401k Tips and Advice
1. Participate The first step is to just participate. Only 75% of people who are eligible to participate in this long term tax deferred retirement plan take advantage of it. It isn’t wise to just look the other way, especially considering that they can be automatic once they are set up, meaning you don’t have to “remember” to deposit money into them every month. 2. Start Early The younger you are when you start the more likely you will reach your goals. Investing can be a long term process and the more time you let your money grow the better off it will be. Also let’s not forget that contributing every month for 40 years can really add up as well.
3. Take Advantage of Employer Matching Not all employers match your deposits, but if yours does it is in your best interest to get as much as you can, After all it is free money. For example if your employer matches you $.50 on the dollar for up to $10,000 and you are only contributing $5,000 a year you are missing out on an extra $2,500 worth of free money each and every year. Over the long term that can really add up. 4. Review Annually One of the 401k tips that people may overlook is to review their plans annually. This way you can check out what your fees are and how your account has performed. These are very important, but remember that your account is also based on the current market. If stocks have just took a huge hit you can expect your account to take a similar hit as well. The goal is to have your money increase over the long term, so one or two bad years can probably be overlooked. 5. Stocks Have The Best Return Over the long term stocks have the best return. Investing into bonds and money markets may be safer, but they will also give you smaller returns. If you have a self directed 401k make sure you look into mutual funds that invest into stocks, especially if you have a long time to wait until retirement. 6. Don’t Withdraw Early One of the best 401k tips you can get is to not withdraw early. The 401k withdrawal rules state that if you take your money out early you will have to pay a 10% early withdrawal penalty. In addition to that you also have to pay taxes it. What this means is if you take money out of the plan early you will see a good chunk of the money literally vanish before your eyes. That is not the only reason why professionals who give 401k plan advice will tell you to keep it invested. Any money that you take out of the plan cannot continue to grow. If you take out $10,000 from your account today that may mean you have lost $30,000 in future profits. Letting your money grow is normally the best option. 7. Don’t Take Out loans The 401k loan rules seem pretty attractive at first. You can get a loan with a very low interest rate, you are not taking out a withdraw, and it is in most situations better than a simple withdraw. This is why over 20% of 401k participants decide to take out a loan at one time or another. However one of the best 401k tips you can receive is to never take out a 401k loan unless you absolutely need to. There are just too many disadvantages. • Most plans will stop you from contributing more money into your plan while you have a loan out, this stops your investing altogether. • If you fail to pay the loan back it will be treated as a early withdraw and you will have to pay penalties and taxes on it. • If you leave your work you will have to pay it back in full within 60 days of you leaving. • It is not being invested while it is out If you have a loan out for a very long time it can severely hurt your retirement so think twice before considering it. There is a reason why this is one of the 401k tips. 8. Transfer Instead of Rolling over If you are leaving your job and choose to do a 401k to IRA rollover you will have to receive the money and deposit it into the new account. The only downside is that you will only receive 80% of the money in your account; the other 20% is withheld to pay for things like taxes and fees. You have to come up with the additional 20% of your account to deposit if you don’t want it to be counted as an early withdraw and therefore raise your taxes. And if you have a large account this can be hard to do. On the other hand it is just easier to have the money transferred between accounts to avoid all the headaches and to avoid possible getting charged extra fees and taxes. 9. Make up Contribution The 401k Contribution limits allow you to contribute up to $16,500 in 2010. But if you are over the age of 50 you qualify to contribute an additional $5,500 into it. Take advantage of this extra limit, especially if you are down and need a little extra money in your retirement account. Just do it These 401k tips and advice can work out great and can really be a big help when it comes to retirement planning, but unless you actually start, nothing will happen, so get going. Return From 401k tips to 401k information
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