Getting The Most From Your 401(k)

If your company offers a 401(k) plan, take it. Saving for your retirement just doesn't get any easier than that. You don't have to decide to put the money away - it is automatically deducted from each paycheck. This completely removes temptation to blow it on something else and also reduces your taxable income, which means you put more in your pocket instead of in Uncle Sam's pocket.

The maximum that most of you can put into a 401(k) this year is $16,500. Those over the age of 50 can catch up by contributing an additional $5,500.

If you have a 403(b) plan, which is similar to 401(k) but designed for employees of the public education and non-profit sectors, it issubject to the same limits.

According to a recent survey of more than 550,000 employees with 401(k) accounts, only 7 percent of workers came within $500 of contributing the maximum.

Don't worry if you can't contribute the max right off the bat. Start slow and work up to it.

Don't leave free money on the table. Take your employer's match.

If your company matches your 401(k) contributions, take advantage of it.

For example, let's say your employer matches 50 cents for every dollar you put in your 401(k) up to $5,000 per year. If you are only contributing $2,500 a year, you are missing out on $1,250 of free money. That can really add up.

Leave it alone. Don't check your account balance every month.

Seriously, don't look at it. You will drive yourself crazy. This is a long-term plan. If you must, take a peek every quarter.

Borrowing against your 401(k) is generally a bad idea.

When you borrow against your 401(k), you are essentially borrowing from yourself and paying yourself back with interest. But if you suddenly receive a pink slip, the entire balance is due. If you don't repay it, it is treated like an early taxable distribution, and you will be stuck with a 10 percent penalty.

Borrowing against your 401(k) should only be a last resort.

Enjoy some good news.

Finally, there is good news on the horizon that will give you a better handle on 401(k) fees. Currently, the fees that are deducted from your investment earnings are very difficult to figure out.

The Department of Labor came out with a new rule last year that beginning in 2012 all 401(k) plans will be required to break down and disclose all of their fees. It's far from a perfect solution, but it's a good start.

Your 401(k) plan is your future. Take these few simple steps and build some security for your golden years.

Denisa Tova MBA, CFP, CFDP(TM), ChFC, CLU provides divorce financial expertise to divorcing individuals. She is a Certified Financial Planner(TM) practitioner and Certified Divorce Financial Analyst. You can find more information about Denisa Tova at: http://www.denisatova.com


Reprinted with permission of The Colorado Springs Gazette