Do your plans for 2018 include a new job? If so, you may be busy transitioning out of your current role and preparing for your new position. When you start your new job, you may have a long to-do list. One of the items will likely be enrollment in your new employer’s 401(k) plan.
A 401(k) can be a powerful retirement savings vehicle. Its tax-deferred treatment allows you to invest and grow your assets without paying taxes on gains as long as the funds stay inside the account. Your employer may also offer matching contributions that can help you boost your savings rate.
To maximize the power of your 401(k), however, it’s important that you manage it according to your specific needs and goals. Far too many people ignore their accounts or follow generic recommendations that aren’t appropriate for their unique situation.
Below are a few tips to keep in mind as you enroll in your new employer’s 401(k) plan. Be sure to consider your own concerns and objectives before making any decisions. You also may want to consult with a financial professional for additional guidance and support.
Maximize the company match.
The company match is one of the most appealing and valuable aspects of a 401(k). Many employers match employee contributions dollar-for-dollar up to a certain threshold, such as 3 percent of salary. The exact terms vary by company. No matter what the terms are, however, the employer match represents additional retirement dollars that can boost your savings.
Be sure to contribute at least enough to take advantage of your employer’s match. You may not be eligible for matching dollars until you have been at the company for some period of time. Once you are eligible, however, the employer match could provide a much-needed bump to your savings efforts.
Setup your contributions to automatically increase.
In an ideal world, you’d probably contribute as much of your income to your 401(k) as possible. However, that may not be feasible at this time. After all, you need your income for other obligations, such as paying your bills and supporting yourself and your family.
However, it may be possible for you to gradually increase your contribution level over time. Some plans offer an auto-increase feature. That means your contribution level automatically increases by a certain amount, like 1 percentage point, every year. That allows you to slowly increase your savings without blowing a hole in your budget.
Be careful with company stock.
Most employers offer company stock as an investment option in their 401(k) plan. You may be tempted to invest heavily in the company stock option, especially if you’re passionate about the company’s prospects.
However, it’s important to remember the benefits of diversification. A diversified portfolio minimizes your risk exposure and helps protect you from excessive volatility. You are already dependent on your employer for income. You may not want to add to employer-specific risk in your 401(k). It may be appropriate to include company stock in your portfolio to some degree, but it’s always wise to maintain a diversified strategy.
Ready to enroll in your new employer’s 401(k)? Let’s talk about it. Contact us today at Bridgeriver Advisors. We can help you analyze your goals and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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