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10 Strategies to Effectively Manage Your 401(k)

10 Strategies to Effectively Manage Your 401(k)
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Friday, 19 January 2018 07:21 AM Current | Bio | Archive

As many of you know, the vast majority of corporate America is eliminating pension plans due to the high cost. What does this mean for you, the employee? It means that you are now responsible for the very future of your retirement.

For many of you, the largest asset you own besides your primary residence is your 401(k) (or similar type of employer sponsored retirement plan.)

However, very few people have a thorough understanding of how their 401(k) works. Critical components such as contribution limits, employer matching contributions, loan provisions and the underlying investments can be complex for beginners.

Today, I will educate you on a few simple strategies to effectively manage your 401(k).

Remember, for most of you this is one of the largest assets you will own. Most importantly, it is an asset that could provide you with the majority (if not all) of your retirement income. It is time to effectively manage it.

Let’s get started:

  1. Know the current tax year’s contribution limit to your plan. For 2017, total contributions to all of your traditional and Roth IRAs cannot exceed $5,500 if you’re under 50; $6,500 if you’re 50 or older; or your taxable compensation for the year if your compensation was lower than this dollar limit. But remember to check with your plan administrator as your company’s contribution limit may be less.
  1. Know your employer’s matching contribution percentage. Remember, this is free money. If your employer matches your contributions, it is best to max out your own contribution to make the most of their assistance. Many companies offer as high as a 6% match!
  1. Create or have created for you by a financial professional, an asset allocation plan. This plan will help you decide what sectors of the market you want to be invested in based upon your risk, goals, etc. He or she can tailor the allocation to your specific goals, needs and values so the plan works for all aspects of your life.
  1. Create or have created for you by a financial professional, a growth plan. This plan will forecast how much money you need to accumulate for retirement. In addition, the plan should address how much income the asset could generate for you in retirement. You may be able to test a few mock growth plans with the help of free retirement finance calculators.
  1. Regularly monitor and re-allocate your 401(k) portfolio based upon current market and economic conditions. What may be an appropriate allocation today may not be one in a month. We are experiencing volatility in the market right now and the allocation must adjust accordingly. If you already have a trusted financial advisor, he or she may be able to give you additional guidance or help monitor your portfolio.
  1. Know how many trades you can make each year. Many plans now limit how many trades you can make each year, so it is a smart strategy to determine this limit ahead of time. If those trades exceed the plan’s rule, the plan administrator may freeze your account for a period of time.
  1. Know which funds within your 401(k) are subjected to trading restrictions. This is something relatively new that we are seeing. Certain mutual fund companies will charge you a redemption fee if you sell the fund within a certain number of days or months from when you purchased it. The redemption fees can be very expensive, sometimes in excess of 2% of the fund value.
  1. Ask about your plan’s loan provision. I am not recommending you take out a loan against your 401(k), but it is nice to know the rules if you need to do so someday. Most plans offer the loan provision, however, you must remember that there could be substantial taxes and penalties if you are not able to repay the loan. Keep in mind: whatever your loan amount is, that amount of money is not working for you in the market as long as it is out of your retirement account.
  1. Create a buy and sell discipline. You should determine what price you are willing to pay for a mutual fund prior to buying it. More importantly, you should decide what price you are willing to let it fall to prior to selling.
  1. Don’t be afraid to become defensive. We are seeing some very volatile market conditions. Most 401(k) investors never think to go defensive within their 401(k), in other words, moving the entire account balance to the plan’s money market fund or into fixed income. They instead ride the value down on the hopes that someday it will regain its value. Don’t do this! Be proactive and re-allocate regularly.

In my opinion, 401(k)’s are one of the most powerful retirement savings tools available.

Like any investment, they must be closely monitored and re-allocated as market and economic conditions change.

This is also true if and when your personal risk tolerance changes.

Remember, your 401(k) may become your largest asset, but more importantly it could be one of your primary sources of retirement income.

Jon Sanchez is a registered representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment adviser. Are you ready to build a portfolio that meets your goal? Meet with Reno’s premier financial adviser, Jon Sanchez. Contact (775) 800-1801 or visit www.sanchezwealthmanagement.com to learn how our team can serve you.

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JonSanchez
As many of you know, the vast majority of corporate America is eliminating pension plans due to the high cost. What does this mean for you, the employee? It means that you are now responsible for the very future of your retirement.
strategies, effectively, manage, 401k
895
2018-21-19
Friday, 19 January 2018 07:21 AM
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