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Using Your 401k to Plan for Retirement
Posted on: 2007-07-12 14:50:53 Liz Lunn Whether your retirement is decades in the future or only a few years away, you should start planning now to insure that your retirement is spent pursuing your hobbies rather than living from one Social Security check to the next. One of the most common forms of savings for retirement is the 401k plan, which allows you to defer income taxes on money you put into the account until you actually make a withdrawal. However, if you do not handle it properly, your 401k plan can be a losing proposition. Here are a few tips to insure your 401k plan helps you have the retirement of your dreams. Save as Much as You Can - As Early as You Can For those of you who are many years from retirement, a 401k is important, because it can provide a significant source of income for you. Even at small growth rates, the amount of money generated from regular investing in a 401k plan is significant. Start putting away as much as you can afford into an account as soon as possible. If you start when you are young and get in the habit of saving, you will not miss that cash over the years. Get Your Matching Max One way to increase the amount of money in your 401k retirement plan is to make sure you are paying at least as much as your employer is willing to match. Most employers will match a small amount, even as low as half a percent, of the money you deposit into a 401k. Since this is as close to free money as you're going to get, you should take advantage of this offer. Diversity is the Key Make sure that your 401k portfolio is diversified. This means not investing all your money in one sort of industry, such as high tech stocks. You should also not invest a large portion of it in your own (or your employer's) company. Enron employees, who invested primarily in Enron stock, lost the value of their 401k retirement plans when Enron stock plummeted. Do Not Touch the Money Unless it's a matter of life or death, do not fall in to the temptation of taking money from your 401k retirement fund before you've retired. You will pay for early withdrawal including a penalty (usually 10%) and income tax on the money you take out of the account. There are a few exceptions that will allow the penalty (but not the tax) to be waived. You don't get those penalties if you wait until you're 59 1/2 , so do not touch that money! By following these few rules, you'll have a healthier 401k for your retirement, whether you start saving at 20 or at 50. About the author: Planning for retirement can be a little overwhelming. If you need help with retirement funds please visit our site. |