Did you realize that your 401k plan is self-managed?

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Don't make these three costly 401k mistakes

There are a lot of hidden challenges when it comes to managing your 401k plan. Lifestyle funds have become popular in the past, but based on your current investment style and stage of life. These are pre-built fund strategies that may not take into account market shifts. You are responsible for making changes as your financial situations change.

This is where we can help you during our quarterly meetings in the office or a ZOOM call with your advisor. We meet with clients as they experience changes in jobs and life situations, that ultimately help them to make the right decisions in their 401k plans.

Misktake #1

Leaving 401k balances with an old employer

It seems easier to leave the balance with a previous employer. But you become a plan orphan after you leave. Plan orphans don't usually get fund updates as the market changes. This puts you in an especially precarious position should something happen to you or the market.

You should consider rolling the balance over to a ROTH IRA. Old employee plans are great candidates for ROTH conversions.

If your plan remains orphaned for too long, you run the risk of losing track of your assets. This can result in unclaimed retirement funds, which may be subject to escheatment laws where funds can be turned over to the state or overlooked entirely, potentially leaving you shortchanged in retirement.

Mistake #2

Not taking advantage of an in-service distribution

Are you vested in your employer's 401k plan?

Fully vested employees may have the option to roll over a portion or all of their balance to an IRA without penalties. Many 401(k) plans offer an option called in-service distribution, which allows you to roll over a portion of your retirement savings while still employed. This can be a valuable opportunity to diversify your investments or take advantage of better fund options outside of your employer's plan.

By not exploring this option, you could be missing out on the chance to optimize your retirement portfolio and potentially improve your long-term financial outlook, especially by using a ROTH IRA as mentioned above.

Mistake #3

Does your employer offer a ROTH 401k plan? By maximizing your ROTH 401k plan you save taxes on social security benefits in retirement.

By strategically contributing to a Roth 401(k) while working, you can potentially lower the portion of your Social Security benefits subject to taxation in your retirement years. This can lead to significant tax savings over your retirement years, allowing you to keep more of your hard-earned money for yourself.

ROTH 401k plans don't give you a tax deduction up front, but they give you lifetime tax-free income. Our advisors will give you one of our top strategies using a ROTH conversion strategy with your current IRA that will allow you to have more tax income in retirement.

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