401K – Option A, Option B, or Option C
Many people rely on their 401K for retirement but yet know so very little about it. Most people aren’t even sure what their retirement money is invested in besides Option A, Option B, or Option C. 71% of workers polled for AARP believed that they didn’t pay any fees for their plans! All the fees can be confusing, and the recent disclosure laws that came out late last year haven’t made things much clearer. Although it takes some work, it’s wise to know where that money is going so you can maximize the amount that ends up actually going towards retirement.
The simplest way to understand the technicalities of a 401K plan is to talk to someone who is already knowledgeable on the subject. Most employers should be able to explain, or if not, direct their employees to an advisor who can. Usually an independent advisor’s services are included in the plan, so you should take advantage of them. They can help you find out what investments are being made with your money and help you adjust them to get better returns.
An expert’s advice is beneficial to help translate the data in 401K statements, but you can discover a lot just by reading them. If you notice any high or unreasonable fees, contact the plan sponsor or plan administrator and they may give you better rates. Having the backing of the investment advisor is a plus when petitioning for lower costs.
Another way to increase the fund’s return is to increase the amount of money going into the account if your employer is matching contributions. Some employers match their employees’ deposits up to a certain percentage, although they don’t always advertise it. It is a good idea to find out what percent your employer matches to maximize the return.
It’s also a good idea to know about how much you’ll need in the account when you retire. A variety of factors influence the ideal amount to have saved up, but working with an advisor can yield a fairly good estimate. Based on that estimate, it should be easy to calculate how much should be going into the account now and adjust accordingly. Usually you’ll have to increase the amount you’re investing because there won’t be enough. Make sure you have funds allocated in conservative investments the closer you get to retirement. Many people had plans to retire several years ago but are now forced to continue working since their retirement account took a huge hit with one of the latest stock market crashes. They probably would have been able to retire if that money was in a conservative account since it wouldn’t have been affected as much as the aggressive plan.
The best way to take control of money in a 401K is to rollover that money into a Self Directed IRA or a Roth IRA. Moving funds from an employer plan such as a 401K into a self-directed account is called a direct rollover. There is no IRS limit on the dollar amount that a person can rollover. Some of the companies that specialize in Self Directed IRAs are Equity Trust, Next Generation Trust, and Entrust. What is great about Self Directed IRAs is that the fees are very minimal and they are in black and white.
The beauty of a Self Directed IRA is that a person is not limited to stocks, bonds, CDs, and mutual funds like a employer 401K is. With a Self Directed IRA, a person can invest in real estate, notes, mortgages, loans, partnerships, limited liability corporations, precious metals, joint ventures, private stock, options, commodities, and many more! You are only limited by your creativity in selecting the right investment for you. Real estate, notes, and mortgages, and precious metals are the safest investments with the highest yields.
A Self Directed IRA is not for everyone, but understanding your 401K should be! Read your statements and use your advisor whenever possible. If you are unclear on something, pick up the phone and call the number on your statement. Retirement is becoming more expensive every day, so maximizing your retirement account is key!
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