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					401k
What is a 401k?
 A tax favored retirement account
 Employer provided
 Has unique benefits
 Has some serious drawbacks
Tax favored retirement account
 You invest pre-tax dollars
 Typically will come directly out of your paycheck before you
  physically receive it
 Earnings are compounded tax deferred
Employer Provided
 Have taken the place of most pension plans
 Employer chooses 401k firm
 Employer chooses to match a certain percentage of
  contributions
Unique benefits
 Compounds tax deferred
 Invest pre-tax dollars
 Receive employer matching on a good amount of your
  contributions (varies by company).
 Allows you to choose where your money gets invested
  (limited choices).
      Choices include:
      Company stock
      Mutual Funds
      Index Funds
      Bond funds
      Stable Value Funds
Serious Drawbacks
 Cannot withdraw money until your 59 ½
 If you withdraw early you get hit with a 10% tax penalty and
  your withdrawal amount is taxed at your normal income tax
  bracket
 Your fund choices are severely limited
 You are stuck with the managing firm your company selects
 More companies are automatically enrolling employees into
  401ks and employees don’t select where they want the
  money to go.
5 most common 401k mistakes
 You buy your company’s stock in your 401k
 Invest a lot in stable value funds (unless you’re close to
  retirement)
 Incorrect allocation of funds within your 401k
 When you change jobs most people leave their 401k at their
  former employer or worse cash it out.
 Employee’s don’t allocate their retirement funds themselves.
4 things you must do
 Contribute 1/12 of your yearly contributions unless there is
  a big market pullback. In that case double your contribution
  the next month.
 Properly allocate your funds with the right mix of
  investments based off of your age.
 Invest in index funds or the lowest cost mutual funds.
 Only contribute up to the amount your employer is willing
  to match you. Beyond that amount contribute to your IRA.
What did you learn?

				
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posted:7/25/2011
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