5 Tips To Ensure Your 401(k) Is On The Right Track

Mia Barnes
February 6, 2024
Death to Stock / Christian Abatzis
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Staying on top of your 401(k) plan can seem impossible, especially when life throws a lot of responsibilities your way. Between family, career and everything else on your plate, tracking your retirement savings can take a back seat. Fortunately, there are ways you can manage your 401(k) to ensure you’re still on track toward your long-term goals. Learn more about these five management tips.

What Exactly Is a 401(k)? 

A 401(k) is more than just a workplace retirement plan offered by your employer — it’s one key to securing a robust financial foundation for the future. People enrolled in the plan should pay regularly through payroll deductions. 401(k)s build up your retirement savings — the earlier you start, the faster you can reap better rewards.

Many Americans still don’t understand how this plan works. Here’s a brief overview to help you gain a better understanding of this retirement investment:

  • Contribution: As an employee, your contributions are deducted before paying the taxes.
  • Employer match: Some employers offer a match, meaning they pay a percentage of your contributions. For instance, they might offer $1 for every $2 you pay.
  • Investment options: A well-designed 401(k) plan provides a wide range of investments, such as stocks and bonds.

Tax benefits: Contributing to a traditional 401(k) plan can allow you to make deductions from your taxes. Another advantage is you contribute on a pre-tax basis, lowering your taxable income for the year, but withdrawals are taxed. It’s worth noting that this only applies to traditional 401(k) plans.

Why Do Women Have Less 401(k) Savings Than Men?

Many people rely on their 401(k) plans for their retirement savings, which are significantly influenced by factors such as income. As adults approach retirement age, about 50% of women ages 55 to 66 have no personal retirement funds, compared to 47% of men.

One major cause of this gap is labor market trends. Since women still make less money than men, it means there are fewer opportunities they can save for retirement. It’s also likely that women take jobs that don’t offer retirement programs and spend less time in the workforce, reducing their capacity to contribute to retirement.

As adults approach retirement age, about 50% of women ages 55 to 66 have no personal retirement funds, compared to 47% of men.

5 Tips to Manage Your 401(k)

Despite these challenges, you need to maintain positive and actively work toward gaining control of your financial well-being. Here’s how you can take proactive steps to manage your 401(k) plan and ensure you’re on the right track.

  1. Review Breakdown of Investments

The first step is assessing your asset allocation. A healthy combination of investments in your portfolio can earn you a better shot at achieving your financial goals. Identify the percentage of your funds you want to contribute to stocks or bonds, and assess which options yield higher returns.

Two factors can help you determine appropriate asset allocation — risk tolerance and time horizon. If you have decades until retirement, you might afford a bit more risk, but there’s no one-size-fits-all when it comes to investing. Only you can decide the amount of risk you’re willing to take.

  1. Keep an Eye on Fees

Review your expense ratios because they can consume a chunk of your investment earnings. These fees include how your 401(k) plan is managed, administrative fees, and record-keeping costs. Over time, even half of a percentage point can add up and impact your retirement savings.

  1. Prepare for Life Transitions

The 401(k) withdrawal rule states that when you turn 59 ½, you can get a lump sum distribution for anything less than $5,000 or roll over your funds into an individual retirement account (IRA) plan. However, major life events — such as job loss or disability — might compel you to take your funds before you turn this age.

Divorce can also affect your 401(k). Following this significant life event, your ex-spouse will be automatically removed from your beneficiaries unless you choose to keep them.

If no significant happenings prompt you to withdraw before you turn 59 ½ and even after retiring, you can let your savings sit or keep contributing. Do so by rolling over your 401(k) into an IRA so your money continues to grow tax-deferred and you have income you can add to your account.

  1. Increase Your Contributions

As your salary grows, your retirement income should also increase. If you're still contributing the same amount for the past years, don’t worry — there’s still time to catch up and save.

Make it a goal to add more as you get promoted at work. For instance, if you got a 5% salary raise, give 2% to your 401(k) and save the rest elsewhere. It’s an easy way to increase your savings rate without significantly impacting your budget.

If you didn’t get a raise, there are still opportunities to increase your contributions. Try to increase by at least 1% yearly — ask your employer if they can help you max out. Additionally, take advantage of the growing gig economy by getting a side hustle to make extra money.

  1. Seek Guidance 

Understanding the intricacies of your 401(k) plan can be daunting, especially when you’re unsure whether you’re making the right investment decisions. If you’re stuck or worried about whether you’re on track to meet your financial goals, get guidance from a financial advisor. A professional can help you take the guesswork out of identifying the right decisions and potential pitfalls of your investments.

Secure a Comfortable Retirement

Incorporating these actionable tips into your monthly routine will give you assurance you’re moving in the right direction toward your long-term goals. Today’s the perfect time to approach your 401(k) more proactively.