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401(k) Management

One of the most common types of retirement investments is a 401(k) plan. For over four decades, employees have been taking advantage of the benefits of an employer-sponsored 401(k). For many, these plans have become synonymous with retirement because they are made available by many employers. Even though they are popular and commonplace, they still do not manage themselves. In fact, many people are turning to 401(k) management to ensure that they set up the right types of investments. Our team is equipped to completely manage and monitor your 401k daily. Our software allows us to connect to your account and pull real time balance and position data. We are able to view all internal management fees and historic performance of your fund options to ensure you are appropriately allocated. Our risk analysis software will work to produce superior risk adjusted returns for your 401k over the long term. If you’re interested in a free consultation to discuss your 401k management options with us, schedule a meeting today.

Tax Deferral

<strong>Tax Deferral</strong>

401(k) plans almost came about by accident when Congress passed the Revenue Act of 1978. This act had a provision added into section 401(k) of the Internal Revenue Code that allowed employees to avoid being taxed on deferred compensation.

As a tax-deferred account, you do not pay income taxes when you contribute money into your 401(k). Your employer withholds this contribution from your paycheck before your income is subject to income tax. Additionally, as your investments grow, you are not subject to taxes on that growth, instead deferring those taxes until the money is withdrawn.

Even though you are not paying income taxes on your 401(k) contributions, you still pay FICA taxes. These taxes, which go toward Medicare and Social Security, are calculated on the total paycheck amount, including your 401(k) contributions.

401(k) Planning

As part of signing up for your 401(k) retirement plan, you are responsible for choosing the specific investments within your account based on the selection your employer offers. Often these selections include target-date funds that contain a mixture of stock and bonds and other various stock and bond mutual funds. Guaranteed investment contracts issued by insurance companies and company stock can also sometimes be found in the mix of options for your retirement planning.

Some people choose to delve into the world of investing and spend many hours researching and learning to choose the best options for their plan. Other people like to turn to an expert to guide them as they plan a diversified portfolio that considers their age, risk tolerance, and much more.

Employer Match

Many employers match a certain amount of contribution. For example, an employer might match dollar-for-dollar up to 3% of the employee's pay or fifty cents-on-the-dollar up to 6%. Employer match benefits are highly sought after because it allows you to contribute to your account and gain free money from your employer.

Be aware; many employers use a vesting schedule to insulate themselves against a loss if you were to leave the company before a particular period, giving you an excellent reason to stay. Your employer's vesting schedule determines how much of the matching contributions you own, based on your years of service. Don't worry; every dollar you contribute is always fully vested, no matter how long you work at your company.

 It is best to work with your advisor to understand your employers' rules about becoming vested.

Changing Jobs

When it comes time to leave your company and begin working elsewhere, you may be wondering, "How do 401(k) plans work when I leave my job?" Typically, you have four options to choose from:

  • Withdraw the money-If you choose to withdraw the money in your 401(k), make sure you understand the monetary implications. The money you withdraw will be taxable in the year it is withdrawn, and if you are under 59 1/2 years old, you might get hit with an additional 10% early distribution tax. If you have a Roth IRA, the earnings will be taxable if you are under 59 1/2 and have had the account for less than five years. Always consult an advisor before choosing this option.
  • Roll it over into an IRA-When you leave, you can move your money into an IRA, avoiding immediate taxes and maintaining the account's tax advantage status. As a bonus, you are likely to have a broader range of investment choices with an IRA. Be aware; there are strict rules on rollovers and how they are accomplished, including a 60-day limit to avoid taxes and penalties.
  • Leave it with the old employer-You can choose to leave your 401(k) with your old employer if you are satisfied with how it is managed and the choices of investments offered. Keep good records of your 401(k) plans so you do not forget that you have them.
  • Take it to your new employer-You can also choose to roll your 401(k) over to your new employer's plan.

No matter when you begin making contributions to a 401(k), if you have employer matching or not, or what choice you make when you leave a job and start fresh, you can always be sure to be on the right track when you work with an advisor for 401(k) Management in Orlando, FL.