Don't Make These 401k Mistakes

A 401(k) provides you with a great way to save for the future. Unfortunately, however, this doesn’t mean that you can’t mess things up. Even though a 401(k) may seem pretty foolproof, people still make common mistakes with their retirement accounts that could end up costing them big. Make sure that you’re not guilty of any of the following.    

Mistake #1: Saving Without a Strategy

One big mistake that many people make with their 401(k)s is just saving randomly. They don’t have a clue how much money they’ll need in retirement or how much savings they need to be aiming for, so they just sock the money away with no real plan or strategy.

Don’t make this error yourself. Consider working with a financial adviser to determine approximately how much you’ll need in retirement. Then, you can start working toward that figure in a logical, pre-planned way...which is a whole lot better than just tossing money into your account and hoping for the best.

Mistake #2: Getting Hit with Fees

Fees are pretty much an inevitable part of having a 401(k), unfortunately. If you’re not careful, though, you could end up facing so many fees that they negate some or even all of what you’ve saved, which defeats the whole purpose of having a retirement account in the first place.

To avoid this problem, make sure that you are aware of the fees charged by your plan and that they’re reasonable compared to other 401(k) plans of similar size. Then, keep track of when these fees are assessed and come up with a plan to help you compensate for the loss of fees so that your account stays healthy and beneficial to you.

Mistake #3: Getting Your Investments “Out of Whack”

If you’re smart, you engage in asset allocation to try and keep your investments balanced and consistently beneficial to you. However, you can’t just balance your investments once and then leave it at that. Most accounts need to be rebalanced fairly consistently to keep everything going the way you want it to. To take some of the pressure off you, you may want to try an automatic rebalancing program or simply hire an investment adviser to handle this “balancing act” for you.

As you can see, it’s easy to make mistakes with your 401(k), but it’s also easy to avoid them if you are aware of common blunders and their solutions.

401K, Annuities and Retirement

For almost forty years now, 401(k) plans, individual retirement plans, and other types of qualified retirement plans and accounts have been the most common way for people to save for retirement. It used to be that the pension was the popular way to put away money for retirement, but, ultimately, pensions had so many faults that most people now steer clear of them   

Some of the issues that people had with pensions were things like losing money if a place of employment was left before reaching a certain number of years, having great difficulty or being unable to access pension funds before retirement, and being unable to control the asset base.

Fortunately, though, 401(k)s and most other retirement plans don’t have these types of issues. Now, people who hold such plans can withdraw or roll over the funds in their accounts if they change employers. They can also control the asset base and get a “loan” from their own accounts if needed.

None of this is to say, of course, that 401(k)s or any other plans are perfect. No, they still have some issues as well, such as having to guarantee income and being reliant on the market. This is why many people are moving into purchasing annuities in today’s world.

Annuities, which can be purchased through insurance providers, guarantee some type of payout over a period of time. There are immediate annuities, which immediately start growing money from the moment the annuity is purchased, as well as deferred annuities, which grow even before you activate annuitization, and guarantee a monthly payout.

You are able to decide whether you want an immediate or deferred annuity as well as whether you want a fixed annuity, a variable annuity, or a fixed indexed annuity. Special “riders” or guarantees can also be added to annuities to make them more beneficial to you.

If you think that annuities sound like they could be a good match for your needs, then talk with your accountant or financial adviser to determine which one is the best fit for you!

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The Skinny on Self Directed 401(k)s

You probably already know that saving for retirement is important. Hopefully, you also know that there are a variety of ways in which you can save for retirement. One of the most common of those ways is through a 401(k), but it’s important to understand that there are actually several different types of 401(k) plans. One of the best types, especially for people who wish to have more control over their pre-tax retirement contributions, is the self-directed 401(k).    

Invest the Way You Want

With a standard 401(k), you really aren’t responsible for managing the plan yourself, which some people like. If, however, you’d actually like to have more control and invest the money the way that you want to, then a self-directed 401(k) is the right choice for you

With this option, you can choose your own stocks, mutual funds, and bonds, or you can even choose to invest in alternate ways, such as real estate or commodities.

The thing to keep in mind, though, is if you want to be successful with a 401(k), you do need to know HOW to invest, which takes a lot of experience and knowledge. If you don’t have that, then, unfortunately, you might have a hard time investing wisely.

Not having investment experience, however, does not mean that you can’t have a self-directed 401(k). It just means that you might need a little help understanding your investment options and choosing the best ones to meet your retirement needs and goals. That’s where hiring a skilled, experienced investment adviser can really come in handy. These professionals can help you to make decisions about your self-directed 401(k) and related investments that are going to benefit you both now and in the long-run.

The bottom line is that, if you want more control than a basic 401(k) plan offers, go with a self-directed option, and seek help if you need it. If you can follow these tips, then you should have great success with saving for retirement!

Don't Roll Over Your 401K If..

The nice thing about a 401(k) is that you can always choose to roll it over into an individual retirement account (IRA) if you change jobs or are just looking for a positive change in terms of investment options and reduced fees. However, it’s important to understand that, while the “rollover” can often be wise, there are some scenarios in which you should never choose it. For best results, don’t choose a rollover if...  

You’re 55-59

If you haven’t yet reached the age of 59.5, and you make the choice to do a rollover, you’ll be faced with an unwanted 10% penalty. The only exception is if, after age 55,  you lose your job or choose to leave it. That “exception” though is pretty protective of your best interests because when a job change comes into play, penalty-free withdrawals are allowed. After a rollover, though, you don’t have this protection...not until you’re 59.5. Since there are no guarantees in life, you’re better off playing it safe and avoiding the rollover and its lessened protection until you’re above the age where it matters.

There’s Company Stock at Stake

If you’ve got a decent amount of company stock in your 401(k) plan, you don’t want to risk losing your tax exemptions with a rollover. You’ll lose out on a potential capital gains tax rate, which can save you a real bundle. Taking that risk just isn’t worth it!

You’re Not Thinking Straight

Changing jobs, especially when it wasn’t your choice to do so, can be an emotional experience. Many people get into this “out with the old, in with the new” mindset when it comes to their old 401(k), and though it can be tempting to think that way, it’s usually not wise. You need to take time to think about whether your old plan or the IRA is the best fit for you, your needs, and your goals, so until you’ve cooled down and talked things over with a financial advisor, don’t make any big decisions that you might regret later.

In fact, erring on the side of caution is often your best bet in all 401(k) and general financial matters. #401KRollover

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How to Spend Smart while You're Young

When you’re young, you often feel like the world is your oyster and that, though your actions may have consequences, those consequences won’t come until much later. In truth, though, those consequences tend to come around more quickly than you might think- especially when it comes to your finances. Plus, chances are that in your youth, you’re not earning as much as an older adult, a fact that makes irresponsible spending all the more...well...irresponsible. To get your financial life started off on the right foot, you need to start making smart financial choices now. The good news is that making those choices is easier than you might think. It’s all about making small steps in the right direction and doing so consistently. 

Open a 401(k) and Handle it Responsibly

While it’s tempting to physically take (and probably spend) as much of your regular paycheck as possible, that’s really not a smart strategy. As young as you may be and as far away as the future and things like retirement may seem, they will be here sooner than you think, and that means you need to be preparing for them. One of the best and easiest ways to do that is by opening a 401(k). This strategy is even smarter if your employer is willing to match your contributions. Take advantage of that match if it’s available, but don’t feel like you need to contribute to your 401(k) to the max. You still need enough money to survive and even to have a little fun.

Don’t Buy Things You Don’t Need

This one should go without saying, but avoid those frivolous purchases, even if you don’t think they’re costing you much. Sure, that novelty bracelet or that cool vintage t-shirt may only be $5, but if you think that way, those small purchases can easily add up into big debt. This isn’t to say that you can’t splurge from time to time, but keep it in check. One small treat per pay day, after your bills are paid and you’ve stashed some money in savings, is more than enough.

Use Credit Cards Responsibly

Many young people are afraid of credit cards and the debt that often goes along with them. However, don’t be afraid to get a card if you can. As long as you use it responsibly- making small purchases and paying them off as you go- you should be just fine. In fact, you should be better than fine because you’ll be building your credit. If you’ve already made credit card mistakes, however, focus on paying off those balances and avoiding late fees. Once you’re back in the clear, you’ll have a fresh start to do things right with your credit card.

As you can see, there are a lot of ways to take control of your finances, even at your age! Start taking these wise steps now, and you’ll see big pay-off, literally, in the future. 

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Changes for 2015

Tax law doesn’t always stay the same from one year to the next. So, as can be expected, there are a few changes happening in 2015. Many of these changes can mean good things for you providing you are aware of them, understand if and how they relate to you, and do what you need to do so that these changes go over smoothly.   

The myRA

A brand new type of retirement fund is coming in 2015. It’s known as the myRA and comes with one pretty amazing feature: it will never lose its value! People can pay into their myRA accounts, which can be opened for as little as $25, by automatic payroll deductions. The best part is that myRA funds are contingent upon a person’s job, so even if you end up starting a new job, you can still keep your myRA. However, there are income limitations, with those in higher income brackets typically not being eligible to open a myRA. Check with your financial advisor to see if you are eligible to open a myRA and if doing so would be beneficial for you.

A Spike in Contribution Limits

Have you ever wished that you could contribute more money to your retirement account? Well, guess what- now you can. Contribution limits have been significantly raised for several different types of retirement accounts, including:

l  401(k)s

l  457 plans

l  Thrift Savings plans

Some restrictions do apply, however, so speak with your financial advisor about what these higher contribution limits might mean for you. Also, bear in mind that IRA contribution limits are not affected by these new regulations though IRA income limits are rising.

In terms of changes among other types of retirement accounts, Roth IRAs will have higher income cut-offs in the coming year.

Saver’s Credit Threshold Increased

Since their inception, saver’s credits of up to $2000 have been offered for those who meet certain income restrictions and who contribute to an IRA or 401(k). The good news is that some people who previously made too much to qualify for a saver’s credit may find themselves eligible this year, since the credit threshold has increased by up to $1000. 

It’s easy to see that there are lots of positive changes on the horizon in 2015; make sure you make the most of them!