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401k Deep Dive with Chris Costello from Blooom

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Why is a 401K important and how can you manage it better?

Today we delve deep into all matters 401K.  Chris Costello from Blooom.com takes us to the next level to maximize our 401K accounts.

Unless you are a teacher, fire fighter, police officer or government worker, odds are you will not be receiving a pension after retirement.  The best way to insure a dignified retirement is to take full advantage of a 401K account.

We've failed younger people at making 401K's sensible.

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The three biggest mistakes to make when considering a 401K are to not participate at all, to not participate up to the point of employer matching, and to invest in the wrong funds.  If you are twenty five years old, the majority of your 401K should not be invested in bonds, earning nearly zero interest.

If you are researching your 401K at home, what is a red flag?  Any fee over 1% is too high. A good index fund will have a fee well below 1%. But don’t use fees as your only criteria.  Low return options like bonds will generally charge lower fees but if you’re thirty years old, you don’t want the majority of your investments in such a low yield return, no matter how low the fee.

Should you still use a 401K if your employer doesn’t match.  Yes, absolutely.  This is your retirement. Ideally you would receive matching funds but even if that is not the case, contributing to the plan still makes sense.

What if your employer does not offer a 401K program?  Do some research, there are services that offer 401K’s for very small start up costs.  If that is not possible, look into an IRA but you will need a bit of savy to manage an IRA on your own.

A Roth 401K is something that some companies feature in a traditional 401K.  401K contributions will be pre-tax and Roth’s will be post tax.  The advantage is tax diversification of your investments.

A 401K can be cashed out once you reach 59 1/2 (government math!).  If you retire before that age, you can roll that money into a traditional IRA account.  You won’t be penalized but will pay taxes on the amount you withdraw.

What is our takeaway?  Education, education, education.  Listen to this podcast, do some research, ask questions and you can make your retirement accounts work for you.

Show Notes

Blooom: Blooom is a service that will take the guess work out of managing your 401K.

Morningstar: A company that helps you choose the best mutual fund.

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