5 Tips for Smart Automatic 401(k) Investing

Make sure you're taking full advantage of your 401(k) options, both for tax time and your retirement.

Mar 9, 2014 at 7:30AM

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.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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