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5 Simple Steps When Your Company Offers a 401(k)

  • Post category:Retirement

By Christopher Price
Created on April 11, 2023

This article will…

  • Review five reasons to invest within a 401(k).
  • Cover the Five steps to take when you are offered a 401(k) at work.

A 401(K) can be complex. There are so many different options, and each one can provide you with an amazing retirement or a need to play catch up later in your working life.

Before we get into the five steps, let’s discuss five reasons to invest in your 401(K).

  1. Tax benefits:
    • a. Contributions to a traditional 401(k) plan are made on a pre-tax basis, which means you canreduce your taxable income and potentially lower your tax bill.
    • Contributions to your ROTH 401(K) plan are made on a post-tax basis but will grow income tax free.
  2. Employer contributions:
    • Many employers offer matching contributions to their employees’ 401(k) plans. This means that for every dollar you contribute, your employer may contribute a certain percentage, which can significantly boost your retirement savings. For all the hard work you do for your employer, this is a way for them to give you a little more than just what comes in your paycheck.
  3. Compound interest:
    • Albert Einstein is quoted as saying, “The most powerful force in the universe is compound interest.” By starting early and consistently contributing to your 401(k), you can take advantage of the power of compound interest. This means that over time, your savings can grow exponentially, even if you only contribute a small amount each paycheck.
  4. Retirement savings right out of your paycheck:
    • A 401(k) plan is a convenient and easy way to save for retirement. By taking advantage of this benefit, you can increase your chance of having enough saved to live comfortably in retirement.
  5. Professionally managed investments:
    • Companies are required to benchmark 401(K) investments every three years. Your company is a fiduciary when it comes to the 401(K), and it is their job to make sure they work with professionals when picking the investment options within the plan that they make available to you. If you feel like you don’t have enough investment options available. Talk to HR and see when the next benchmark will be.

Now for the main event.
Here are five easy steps to take when you are offered a 401(K) at work.

  1. Enroll in the plan or set up a reminder the day you become eligible:
    • If you are eligible to participate in the plan, enroll as soon as possible. You can usually do this online or by completing a paper enrollment form. It is easy to forget this step. It usually doesn’t start right when you get a new job. In some cases, you must work for up to a whole year before you are eligible or be a certain age. During this time, there are so many things going on in life.
    • I advise my clients when they get a new job that offers a 401(K), to put the day they are going to be eligible in their calendar.
  2. Choose your contribution amount:
    • Decide how much you want to contribute to your 401(k) each paycheck. Keep in mind that the more you contribute, the more you will have saved for retirement. If the company is going to match, it makes sense to at least contribute enough to max out the match.
    • Although each person is different, in my experience most advisors recommend you save 10% to 15% of your gross income into your retirement account.
  3. Select your investment options:
    • Choose from the investment options offered by your plan. These may include mutual funds, index funds, target-date funds, or other investment options. Consider your risk tolerance, investment objectives, and time horizon when selecting your investments. To have a better understanding of investing in your 401(K), Check out How to Pick the Right investments in your 401(k)”.
  4. Add Beneficiaries:
    • None of us likes to think about the day we will no longer be on this earth, but not planning for it will not change the results. Every account you have should have a beneficiary. This includes401(K)s. It is up to you to choose who your beneficiary(s) will be. If you are married, there are benefits to naming your spouse as the only primary beneficiary.
  5. Monitor your account/ Seek professional advice:
    • Regularly review your 401(k) account and adjust your investment options if necessary. Rebalancing your portfolio periodically can help ensure that your investments remain aligned with your goals. Increasing your contribution well also increase your potential for a successful retirement. If you’re unsure about which investment options to choose, consider seeking advice from a CERTIFIED FINANCIAL PLANNERTM or a RETIREMENT INCOME CERTIFIED PROFESSIONAL.

Investments or strategies mentioned in may not be suitable for you and you should make your own independent decision regarding them. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You should strongly consider seeking advice from your own investment adviser.Target date funds supply a “one stop” option, which are designed to provide you with an asset allocation based upon the presumed retirement date of the investor or the date money is to be withdrawn (i.e. the target date), usually at retirement. Typically, these are a fund of funds and have two layers of fees and expenses. The principal value of a target date fund is not guaranteed at any time, including at the target date. Target date funds allocation move toward emphasizing cash and fixed income elements as the funds approach their maturity or target dates. By reducing exposure to the growth elements, the risk of a sudden drop in the market affecting the retirement date diminishes.Asset allocation does not guarantee a profit or protect against loss in declining markets. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio or that diversification among asset classes will reduce risk.The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual. Provided by Christopher Price, a financial representative with Coastal Wealth, courtesy of Massachusetts Mutual Life Insurance Company (MassMutual). CA license #4196813. ©2022 Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001