Most Americans have the bulk of their net worth in their homes and employer sponsored plans, like a 401k. You may think that 401k’s have always been part of the work place but that’s not the case. The 401k got it’s start in the late 1970’s and a lot has changed since then. The nature of our country’s work force, wages, qualified plan contribution levels, even the type of contributions an employee can make have changed. Namely, the ROTH option now found in many plans. No matter the changes qualified plans remain an important and relevant part of the long-term financial plans for most Americans. As a result it makes sense to give such an important financial tool its due attention. Here are few thoughts to help you stay on top of your plan.
- Remember that as important as a plan like a 401k may be, it is only one part of your over all financial situation. The dollar amount you contribute should be coordinated in the context of your larger financial picture. Namely, cash flow.
- Understand your contribution options; pre-tax, post tax and ROTH may all be options. How you allocate your hard-earned dollars, should be a decision that takes into account your overall financial position as well as you mid to long-term objectives.
- Make a deliberate decision on how the money is invested. Meaning, don’t just settle on the “default” option. If you need some guidance, seek it out. It can be worth it in the long run.
- If you are over 50 and you feel you’re behind there is a “catch up” provision. Understand what it means to increase your contributions and how it impacts your personal cash flow.
- Look to discover which parts of your plan, if any, offer you the option to make “in service withdrawals.” This may create additional ways to prepare for creating streams of income in retirement.
As always, Build your Plan before building your Portfolio.