Podcast Episode 309: Consider These Things Before Investing Into Your 401(k)

For many people, the 401(k) is an easy account to manage. The money comes out of your paycheck before you get the chance to spend it so it’s like you never had it in the first place. That makes it a great tool for retirement savings but because it’s so painless, people often ignore it more than they should.

But your 401(k) deserves attention and there are certain considerations you need to make before deciding if and how much you’re contributing to this retirement account. 

Let’s start with liquidity. Contributing a large amount of money each year to your 401(k) is great, but how much do you need in liquid assets? The money you put into the 401(k) is locked up for years and sometimes decades so you don’t want to be in a position where you don’t have enough cash to pay for things you need now. It’s rarely a good idea to tap into your retirement savings early because of penalties so we want to make sure you have what you need month to month.

The next consideration deals with taxes. People usually enjoy the immediate tax benefits you get when deferring to retirement, but that could mean a big tax bill down the road. Understanding what you’ll owe and what that might mean for retirement income and how much you’ll actually have access to is very important before putting more money into your 401(k).

The 401(k) might also include employer contributions. Not every company provides this benefit, but if yours does, you’ll want to understand the specifics of how much you need to contribute to get the match. We never want to leave free money on the table so let’s make sure you’re contributing what you need to receive that.

And finally, don’t forget about the ‘orphaned’ money that you leave behind in an old 401(k) when you leave a job. You technically don’t have to do anything with that old account, but most of the time you’re better off rolling that over into another account like an IRA. Talk to your financial advisor if you have an old 401(k) you haven’t touched in a while.

These 401(k) is just one piece of the overall retirement planning discussion but an important one. If you want to learn more about where you stand and what changes you might need to consider, get in touch for our complimentary Money Map review process and we’ll begin those conversations.

Here are some of the things we discuss in this episode:

1:07 – How much do you need liquid assets?

2:25 – Know what your employer contributions are

4:48 – Make sure you know the future tax implications

5:43 – Don’t forget about ‘orphaned money’

7:48 – Is it fake, Jake? US economy too good to be true?

13:41 – A Woman’s Word: Mistakes women make 

20:12 – Mailbag question on the next stock market crash