3 Pieces of 401(k) Investment Advice

We often can't count on our employers to provide 401(k) investment advice. Here are three ways to be a good steward of your 401(k).

Jun 7, 2014 at 12:00PM

Your 401(k) is the best option for ensuring you retire when and how you want. But it's not likely your employer offers much 401(k) investment advice, making it important for you to gain as much knowledge as you can. Here are three ways you can best manage your 401(k).

1. Read your materials
This sounds basic, and it is, but few people actually spend time doing it. According to a 2012 LIMRA study, two-thirds of Americans with retirement plans admitted spending less than five minutes reviewing their retirement-plan disclosures. Worse yet, 20% said they "rarely or never read disclosure paperwork at all." 

By not reading your materials, you could be missing out on valuable pieces of information regarding your plan. Ask your HR department for a copy of your summary plan description, or SPD. That's a plain-English document that provides you with the ins and outs of your plan. Learn about your possible company match and profit sharing, 401(k) loan provisions, and much more.

2. Pay attention to fees
The same LIMRA study mentioned above showed that 90% of 401(k) participants either didn't think they paid any fees or didn't know the fees they paid for their plans. But you, as the 401(k) plan participant, pay for most plan fees -- not your employer. While fees have decreased substantially in the past decade, everyone pays a fee to have a 401(k). In a 2011 Fee Study conducted by Deloitte for the Investment Company Institute, the median "all-in" fee stood at 0.78% per year. That means a typical 401(k) owner would pay about $780 annually for every $100,000 in his or her account.


Small improvements in plan fees can pay off big-time. A Government Accountability Office study compared the difference between paying 1.5% in fees versus 0.5%. It started with someone with a 401(k) account balance of $20,000 and assumed the investment grew by 7% each year. A person paying 0.5% in fees would have about $70,500 in 20 years, but a person paying 1.5% in fees would have a retirement balance of only $58,400 in 20 years, representing a cost of more than $12,000.

Plan fees fall into three categories: asset-based (mutual fund expense ratios), administrative (record keeping and custodial service fees), and individual participant fees (special-request activity like expedited paperwork and overnighted checks). Historically, these figures weren't spelled out in hard dollars and cents for you, but a 2012 Department of Labor ruling changed that. Obtain your plan's Fee Disclosure Notice to find out more about the fees you pay. 

3. Know your options
Despite hefty tax consequences and possible penalties, nearly half of all workers cash out their 401(k)s when leaving a job. If you're changing employers, carefully consider three better options for managing your old 401(k).

  1. You can leave it where it is. Some former employers let you keep your money there -- even if you aren't.
  2. You can move the money into your new employer's plan, so long as they'll accept it. This is a smart move if the investment options and fees are better in your new plan.
  3. You can roll over your account into a traditional IRA, which boasts the same tax treatment as a 401(k). If you're a hands-on investor, this self-directed retirement account is a great option. If you move money from one retirement account to another, be sure to initiate a trustee-to-trustee transfer. Work with both institutions to make sure this is done correctly. If, instead, you do take possession of the check, get it to the new institution within 60 days to avoid taxes and penalties.

Foolish bottom line
Being a good steward of your 401(k) means reading and understanding your plan materials, paying attention to fees, and knowing your options when you change employers. By implementing this 401(k) investment advice, you'll be one step closer to securing your financial future.

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Follow Nicole Seghetti on Twitter: @NicoleSeghetti. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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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