7 Ways to Take Advantage of Your 401(k)

US News

Maintain your 401(k).

Understanding and maintaining your 401(k) is key to becoming retirement-ready. Keeping your eyes on your investments, making sure to capture matching contributions and rebalancing regularly are a few important steps toward saving for retirement. Here are more tips from U.S. News Smarter Investor bloggers on how to make the most of your 401(k).

Save as much as you can for as long as you can.

The power of compounding is mighty, but to take full advantage, you need to start saving right away. "So whether you're 22 or 52, rich or poor, employed at your dream job or just working to get by, start participating in your 401(k) plan the moment you're eligible," writes Scott Holsopple of Smart401k.

Take full advantage of any company match.

Check with your company's human resources department to find out if your employer offers matching 401(k) contributions, Holsopple advises. "If so, make sure you're contributing enough to take full advantage of the match. If you don't, you're leaving 'free' money on the table," he writes.

Max out contributions if you can.

Most workers can contribute up to $17,500 to a 401(k) plan in 2014. "Also, if you're 50 or older, the catch-up provision allows you to contribute an additional $5,500 to your 401(k) and an extra $1,000 to IRA and Roth IRA accounts," writes Kelly Cambell, a financial planner and founder of Campbell Wealth Management.

Be a conscientious 401(k) investor.

Choose wisely from your 401(k) plan's offerings. "Avoid single-stock investments in favor of mutual funds, which are preferable because of their diversification, convenience and professional management. Whenever possible, seek out high-quality funds," Holsopple writes.

Rebalance.

Stocks surged in 2013, which means your portfolio's target allocations may have drifted. "This is a good time to rebalance your account back to your intended allocations. Letting your equity allocation go unchecked in hopes of capturing any additional gains is tempting, but it also exposes you to more risk than you might be comfortable with," writes Roger Wohlner, a financial advisor at Asset Strategy Consultants.

Review your investment options.

Around the beginning of the year, 401(k) plans may change the lineup of investment options. "If you haven't looked at what is offered in your 401(k) plan lately, this is a good time," Wohlner writes. "These changes might warrant some adjustments in your personal investment strategy."

Refrain from taking 401(k) loans or distributions.

Beware the dangers of 401(k) loans. "You might think that taking just one 401(k) loan couldn't possibly hurt your nest egg, but you'd be wrong. With just one $20,000 loan at an interest rate of 5 percent, even paying the loan back on time means you could lose $16,649 in potential returns," Holsopple writes.



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