Some Tips on 401K Retirement Plans

Why should I think about instating a 401k plan at my business?

401k plans give employees more flexibility in reference to saving for their retirement. One of the benefits of a 401k plan is being able to place money in the fund tax-free until they withdraw from their investments at the age of 59.5.

What are some tips to consider in shopping for a 401k plan?

If your company finds itself in a time of financial strife, do not cut back or stop your 401k plan employer match. Try to cut corners another way by limiting investment options or incorporating less sessions with the 401k plan consultant.

401k Plans: Why Not to Take a Disbursement
Although it might seem that a disbursement is a good idea at layoff time--considering that money might be hard to come by while bills continue to roll in--it is usually the worst possible choice. First, nearly every 401k plan has been hit hard by the down economy, with many account balances down 50 percent or even more, so half of the saved money has evaporated (as is well known by anyone who has dared to look at his or her statement lately). Subtracting up to 35 percent in taxes and penalties from the remaining 50 percent, leaves the remaining amount looking like a pretty trivial safety net.

Should Money be Left in an Employers 401k Plan?
Leaving funds parked in an employer plan is certainly the easiest thing to do, if that is an option. There's nothing to think about, no paperwork to complete, and no decisions to make. However, continuing to participate in a 401k plan sponsored by a former employer might not be the wisest option financially.

First, the existing 401k might be underperforming--even among low performing vehicles. Second, most 401k plans have a limited set of investments to choose from, so there might not be much that can be done to improve performance if the 401k is not well managed overall. Exiting the plan can give account holders more choices and better control of their retirement assets. On the other hand, if the 401k plan is performing well, but remaining in it is not an option, the management company may have an individual 401k plan or IRA that is worth exploring.