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Your company may give you choices, but it's up to you to learn how to manage a 401K.
With more any more of your retirement hinging on your investment decisions, you need to keep a careful eye on what's going on in your 401K. making sure to take full advantage of the employer match, re-balancing your portfolio periodically, and knowing what to do with your 401K when you leave your job will help you get the most out of your 401K.
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Manage Your 401K in 1 Minute
This video provides three pieces of advice that it maintains will help you manage your 401K well.
1. Contribute at least as much as your employer will match.
2. Subtract your age from 100, and that will be the maximum you should have invested in stocks.
3. Don't ever invest your 401K in your company's stock.
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Introduction
A 401K plan permits you to save for retirement in a tax advantaged manner. In a traditional 401K, the earnings you contribute to a 401K are excluded from taxable income in the year you contribute them.. There are also Roth 401K plans, which don't give you the tax break up front, but exclude the withdrawals from taxable income when you with draw them under approved conditions. Read on to learn ow to manage your 401K to maximize your benefits. -
Step 1: Understand Your Plan's Provisions
Each 401K is different. Make sure you understand how much you can contribute, when you can change your portfolio choices, and whether or not there is a loan provision. You should be able to find the information in a manual or online. If you haven't received the details, contact your plan administrator. -
Step 2: Take Advantage of the Employer Match
Many 401k plans have a certain percentage of the contribution that is matched by the employer. This is free money, and a great way to accelerate your retirement savings. Check with your plan administrator to make sure you understand if there is an employer match, and what you need to contribute to get it. Make sure you contribute whatever id required in order to get 100% of the employer match, if offered. -
Step 3: Rebalance Your Portfolio Quarterly
If you've selected a portfolio that is managed by the plan administrator, you don't need to worry about this. For example, some plans have selections labeled "High Growth", "Income", or "Balanced", each with a specific ration of stocks to bonds to cash equivalents. These portfolios are constantly rebalanced to meet their targets. However, if your 401Kpermits you to manage your own investments, you'll need to pay attention. For example, if you have decided you want to be 60% in stocks and 40% in bonds, and the stock market does really well, you could find yourself with a portfolio that is 80% stocks and 20% bonds. Take the time to look at your statements each quarter, and adjust your positions accordingly. -
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Step 4: Rollover your 401K if You Leave Your Job
When you leave your job, whether it's your choice or your employer's, you'll have an option to rollover your IRA to a rollover IRA or a new employer's plan. Unless the old IRA has extremely low fees, or a very broad array of unique investment choices, you'll probably be better off rolling it over, rather than leaving it with the old employer. See Mahalo's guide to How to Rollover an IRA for help in navigating through the process. -
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