6 Useful Tips to Maximize Your 401(k) for Retirement

Troy Sharpe:  Are you misusing your 401K and maybe don’t even know it? Well, this video is going to give you six useful tips to maximize your 401K so you can have more income in retirement. Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, host of The Retirement Income Show  and Certified Financial Planner professional. Now first, before I get into the 401K tips, I want to bring your attention to our website, it’s pink, and what we’re doing for October here because October is Breast Cancer Awareness Month, we’re supporting this charity, it’s called I Go Pink.

Please, whenever you’re watching this video, we may not still have it on the website, but go check out their website and what they do is they help women who are going through breast cancer treatment right now, with women who have survived breast cancer, they write them a letter, they give them some supplies and things  that will help them feel more beautiful. Breast cancer is something that’s very serious and obviously many people have been impacted by it. We want to support them, we want you to support them, go check out their website, it’s a great charity to support and a lot of good information, you can learn more about what they do. This is what we’re doing and this is why the website behind me is pink.

Now getting back to 401K tips. First thing, make sure you’re contributing to your 401K at least as much that allows you to get the full employer match that your company offers. This is free money so a lot of times, they’ll match up to 3% of your salary if you put in X amount of dollars. Let’s say you put in $3,000, they’ll give you $3,000 inside your 401K. Every company is a bit different but contribute at least as much to get your full employer match because this is a 100% guaranteed gain on your investment, you need to take advantage of this.

Number two, invest in the Roth portion of your 401K. Most companies out there have a tax-deductible part of the 401K. We call this the traditional side, and they have a tax-free portion, where you do not get a tax deduction for putting money in today but that money is going to grow tax-free forever and then when you take it out in retirement, it’s going to be tax-free. See if your company has a tax-free portion called a Roth, and consider putting some money into that side as well.

Number three, do not get overly concentrated into your company stock. If you work for a big publicly traded company, and they have an option to invest in company stock, you have to be very, very careful here. As a retirement planner that sat with 1000s of families over the course of my career, I can’t tell you how many times I’ve sat with people who used to work at Enron or used to work at a company that when they get to retirement, the stock drops 30%, 40%, 50%. We don’t want to be overly concentrated into our company stock. No matter how well you know the company, no matter how well you know what’s going on because things can happen and you’re taking excessive risks. Do not get overly concentrated into your own company stock  we want to be diversified.

Number four, no matter how tempting it is, do not touch your 401K, do not make withdrawals, it is not designed to help you in a temporary bind that you may be in, it’s not there to help you make a car payment. Your 401K is designed to provide you retirement income, do not touch it, unless it’s an absolute necessity. This is very hard for many people because we feel like we have this pot of money there but if you touch it prior to 59 and a half, you have a 10% IRS penalty. Additionally, you have to pay income taxes on that so it might be 20, 30, 35, 40% that you’ll pay in combined taxes by touching it too soon. There are specific rules that do allow for a hardship withdrawal but please operate out of the mindset that you are not going to touch this money unless it is absolutely necessary.

Number five, again, operate under the mindset that your 401K has one purpose, and that is when you retire in the paycheck stop, your 401K is designed to provide you a retirement paycheck, the sole purpose of that account is to provide you a retirement income and if you can invest in both sides, the traditional and the tax-free, now you’ll have two buckets of money because when you retire, you’ll roll them into a Roth IRA and a normal IRA but you’ll have two places where you can withdraw a paycheck from that one will be subject to income tax and the other will be tax-free but operate like this is your paycheck in retirement. We don’t want to touch it. We want to keep it there so we have more income in retirement.

Number six, do not leave your 401K behind if you leave your current job. When you leave your current job, you take that 401K and you roll it into an IRA. Okay if you move houses if you change apartments, you do not leave your belongings behind. No one leaves their clothes and their television and everything else behind in their old house, they bring it with them  so when you change jobs, you bring that 401K with you, you roll it into an IRA. An IRA is an Individual Retirement Account. There’s no taxes in this transfer over, there’s no fees, there’s no cost to you and now instead of being limited to what the 401K offers you to invest in, you have the whole world of investment options available to you inside your Individual Retirement Account. 401Ks are for workplace, IRAs are for when you retire or separate from service from that workplace, you do a rollover, put it into the IRA, and now you have the whole world of investment options available to you.

Those are six useful tips to make sure you’re using your 401K properly. Make sure to share this video with a friend or family member. The goal is to get as many people as possible more connected to their money so we’re making wiser, more intelligent decisions with our money.  Hit the like button and also subscribe to the channel and when you subscribe, hit that little bell icon next to it so you’ll be notified whenever we upload new content so we can keep you more connected to your money and we can all make better financial decisions.

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