Today’s Prep:
What are some of the most frequently asked questions when it comes to a 401(k)? There can be a lot to a 401(k) so we’ll help you plan correctly.
Equipping Points:
If you get a 401(k) through work, you might have questions or certain scenarios that come up. Eric shares his thoughts and some guidance on what you should keep in mind when it comes to these retirement accounts.
When your company has a 401(k) program, they may offer low fee advice. Is this something you should take? Eric says when you’re in the accumulation phase, you want to lower your fees as much as possible. But know what that fee covers. Will they be creating an entire plan or just helping you choose the funds? Inside your 401(k) there are usually target-date funds. You might find that the target date funds are similar to what the 401(k) program advice provides for a fee.
How much should you really put in that 401(k) account? Should you put as much in as you can or only up to the match? This used to be a question more when people were deciding between a Roth IRA or 401(k). Now, so many 401(k)s offer a Roth 401(k) option. Saving in a tax-free account is always better. The nice thing about a 401(k) is that it’s a payroll deduction, so you are systematically investing without having to do anything. You can put a lot more into a 401(k) than a Roth IRA, but if you can do both, do both.
Are target-date funds a good idea to use? Eric says this is a good way to put your savings on autopilot. But, understand that your contribution should be a different risk tolerance than your balance. Also, find out what happens once you reach that target date.
Finally, is a 401(k) loan a good idea or a bad idea? You are taking money out of the market, so if you can find a better way to do it then do that instead. But if something unexpected arises, it is an option.
Listen to the entire episode or skip ahead using the timestamps below.
1:11 – Company plan offers advice for a low fee, should I take it?
4:04 – Do I put as much as I can in or just up to the match?
6:03 – Should I use target-date funds?
7:16 – Is a 401(k) loan a bad idea?
Today’s Takeaway:
“As you’re accumulating, depending on what stage your life’s in, your contribution should be a different risk tolerance than your balance.“
-Eric Peterson
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