How to Get the Most From Your 401(k)

The 401(k) may well be the best investment tool ever for building long-term wealth, so I’m always surprised by how many people don’t take full advantage of it.


They make a few snap decisions on a hectic first day at a job, hand in the paperwork and they’re done.

Big mistake!

A casual “hands-off” approach like this could cost you literally hundreds of thousands of dollars by the time you retire. And that’s nothing to sneeze at!

Is it time to take a second look at your 401(k)? Here are seven ways you can maximize your retirement savings starting right now — even if your plan only offers a few investment options. You’ll be amazed by the difference it can make!

Tip #1 — Start Investing for Retirement

There’s no time like the present to start investing. That’s especially true now that the new tax law has increased contribution limits for 401(k) plans and other tax-deferred plans in 2012. However, so many workers put off starting to invest till “later” — after the car is paid off, after the kids finish college, after the new house is purchased. The amount of time that you have money invested works in your favor — almost overshadowing the particular investments you choose. This is particularly important in your 401(k) account, since you are investing tax-deferred.

Tip #2 — Use Only the Best Funds Available to You

While most employers provide a limited selection of funds from which to choose for your 401(k) plan, you should not just put a percentage into each available fund. That’s not what we mean by diversification. Depending on the length of time unil you retire, you’ll likely want to invest most of your 401(k) plan dollars in stock mutual funds, and maybe a little in bond funds. It’s rare that money market funds or guaranteed investment contract (GIC) funds are appropriate for 401(k) plan choices. Yet every plan has one.

Tip #3 — Get Your Employer to Match

Many employers match a certain percentage of your 401(k) contributions. This is free money. You can’t do better than that. However, even if your employer doesn’t “match” contributions, you still will benefit from participating in a 401(k) program — your paycheck will be reduced by the amount of your 401(k) contribution before you pay taxes on your salary. The government doesn’t see that money, but you will!

Source: http://www.investorplace.com/2011/11/401k_plan_get_most_from_it/