Posts Tagged ‘SD401K’

How to Navigate your First 401(k)/Retirement Plan

Monday, May 7th, 2018

First 401k

Whether you’ve just started your first corporate gig, or if you’ve just been thinking about securing your future, you’ve probably heard the term “401(k)” thrown around a lot, and how you should open one that’s being offered through your workplace. So what is a 401(k) exactly?

401(k) in a Nutshell

Having the (k) in its name fools people into thinking it’s a very complex financial product or plan to grasp. But plain and simple, 401(k) plans are retirement plans set up and sponsored by your employer. For self-employed professionals like freelance writers or home-based accountants, you can open an individual 401(k) plan.

How it works is you set aside a certain portion of cash per month that’s automatically deducted from your paycheck. The amount to be set aside depends on how much you’ve elected to allocate for the retirement plan. You have the choice of investing in a broad range of assets, such as stocks and bonds, which can either be chosen from a prepared group of assets or selected manually by you.

Benefits of Owning a 401(k)

For starters, the monthly investments put into your 401(k) can compound into a large sum of cash, given that you maximize your monthly contributions and do not withdraw anything from the account prematurely.

Through a 401(k) account, your employer may elect to match every dollar of your contributions, which is basically free money. Most employers have a 401(k) match program, and they will usually match up to $4, if not dollar-for-dollar.

Just because you put your money in a retirement plan, it doesn’t mean you completely lock up the cash until you retire. It’s highly advised against, but you can borrow money from the account for particular purposes, such as purchasing a home, sending your kid to college, or paying for unforeseen medical expenses.

One downside to borrowing funds from your 401(k) is that you are usually charged interest that must be paid back. But as long as you work for the employer sponsoring your 401(k) plan that you used to secure the loan, you will not be liable for any income taxes.

Building Your 401(k)

Choosing the assets you wish to invest in through your 401(k) can be intimidating, especially for those who have close to zero experience and knowledge with regards to financial markets. Fortunately, your employer will already construct a list of asset choices with the help of an investment broker. The downside to this is that you get stuck with whatever list they come up with.

As a general rule of thumb, you should build a portfolio that aligns with your risk profile. There are basically five types of funds you will be choosing from – stocks, target-date, blended-fund, bonds/managed, and money market. A thorough analysis of each group of assets should give you a better grasp of which ones to choose.

The next thing you’ll have to figure out is the monthly contributions you want to set aside for your 401(k). It all comes down to your monthly expenses, for instance, you obviously want to make sure you have sufficient income to pay the bills and buy your family’s basic needs. Other factors that merit consideration include employer dollar matching and maximum allowed contributions.

Investing can be somewhat tedious, yet is something that’s crucial for your future self. Make use of all the resources given to you to make solid decisions, and navigate your first 401(k) retirement plan effectively, and with confidence.

Should You Opt Out of a 401K and into a Self-Directed 401K?

Monday, April 2nd, 2018

Out of a 401k - Copy

Many of those reading this article will hopefully know what a self-directed IRA is, but we’re here to talk about what exactly the lesser-known self-directed 401K is, and why you should think about opting in for one.

A self-directed 401K is essentially the same thing as a regular 401K, it’s a retirement savings account. The main difference is that you are able to invest in non-traditional investments, so it opens up your 401K in the same way a self-directed IRA opens up a regular IRA.

The way that a 401K plan works is that your company serves as the “plan sponsor” for the 401K, but it doesn’t have anything to do with investing the money. Instead, the plan sponsor (The company you work for) hires another company to be the administrator of the plan and its investments. The plan administrator may be a mutual fund company, a brokerage firm, or even an insurance company.

A self-directed 401K gives you thousands of options, so for a seasoned investor who is used to doing financial research, that’s a good thing. But if you’re a novice, assessing a world of mutual funds and stocks can be overwhelming.

Start by considering how much time you have until you need the money — your expected retirement age. Then think about how much risk you’re willing to take. Can you own aggressive investments without losing sleep, or do you need something more stable before you’re comfortable? Your time horizon and your risk tolerance should be the deciding factors when you choose what kinds of 401K investments are right for you.