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10 Tips for Managing Your 401(k) Account


With automatic payroll deduction funneling in contributions without you lifting a finger and target-date fund managers making buy-and-sell decisions sight unseen, the typical 401(k) account can appear to be an ideal set-and-forget solution for retirement saving and investing. However, while you may not have to work hard to manage your 401(k), paying a little attention to it can yield major benefits. Starting with knowing your own goals and understanding your plan’s terms, here are 10 tips for managing your 401(k) account so it aligns with your long-term objectives. A financial advisor can help you get started planning for retirement.

Ideas for Managing Your 401(k) Account

All sorts of things can go wrong with a 401(k). You can drain it by taking out loans for frivolous reasons, giving away so much in excessive fees that it significantly impacts performance, missing out on opportunities for valuable employer matches and even neglecting to join up at all. These 10 tips for managing your 401(k) can reduce the chances you’ll encounter those and other downside risks:

1. Know Your Goals

Your retirement goals may vary according to your current and future projected lifestyle and your age. Spend time thinking about projected expenses in retirement, anticipated sources of income including Social Security and any pensions and how much you’ll need to save.

2. Know Your Plan

Buckle down and read the plan documents. Make especially sure you understand how your employer will match your contributions and when you’ll be vested in employer contributions.

3. Take Appropriate Advantage of Employer Matching

When an employer matches your contributions it can supercharge your savings rate without increasing your current taxes. For most people, this is a windful well worth exploiting to the maximum.

4. Consider Catch-Up Contributions

If you’re 50 older, you may be able to make extra contributions above the usual annual limit. For 2023, up to $7,500 in catch-up contributions are allowed.

5. Consider Using Automatic Savings Increase

how to manage 401k

Some plans let you check a box to make your contribution increase by up to 1% annually. Doing so can significantly boost the final value of your 401(k). You can also elect to raise your contribution automatically when you get a pay raise.

6. Practice Basic Portfolio Management

Diversifying appropriately and rebalancing your asset allocation regularly can help ensure that your 401(k) generates adequate long-term returns without undue risk no matter what the market is doing today.

7. Keep an Eye on Fees

Fees, including mutual fund expense ratios, have a surprisingly negative effect on investment performance. The target-date funds offered by many plans can be some of the most expensive. Check for lower-cost options, such as exchange-traded funds, that may be included in your plan’s offerings.

8. Review Beneficiaries

Following major life events such as divorce, marriage or having a child, take a look at the beneficiaries you listed for your 401(k).

9. Borrow Carefully

Many plans let you borrow from your own 401(k). Then when you pay the loan back, the principal and interest go back into your retirement account instead of filling a lender’s coffers. However, despite the apparent appeal, in practice, many 401(k) loans are never paid back. Doing that can expose you to penalties and permanently derail an otherwise on-track retirement savings plan. So avoid borrowing from your 401(k) for frivolous purposes and, if you do make a 401(k) loan, prioritize paying it back on schedule.

10. Enroll in Your Company Plan

These days, most plans automatically enroll employees when they go to work. In case you weren’t automatically enrolled, take the initiative and join up. Even if you’re only deferring a small percentage of your salary to begin with, getting started can help establish a saving habit that you may be very thankful for someday.

The Bottom Line

how to manage 401k

There are lots of things you can do to improve the chances that your 401(k) will meet your long-term goals for retirement. Start by making sure you know what you want from your 401(k) and get to know how your particular plan works. Making the most of employer matches and using catch-up contributions, when you can, will help boost your savings significantly. Other moves to make include diversifying and rebalancing, watching fees, reviewing beneficiaries and avoiding unnecessary loans.

Tips for 401(k) Management

  • If you’re not sure you’re managing your 401(k) as effectively and efficiently as possible, you can get some clarity by talking to a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • While taking steps to better manage your 401(k), take a moment to consider whether you might benefit from combining old 401(k) plans from previous employers. You may be able to transfer an old plan into your new one, simplifying recordkeeping and helping to coordinate your retirement saving strategy.

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