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Posted by Jim McClaflin, EA, NTPI Fellow, CTRC

How to Manage Your 401K Successfully

How to Manage Your 401K Successfully

Retirement is always around the corner. No matter how far away we think it is, it soon sneaks upon us. You can never be too prepared for your retirement which is where your 401(K) comes in.

A 401(K) is an essential way to plan for your retirement and reduce your taxes. It has lots of benefits for the employee, although many workers only do the bare minimum, thereby missing out on a wide range of possibilities. 

To maximize your retirement savings account, the key is prudent management. This is assuming you are well familiar with how your retirement account works. (Strange as it sounds, so many people don't know how their account works)

With better management, you can make sound decisions to make your retirement better. We have created tips on how to manage your retirement account better. Some of the steps you'll have to take may require extra discipline and sacrifice, but your finances will be better when you retire.


Here they are.

  1. You need professional Managers.

Managing your retirement savings account requires professional decision-making. You may not be able to make the best decision for your account without proper guidance. When your account is handled by a professional, you can ensure that your financial interests will be better taken care of. 

Depending on the size of your account, you may be charged a fee, but you can always get free advice from online advisors, especially if your account isn't that huge. We, however, recommend that you consider hiring a professional manager. The fee may look like a burden, but your funds would be better managed.

  1. Diversify your investment

Since the idea is to maximize your returns when you retire, do your best to look for other investment opportunities. A perfect option is the Individual Retirement Account. An IRA can be operated as a long-term savings account ahead of retirement. You should also consider investing in real estate and having a side hustle. 

Just make sure that you're increasing how much you are saving while you can. You can also diversify your 401k itself. While professional management can help you do this easily, the idea is to ensure that your investments are spread over a healthy range of portfolios to minimize risk. 

  1. Contribute the Maximum for the match

The good thing about the 401(K) is that most companies encourage more savings by matching workers' contributions, dollar for dollar. For this year, the maximum most people can contribute is $20,500. Although there is always a limit to how much the company can match in contributions (the maximum combined contribution is $61,000), very few people ever want to hit the target. 

It just makes sense to get as much as you can from your employer, even if it means your take-home pay may reduce. However, you need to know precisely how it works, as some companies only match the contribution to a certain percentage of earnings, after which it all becomes a bit complicated. If you follow our advice and hire a professional, you will receive the best guidance on getting the maximum matching contributions.

  1. Plan an annual increase in your savings

Whatever you are contributing, you can increase it. Start the increment gradually so that it is not too obvious in your earnings. It may look little today, increasing your savings will tell down the road. One regret retirees often have is that they didn't contribute more. 

A simple calculation shows that by giving up an extra $25 per paycheck into your savings from age 25, you can earn an additional $145,000 when you retire at 65! So imagine what happens if these savings increase yearly!


Finally, so many people relent, reduce their savings, or stop entirely when they go through a rough patch or save for something else. It takes a lot of discipline to retain your savings. Never be tempted to reduce your contributions. 

We also recommend you not make it a habit to borrow from your 401k. It is a savings account. To manage your account better, you need to be as resolute as possible.


Jim McClaflin, EA, NTPI Fellow, CTRC
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