New 401 (k)? 3 Decisions You Must Make – Motley's Fool

Whether you're working for the first time with an employer who sponsors a pension plan or you're in another job, having access to a 401 (k) means you have a solid opportunity to make money for your golden years. That said, you will need to make some important decisions regarding this account, and here are three major decisions to consider.

1. How much of my salary should I contribute?

For the current year, you can contribute up to $ 19,000 to your 401 (k) if you are under 50, or up to $ 25,000 if you are 50 or older. . However, most people fail to part with this amount, so if you are one of them, do not worry. What you should However, you must establish a budget and determine the amount of your salary that you can afford to separate. If you guess this figure, you may overcharge your account and start falling behind on your bills (although the good thing about 401 (k) s is that you can usually change the amount of your contribution easily, this will only take you two cycles to go). But you do not want to contribute too little, because if you do, you may not have the funds later in life.

One thing to keep in mind when making this decision is your company's matching policy. Many employers match the contributions of 401 (k) employees to varying degrees, and you want to take advantage of it because it is actually free money. Therefore, see how much you will have to put in your 401 (k) to get your match to the maximum and aim for that target. For example, if your employer pays up to 3% of your salary and you earn $ 50,000, be sure to contribute a minimum of $ 1,500 to your 401 (k).

2. How should I invest my money?

The money in your 401 (k) should not just sit there doing nothing; you will be responsible for investing it for it to grow. You can not usually buy stocks and individual bonds with a 401 (k). Instead, you will need to put your money in stock or bond funds generally fall into two categories: actively managed mutual funds and index funds.

The advantage of actively managed funds is that you can capitalize on the expertise of the people who manage them. But, you will have to pay higher investment fees to get some of this action. Index funds, on the other hand, simply follow existing market indices and are passively managed. As such, their fees are much lower. This is not to say that actively managed mutual funds do not have their place in your 401 (k). Just make sure you are aware of the fees involved.

In addition, make sure that the funds you have chosen are in line with your investment strategy and your appetite for risk. If you accumulate too many bond funds, you generally limit your returns. The result? Less money for you to retire. Equity funds are generally more volatile, but generally offer higher returns. You should consider these factors when setting up your portfolio.

3. How often should I check my balance?

You may be tempted to check your 401 (k) frequently. After all, the money on this account is your hard-earned money (plus your employer's money), and you want to make sure it's growing. But remember, saving for retirement is a process that has been going on for decades and if you check your account balance every week, you're going to go crazy. If the market is experiencing a few difficult days, your account balance may collapse overnight, but it is likely that this loss is only temporary.

That said, that is It's a good idea to periodically check your 401 (k) investments to make sure that they work as intended and that they meet your needs. As a result, you may want to write an agenda note to review your quarterly or semi-annual report 401 (k).

Good 401 (k) decisions will help you get the most out of your retirement plan. And you know what it means – more money for you when your golden years end up rolling.