A 401(k) plan allows you to invest easily for your retirement, defer any related taxes and you could have up to three percent matched by your employer. Make sure you know what you’re doing when you invest, as most people choose a plan, glance at it once in a while and never take the time to be sure they’re getting the most out of their investment. Manage your 401(k) well now, and you’ll have much more money and less hassle when you retire.
What is a 401(k)? – A 401(k) plan allows you to set aside a portion of your regular paycheck into a tax-deferred investment. Congress established the 401(k) plan to encourage Americans to save for retirement. Consider starting at a lower percentage and gradually increasing by one percent each year until you reach the maximum allowed.
The Company Match – Not only are 401(k) plans tax-deferred, but may include a matching contribution from your employer. That alone can make a 401(k) one of the best investment options available – get as much as you can out of the company match. Make sure you know what the rules are when you decide how to invest as companies can choose to withhold their matching funds for up to three years. Always take advantage of any company matching program.
Taking Out a Loan – One out of four employees choose to borrow from their 401(k) plans. Combine the rate for the loan with the returns you’ll lose and the option might not seem quite as attractive. Be aware that the loan will become due immediately should you quit or be fired. If you’re considering changing jobs, look into rolling over your 401(k) as early as possible.
A Balanced Portfolio – Finally, you should balance your portfolio just as you would any investment. Every 401(k) has a limited number of choices, so do your homework. No more than 20 percent should be invested in any one option. Confirm whether or not there are fees associated with the purchase of the funds. Fund Fees can be a significant portion of your investment and be sure you understand how those funds will be taxed.
If you’re interested in reviewing, setting up, rolling over or need more information on 401(k) plans, call Tim Shaner, president of Capital Consultants a Wealth Management Group at 661-259-1644. Visit our website www.capitalconsultants.org or email me at tjshaner@capitalconsultants.org .