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The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.

A 401k is something that is extremely important to those who are planning for their retirement. It is a retirement plan sponsored by employers, and oftentimes it deducts tax dollars right from your paychecks. It is very easy to open and start funding if available through your current employer, but everyone’s retirement plan is different, so there are many different factors to consider when utilizing your 401k. Although there is no one-size-fits-all guide to follow, there are some tips to keep in mind, and we will discuss them below. 

Firstly, experts recommend that you take advantage of your employer match. This is actually probably the most important tip of them all. This is also called a company match, and it is when an employer contributes to your 401k to supplement your contributions up to a set amount, such as up to 3% of your salary when you also contribute 3%. Take advantage of this as it is technically “free money.” Next, make sure you are considering your true circumstances before contributing the maximum amount to your 401k. Everyone has different financial situations, but assess all these factors before putting all of your eggs in the 401k basket. Withdrawing funds early from a 401k plan results in hefty financial penalties, so make sure you are extremely comfortable with the amount you are contributing.

In addition to understanding your match, you want to understand your 401k investment options thoroughly. Usually, what happens is participants choose from a list of mutual funds to invest in. Ensure you understand the fees being charged by mutual funds and know that what exists inside those mutual funds makes sense for your risk tolerance. Look for keywords such as expense ratio, which is the annual management fee. Also, you will want to diversify your allocation and change your investments over time. According to Sofi, rebalancing is a process where, every year or every few months, you buy and sell shares in the investments you have in order to keep your asset allocation where it was at the beginning of the year. This is highly recommended because your goals and targets for the allocation of your money can change.

Lastly, beware of early withdrawals from your 401k. Because 401k plans are designed for retirement, the funds are only set to be released to you after a certain age. The IRS imposes a 10% tax on early withdrawals from your 401k, whereas you can usually withdraw contributions to Roth IRAs and brokerage accounts without penalty.


Securities offered through Kalos Capital, Inc. and Investment Advisory Services offered through Kalos Management, Inc., both at 11525 Park Woods Circle, Alpharetta, GA 30005, (678) 356-1100. Retirement Income Strategies is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.