Make the Most of 401(k)
____________
Your 401K plan will likely be your single largest retirement asset. So why are you treating it as just another deduction from your paycheck? Mutual fund choices, consistent contributions, tax-deferred growth, employer matching and decades of compounding are what make this asset such a great vehicle. Many people do not accrue the kind of wealth they should in their 401k, due to one or key mistakes.
Mistake #1
Letting computer algorithms take the wheel. This can happen in many ways.
- First: paying a firm to determine the best allocation based on your answers to questions regarding your investment timeframe and risk tolerance.
- Second: investing in target date funds*.
- Third: investing in asset allocation funds**.
Mistake #2
Failing to coordinate and understand the other investments you and/or your spouse may have.
Mistake #3
Missing the full employer match. Some employers have structured their match in way that requires you to contribute throughout the entire year. This is called the true up contribution.
Mistake #4
Not using the back door ROTH strategy that may be available – Do not confuse this with the ROTH contribution option – this is a third option that allows you to contribute after-tax money.
*The target date is the approximate date when investors plan to start withdrawing their money. The principal value of a target fund is not guaranteed at any time, including at the target date.
**Asset allocation does not ensure a profit or protect against a loss.