When it comes to 401(k), what are your best options? There’s a ton of information out there that could confuse a Harvard graduate and the landscape is forever changing.
In the past year or so, we’ve seen some interesting options emerge for 401(k) account holders … “new wrinkles” that everyone with a 401(k) should be aware of, regardless of whether you’re contributing $50 a month or the maximum of $16,500 per year ($22,000 per year if you are 50 or older).
New help for do-it-yourselfers.
As a result of the 2006 Pension Protection Act, you can now get advice on managing your 401(k). You can get it online from the financial company overseeing your account, or from the financial advisor who helped you set up your account. Previously, employers refrained from connecting employees to professional management and advice – they didn’t want to be held responsible if an employee lost money. Under the new Pension Protection Act, they won’t be.
The new Roth 401(k)s.
New in 2006, here through at least 2010 and likely to stay, the Roth 401(k) combines features of the traditional 401(k) with those of the Roth IRA. The contributions come from after-tax dollars, the account grows tax-free, and you get income tax-free withdrawals during retirement (provided you’re at least 59 ½ and have had your account for at least five years).
Professionally managed 401(k)s.
You can now ask to have your 401(k) directed by a money manager, if your plan is serviced by one of the big investment firms such as Fidelity, Charles Schwab and others. Your money manager will rebalance the investment mix of your 401(k) in order to manage risk.
“Autopilot” 401(k)s.
Even if investing scares you, companies can now automatically enroll you in a 401(k) as soon they hire you. An in-house employee benefits manager may pick the investment mix and contribution level for you if you decline to do so.
If you’re not sure which of these options is best for you, consider speaking with a professional who can help to guide you.