How to Hit a Home Run with your 401(k)

401(k)s don’t need to be complicated. Think of managing yours like rounding the bases in baseball: each base represents an important step. Here are the four steps to help you cover every base and bring your retirement savings home.

First Base: Put Away What You Can

Defer as much as your budget allows. At the very least, defer enough to capture your plan’s full employer match. If your employer is willing to match your contributions up to a certain amount and you don’t defer enough to capture the entire benefit, you are missing out on free dollars and the growth of those dollars.

Second Base: Get Your Beneficiaries Right

Name at least two beneficiaries, preferably a primary and a contingent. It only takes a few minutes to establish, but it deeply matters. You want to make sure your hard-earned savings go where you intend if anything happens to you. A lot of folks leave their ex-spouse as a beneficiary, so it is best to check they are up to date annually.

Third Base: Determine if Roth is for You

With Roth, you pay the tax now. When your deferrals grow, qualified withdrawals come out tax-free later. With Traditional, your deferrals grow tax deferred. Upon withdrawal in retirement, you pay ordinary income tax. The strategy that is right for you is dependent on your individual situation. Both provide unique tax benefits that can be beneficial to your overall holistic plan.

The Home Run: Embrace Owning a Diversified Portfolio of Companies

If you’re going to own a diversified portfolio of companies, you must come to terms with the volatility of your investments. Bear markets will inevitably happen. The home run is having the conviction to believe “this too shall pass”. Investing in a diversified portfolio of companies is your best shot at keeping up with the ever-rising cost of living and maintaining/exceeding your current standard of living in retirement.

Put away what you can. Capture the full match. Designate your beneficiaries. Deferring to Roth vs. Traditional. Own a diversified portfolio of companies and don’t look back. That’s the ballgame.

We’d be happy to help you with your 401(k) and make sure you’re covering every base.

Jack Finnegan

Wealth Planning Associate

Magnan Family Wealth Management

Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

**Wells Fargo Advisors Financial Network does not provide legal or tax advice. Any discussion of taxes represents general information and is not intended to be, nor should it be construed to be, legal or tax advice. Tax laws or regulations are subject to change at any time and can have a substantial impact on an actual client situation.

***Income tax will apply to Traditional IRA distributions that you have to include in gross income. Qualified Roth IRA distributions are federally tax-free provided it has been more than five years since the Roth IRA was funded AND the owner is at least age 59 ½ or disabled, or using the first-time homebuyer exception, or taken by their beneficiaries due to their death. Qualified Roth IRA distributions are not subject to state and local taxation in most states. Distributions from Traditional and Roth IRAs may be subject to an IRS 10% additional tax if distributions are taken prior to age 59 ½.