Posted by Fletcher Accounting and Tax Service Inc.

401(k) Things We're Doing Right!

401(k) Things We're Doing Right!

Retirement accounts are a good way to ensure that you can get by financially when you retire. However, while there are various investment strategies that allow you to diversify your investments and take advantage of passive income as you work, they can be complex and intimidating. Employer-sponsored 401k programs, on the other hand, offer a relatively painless way to prepare for retirement using a specified amount that is deducted from your salary every month. Read on to know what positive trends experts are seeing when it comes to how investors handle their 401ks as they prepare for retirement.


Borrowing less

Borrowing from 401ks were the go-to options for those who needed money for home repairs or buying a home. However, in a survey conducted by the Vanguard group on the members of its defined contribution plans, the percentage of members with outstanding loans against their plans decreased slightly in 2015. This is a positive trend since most investors take out loans from a 401k that is half the vested account balance or $50,000, whichever is less. If they have to leave their jobs, they are left with just 60 days to pay back the loan in full, otherwise, they are required to declare the funds as ordinary income in their income tax return, which can increase their tax liabilities.


Trading less

The survey revealed that only 9% of participants in the survey traded in their 401k accounts in the past year, which investors say is a positive sign. Trading often exposes the investor to many risks, especially when he or she trades out of a product too early or too late. An alternative, according to experts, would be to invest in target-date funds, which reallocate portfolios into more conservative funds as the target date approaches. This helps reduce any risk should the market become volatile.


Less exposure to employer stocks

There are employers who include stock in the 401k plans, which basically provide employees with an investment in the company. While this is great for stable companies, having company stocks in the 401k funds can be risky for investors if the fortunes of the company suddenly reverse. Fortunately, the number of investors with portfolios tied up in company stocks dropped to 28% in 2015. The number of companies that offered this kind of benefit also fell to 10%.


One thing that needs to change, however, is the percentage of people with limited stock exposure. A large number of employees are still wary of investing in stocks, which offers greater returns than bonds and allows investors to outpace inflation as they invest in their accounts.


Positive trends in investment activity of employees with 401ks show that employees are becoming more adept at preparing for retirement. Taking advantage of employer-sponsored retirement plans and taking practical steps to limit risk as they pad their 401ks is a good way to ensure that they are financially secure when retirement comes.


If you want to make sound financial decisions when it comes to your 401k, working with a team of financial experts can ensure that you make the best moves that will keep your risks small while increasing your ROI. Get in touch with us at fletchertax1.com to see how we can help you.

Fletcher Accounting and Tax Service Inc.
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