving a significant amount of tax-deferred deposit money. One of the keys to building a 401k is to start as early as possible and to keep contributing no matter what the economic climate may look like.
Use some of these important tips for managing your 401k in the New Year:
Do an Annual Review
If you have been diligent about contributing to your 401k over the past few years, the New Year is a good time to do an annual checkup. Take a good look at how your account is performing and consider the state of the stock market. If you think you may have more money available to contribute to your 401k in the oncoming year, talk to a financial advisor about your options. Your advisor may be able to restructure your account and recommend other investment products that will help you maximize your investments.
Make a Commitment Not to Withdraw Early
401k withdrawal rules and penalties are fairly strict and stay relatively the same from year to year. If you withdraw from your 401k this year, you will probably have to pay a 10% early withdrawal penalty and those funds will be considered income on your tax return. Withdrawing early can take away from the value of your investment that you’ve worked so hard to build, so make a commitment not to touch your 401k this year. Letting your funds grow is still the best personal financial strategy.
Transfer Funds if You Change Jobs
If you end up changing jobs this year, make sure you are able to just transfer the funds from your account instead of rolling over to an IRA. People who leave their jobs and do a rollover usually end up paying fees and taxes that equate to up to 20% of their investment. This can be a high price to pay for your own saving account, so find a way to simply transfer your investments to another account. Transferring your account instead of rolling it over will help you avoid those extra fees, taxes and other charges, leaving you with much more money in your account.
Tips for Protecting Your 401K During a Recession
If you’re one of the millions of people with a 401k account during tough economic times, you may have considered withdrawing funds or reducing your monthly contributions just to stay ahead of the financial game. Unfortunately, both of these strategies can work against you when you trying to maximize your funds.
Even when the Dow Jones Industrial Average drops and the economic climate is looking bleak, it is in your best interest to continue making the largest contributions possible to your 401k account and do whatever it takes to protect your investment. Here are some important tips for protecting your 401k during a recession:
1. Keep on contributing. The people who remain invested will generate the biggest returns in the long-term, according to the financial experts. Even when money is tight, make a habit of contributing as much as possible towards your 401k so that you can keep building your account. Even when the economy is experiencing a financial meltdown, you can secure your tax-free contributions and look forward to a high return on investment during your retirement.
2. Consider diversifying your portfolio. Even though you want to keep things steady during the rough economy, you also want to take the time to assess your risk tolerance and consider diversifying your portfolio for a better return. If you are comfortable with changing your lineup of accounts and investing in funds that will generate a higher return, don’t be afraid to do so. Sit down with a financial advisor and revisit your accounts to see what your options are.
3. Keep buying even when the market’s going down. One of the key principals of investing is to buy when prices are low, and during an economic recession, you can find record-low prices. If you are in a position to do so, consider investing more than usual to reap greater rewards when the market recovers. This can put you in a position to look forward to a healthier savings account that can reach up to 15% savings rates on your income.
4. Don’t cash out your entire account. One of the worst things you can do during a recession is to cash out your account entirely. If you do this before your retirement age, you will be paying high penalties and will also be paying taxes on the total value of the account. Do whatever you can to keep your account in good standing so that you don’t have to pay high penalties and fees.
5. Ask your employer for assistance. Some employers provide investment advice free of charge to their employees. Get some professional advice for managing your account so that you can earn the highest possible annual returns.
Tags: 401k, 401k tips, retirement planning