Tuesday, 30 July 2013

8 Tips for Maximizing Your 401(k)


It’s never too early to start saving for your retirement. Many jobs provide their employees with the opportunity to put money away into a 401(k) before paying taxes. This allows individuals to save money for retirement and lower their taxable income. Understanding how to maximize your 401(k) and put it to work will ensure you to have plenty of money when you reach the retirement age. 

Start Saving Now

If your employer offers a 401(k), grab it. Start saving as soon as you are eligible to adopt the procedure. Many people wait to sign up because they think they have plenty of time before retirement. The earlier you start the greater chances you get to build the account to a suitable level by retirement.

Maximize Your Contributions

When most employees sign up for their 401(k), they indicate a certain percentage of each paycheck to go into the account. You may contribute up to $17,000 per year. If you can afford it is best to maximize these contributions. It is also important to look at your employer’s 401(k) matching program. Always contribute at least as much as your employer is willing to match to maximize the money or put into the savings account.

Think Long Term

The market will fluctuate taking your 401(k) with it will be tough at times. This can often lead to panic and feelings that you are losing more money than you are contributing. Your 401(k) is a long-term investment. Therefore, these short-term fluctuations will have little bearing on the amount you will have at retirement. Don’t panic and lower contributions or change distributions when you have a bad year or two.

Ask for Fee-Free Transfers

Switching jobs can cause issues while handling your 401(k). If the previous institution writes you a check to transfer the funds, you could owe taxes or other fees when you transfer. Instead, ask for the first institution to send the money directly to your new institution to avoid unnecessary fees and taxes. This will save you money and maximize the money in your account.

Find Out When You’re Fully Vested

Some employers will put money into your 401(k) on the contingency that you will remain with the company for a specific number of years. If you leave before this time, then you will lose some or all of the money the employer contributed to your account. Make sure you fully understand how long it takes to turn vested and consider staying with the company for that amount of time so that you can take all your money with you if you leave.

Diversify Your Funds

Some 401(k) plans automatically diversify accounts, while others allow you to select how you want the money dispersed. These plans often use a combination of stocks, bonds and other funds to diversify the risk. At a younger age, it is appropriate to take greater risks with more stocks, while older individuals should put more money into stable investments. Talking to a retirement professional can help you find the right level of risk for your situation.


Don’t Cash It Out

It can be tempting to take out a 401(k) loan to pay for something you may not have afforded to pay down your bills. In some situations, this can be the best solution, but in most circumstances, it is best to deposit your money in your 401(k). Withdrawing money straight from your account before retirement can result in crippling fees and taxes, and you will miss the compounded interest that you might have earn out of the 401(k) plans. 

Learn about Your 401(k)

The best thing you can do for your retirement savings is to learn as much as possible about how it works. Many employers hold seminars and other meetings that allow their employees to learn about the 401(k) plans that company offers. Attend one or several of these for more tips on how to maximize your 401(k) and save the money you need for retirement.
Saving for retirement is important so that you can enjoy life to its fullest. To ensure you make the most of your 401(k), follow these tips and talk to a retirement specialist. 

Stay independent even at your old age. Buck up! It’s fun to have grey hairs.

Author’s Bio:  Joshua John is the digital strategist for MBA@UNC, the online executive MBA from the University of North Carolina-Chapel Hill. Joshua is an avid blogger, with a background in Economics and Information Technology. You can find him on Twitter: @joshuavjohn.


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