Tips in Managing Your 401k Assets

2008-01-02 15:22:19

( Financial )



What are 401k Assets?

The 401k plan is an employer-sponsored plan designed to help you save up and invest in funds to prepare for your future retirement. 401k assets can be of various types, ranging from bonds to capital stocks.

Under a 401k plan, you elect to have a portion of your salary set aside and allocated into various investments. You will defer income taxes on the allocated portion until you cash in on your investments at the time of retirement or withdraw the funds prematurely. These returns will then be taxed like regular income.

Since the 401k has been set up primarily for your retirement, you cannot preterminate any part of your 401k except in cases of dire financial need or emergency. In such cases, you may be allowed to withdraw some of your funds but you will also have to face penalty fees and of course, income taxation.

Mechanics of 401k Plans

Your employer gives you several investment options to choose from, such as company stocks, money market accounts, short-term or long-term bonds. You then elect the percentage of your salary that you want to allocate to these investment instruments.

On a regular basis, usually monthly, your employer will give you a summary of the financial performance of your 401k assets. You can change allocation proportions of your 401k assets at especially designated periods.

401k Investment Options and Risks

Your employer lets you choose among several investment types. You can mix and match different investment types. For instance, you can choose to allocate most of your investment into money market accounts, and a small portion into stocks.

Each investment option poses different rates of return as well as risk levels. Shorter-term types such as stocks may be high-yielding but also the riskiest. Bonds on the other hand can guarantee you more stable returns, but have longer terms.

The manner in which you allocate your 401k assets should depend on your age as well as the level of risk of each type of instrument. If you are below 30 years of age, you can afford to allocate much of your investment in higher risk instruments. But as you advance in age, you should consider shifting your investment into more stable and less risky types like bonds, despite the lower yields.

To minimize the chances of investment losses, do some research on your own by consulting websites that offer information about the performance of corporate assets of specific blue chip stock companies. Get an idea of current economic trends, so that you will always stay ahead of the pack in your investments.

You can also protect your assets by cutting down investments in low performing instruments and shifting them to more lucrative ones.

Prior to making some changes or other decisions concerning your 401k assets, always consult your company's HR benefits or 401k plan administrator.


All rights Reserved © Tradenet Services srl
Do not duplicate or redistribute in any form.