7 Smart Things to Do With Your 401k
Opening a 401k retirement account through your employer may help you better reach your retirement savings goal.
The popular plans provide immediate tax savings and tax deferral – and more.
Even though a 401k maybe one of the best ways to invest in your future, you need to know how to use it.
Here are 7 smart things you should do with your 401k:
Not participating means you miss out on an effective pretax and tax-deferred way to invest. You may also miss out on matching contributions from your employer and access to professional money management.
Take the employer match
Can you afford to pass up on “free money” and the potential growth from that money? Gradually increase your contributions to the level to max out on the company match. The money is taken directly from your paycheck, so it’s like paying yourself first. And try to make small increases each year, like when get a raise or bonus.
Create a game plan
Even if you already contribute to a 401k, it might not be enough. Or you might have chosen the wrong investment categories to achieve your goals. Meet with an investment professional to evaluate your financial situation, discuss your retirement goals and develop a plan. Don’t risk outliving your retirement assets or not having enough money to support your current lifestyle once you retire.
Keep it diversified
Be sure your portfolio reflects a balance between your age, risk tolerance and goals with the appropriate mix of stocks, bonds and cash. Work with an investment professional to develop an asset allocation strategy that can help you diminish investment risk. Keep in mind, asset allocation and diversification don’t assure a profit and doesn’t protect against loss.
Look at the long term
Keep your eye on the prize. Your best defense against market ups and downs is to follow an asset allocation strategy, rather than chasing the latest “hot” investment sector. Review your portfolio at least once a year to make sure it matches your long-term investment objectives to determine if you need to make adjustments.
Keep your savings intact
Taking a loan from your 401k for an emergency or first home is understandable, but you may reduce the amount of money you have at retirement. If you don’t repay the loans, you also can incur penalties* and taxes. And while the loan money is out of your account, it isn’t bringing market returns. If you must borrow from your 401k, keep contributing while you repay.
Avoid cashing in pre-retirement
Cashing in your 401k before retirement means the money loses its tax-deferred status and can be subject it to income taxes and a possible early withdrawal penalty – all of which means having less money for retirement. You usually have these options:
- Keep your old account and start a new 401k account with your new employer
- Roll your 401k assets over into your new employer’s plan
- Roll your old 401k into an IRA and open a new 401k account with your new employer
Take the next step
To find out more about saving for retirement, call us at 1-888-867-5175.
Keep in mind that all investing involves market risk, including the possible loss of principal. Neither Nationwide nor any of its representatives give legal or tax advice.
Withdrawals may be taxed as ordinary income, and may be subject to a 10% penalty if you take them before you’re 59 1/2 years old.
Neither the company nor its representatives give legal or tax advice. Please consult your attorney or tax advisor for answers to specific questions.
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