401(k) Planning: What Do You Need To Know?

401(k) Planning: What Do You Need To Know?

| March 03, 2021
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Whether retirement is a long way off or just around the corner, we want you to save smarter and make your money work for you. Many employers offer 401(k)s, and sometimes they’ll even match your contributions! This can be a great tool to help you start saving for retirement.

You fill out a form, check a few boxes, pick an investment such as a target-date fund, and you’re done! What could be better? While it may be easy to sign up for a retirement plan through your employer, some planning tips could make your 401(k) work harder for you. 

Investment Choices

Picking your investments in your 401(k) should be a thoughtful process. While target-date funds are quite popular, they may be duplicating your efforts. 

If you decide to split your allocations between a target-date fund and an index fund, for example, you may double your allocation and not know it. You may leave yourself open to overweights in certain industries and sectors and have a completely skewed mix of assets. 

Do some research or have your financial advisor aggregate all the underlying holdings in your 401(k) plans and see where you stand. The results may surprise you. 

Roth 401(k)s

While Roth IRAs put income limits on who can contribute, Roth 401(k)s do not have this limit. The question is do you want to pay taxes now or in the future? If you expect to be in a lower tax bracket at retirement (which isn’t always the case), then the regular 401(k) is the option for you. It’s hard to predict the future, but all your pensions, 401(k)s, and IRAs could add up and put you in a higher tax bracket. And think about your spouse; if you should pass away, they would have to file as a single person, increasing their tax burden. 

If you are just starting out, then presumably you are already in a lower tax bracket, so it may be appropriate for you to contribute to a Roth 401(k)—if your employer offers one. 

Contribution Limits

It’s important to know your limits. In 2021, you can contribute as much as $19,500 and an additional $6,500 for those over 50. The total limit for employee and employer contributions is $58,000. (1)

Valued Advice From A Trusted Advisor

A little extra thought and consideration when signing up for your company’s 401(k) plan can make a big difference in your financial future. Our HBA Wealth team is here to take a look at your options and guide you to make the most of your 401(k). Contact us at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com to schedule a complimentary consultation.

About Haydel, Biel & Associates

Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.

The commentary on this blog/website reflects the personal opinions, viewpoints and analyses of the Haydel Biel & Associates employees providing such comments, and should not be regarded as a description of advisory services provided by  Haydel Biel & Associates or performance returns of any  Haydel Biel & Associates Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Haydel Biel & Associates manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

This material was created for educational and information purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this education material. 

Contributions to a traditional 401(k) may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. 

A Roth 401(k) offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

An investment in a target date fund is not guaranteed at any time, including on or after the target date, the approximate date when an investor in the fund would retire and leave the workforce. Target date funds gradually shift their emphasis from more aggressive investments to more conservative ones based on the target date.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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(1) https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

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