Recs

0

5 Tips for Smart Automatic 401(k) Investing

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Now that tax time is here, many Americans look for ways to reduce how much they pay. A tax-advantaged retirement savings account, like a 401(k), is a great way to boost savings and lower your tax bill.

A growing number of companies automatically enroll employees in their 401(k) or similar retirement savings plan. In fact, nearly half of all 401(k) plans automatically enroll employees. But some do more than just enroll and get you started down a retirement savings path. They also automatically increase the amount you contribute each year.

If you're part of the "auto-generation," these tips will help you make the most of your company's automatic features:

1. Know your defaults. Become familiar with the default savings rate -- the amount your 401(k) automatically deducts -- and investment selection your company has chosen for you. Ask yourself if you're saving enough. The most common default savings rate is 3%, which may not be enough to provide the replacement income you'll need when you retire. And take the time to read the prospectus describing your default savings investment, and those of the other investment options that are available.

2. Take full advantage of an employer match. Most automatic plans set a default savings rate that ensures you receive the full match if your employer offers one. If your rate doesn't get you the full employer match, increase it to make sure you do get the full match.

3. Go up the "savings escalator." If your plan offers an automatic increase in the savings rate, stick with it. For instance, some plans will increase your rate by 1% every year. An annual increase in how much you save in your 401(k) can be a painless way to increase your savings. If your plan doesn't offer automatic increases, be disciplined and do it yourself.

4. Open and read your account statements. Your employer must give you an account statement at least once every quarter -- and plan providers often send you statements each month. You may also be able to access account information online. Make a habit of looking at your statement each time you get it, and ask questions about anything you don't understand.

5. Don't opt out -- or cash out. Significant tax advantages and often an employer match come with your plan -- important benefits you lose if you don't stay in the plan. Even worse, if you opt out of your 401(k), you may not get be able to get back in for a while, which can put you way behind on your savings. If you leave your company, resist the urge to cash out even a part of your savings for something you think you need. Retirement savings is just that -- for your retirement.

For more about saving for retirement, visit www.finra.org.

FINRA is the largest independent regulator for all securities firms doing business in the United States. Our chief role is to protect investors by maintaining the fairness of the U.S. capital markets. FINRA does not endorse, sponsor, or guarantee, nor is it sponsored by, any advertisers on this site, and any dealings with those advertisers are solely between you and the advertisers.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2869568, ~/Articles/ArticleHandler.aspx, 8/21/2014 2:14:43 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,056.07 76.94 0.45%
S&P 500 1,992.42 5.91 0.30%
NASD 4,528.75 2.27 0.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes


Advertisement