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Answering The 401(k) FAQs

Today’s Prep:

Most likely, at some point or another, you’ve had the option of contributing to a 401(k). But do you know how to really leverage it? This episode will tackle some of the frequently asked questions when it comes to your 401(k).

(Click the featured times below to jump forward in the episode)

 

Equipping Points:

A 401(k) is one of the major retirement savings vehicles because it’s easy. You sign up, money is taken right out of your account, and you don’t have to worry about it. But, you need to make sure you manage it well. How do you do that?

When your company offers a 401(k), sometimes there is also an option of getting advice on the 401(k) for a fee. Is this worthwhile? The answer really depends on how the fee and service is set up. Is it being actively managed or are you just getting advice once at the beginning?

Generally, you should save between 10-15 percent of your income. How much of that should go into your 401(k)? If there’s a company match, do what you can to get it. When you don’t take the company match, that is like leaving free money on the table. A lot of times people will take up to the 401(k) match but then contribute to a Roth IRA. This is important doing for the sake of your taxes down the line.

Should you use a target date fund for your 401(k)? If you do choose a target date funds, choose one that is slightly beyond your actual target date for retirement. Target date funds change the allocations from stock funds to bond funds as you near retirement. There are different strategies to consider when it comes to using the target date funds.

Lastly, any time you borrow money, you have to pay interest to somebody. So, if you need the money, should you take out a loan against your 401(k)? It may be an option that is easier than getting a loan from the bank, but should be used more so in extreme circumstances and paid off as soon as you can.

Listen to the entire episode to hear more information about the ins and outs of 401(k)s or click on the timestamps below to get his answer to one of these FAQs.

[1:51] – Should I use the company-provided advice on my 401(k) plan for a low fee?

[3:21] – Should I contribute as much to my 401(k) as I can or just up to the match?

[6:01] – Should you use target date funds?

[8:29] – Is it a bad idea to take out a loan against your 401(k)?

[9:53] – When should I take money out of my 401(k) and roll it over to an IRA?

 

Related Resources:

Understanding How Your Feelings Impact Your Financial Decisions

What’s In Your Financial Junk Drawer?

 

Today’s Takeaway:

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The host: Eric Peterson - Contact - Call: (515) 226-1500

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