401k Year End Review ChecklistSubmitted by Castlebar Asset Management on October 8th, 2014
With less than three months left in this year it is an ideal time to review your 401k account. We sometimes can take for granted that our 401k's essentially run themselves once we set up our contributions and select our investments. It is important from time to time to spend some time reviewing what is going on in your 401k account and your company’s plan.
Review your contribution amount.
As a general rule, we should all be contributing more to our 401k or other retirement accounts. You can contribute up to $17,500 or $23,000 if you are over the age of 50 each year to your 401k. This does not included a matching contribution from your employer. Assuming you are not contributing the maximum yet, you should review your contribution amounts and challenge yourself to contribute more. Even if you only add 1% of your salary to your 401k it will make a meaningful difference down the road. Also if you received a raise this year consider adding part of your raise to your 401k contribution. It is an easy way to build up your 401k account balance. As always if you are contributing below your firms matching contribution this should be a first step.
Does your plan offer a Roth 401k option?
An increasing number of 401k plans are starting to offer a Roth 401k option in their plans. This is worth looking into because it can offer favorable long term benefits in retirement. Since this would be an after tax contribution you lose the tax benefits today but will not have to pay income tax on withdrawals in retirement. You should review this with your financial planner, accountant or financial advisor before making this change.
Review your investments and rebalance.
For many investors opening your statements and checking the account balance is the extent of any review you complete on your 401k. It is important once a year to look to see if there are any new funds added to your plan as well as review the performance of your current fund relative to their benchmark. You can use Morningstar’s website as an easy reference. In under 15 minutes, you should be able to complete this.
Rebalancing your account is also something you should schedule to complete once a year. You are likely contribution a fixed percentage to different funds each pay period which helps to minimize the need to rebalance more than once a year. Large cap stocks have had a strong performance over the past two years which means they could be more overweight them than what an ideal allocation is for you. While other categories like international stocks or small cap stocks may now be underweight. If you have any questions about what the proper investment allocation for your 401k is please feel free to contact me. We offer free, no strings attached 401k reviews.
What about your old 401k at your past employer?
When you move onto a new job sometimes in all of your excitement to start a new position things can fall through the cracks. Often times we find clients either don’t get to or forget to address their old 401k accounts at their previous job. Your account will continue to be invested but you are no longer contributing to this plan. We usually recommend clients roll their 401k into an IRA. This will give them total control of their account as well as more investment options. Another option is to rollover your old 401k into your new company’s plan. Some plans allow this while others do not. It does seem to take longer and have a few more hurdles than a rollover into an IRA but some people like to have their 401k's consolidated in one account.
These few items will help get your plan in good shape heading into next year. If you have any questions feel free to email or call me at (913) 660-0708. I am happy to help you on any 401(k) questions you might have.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.