Navigating 401(K) Plans: Understanding Investment Choices

401(k) plans are retirement savings plans offered by employers that allow you to make pre-tax contributions. When you contribute to your 401(k) account, your money is invested according to your choices from the options your employer offers. These typically include an assortment of target-date funds and mutual funds.

401(k) plan contributions are invested according to your choices

When you contribute to your 401(k) account, your money is invested according to your choices from the options your employer offers. These typically include an assortment of target-date funds and mutual funds. Target-date funds are the way “you’re least likely to make mistakes”, Lazaroff said. These accounts contain a mix of stocks, bonds, and other securities that are adjusted as your chosen date approaches, generally shifting toward more conservative investments as you near retirement.

When you contribute to your 401(k) account, your money is invested according to your choices from the options your employer offers. These typically include an assortment of target-date funds and mutual funds. Target-date funds are the way “you’re least likely to make mistakes”, Lazaroff said. These accounts contain a mix of stocks, bonds, and other securities that are adjusted as your chosen date approaches, generally shifting toward more conservative investments as you near retirement.

The most important thing to know when making any decision about your 401(k) is to use it. In a perfect world, you put the maximum amount in it, but at a minimum, you should contribute up to the point where your company matches what you put in, said Peter Lazaroff, financial advisor and chief investment officer at Plancorp.

The earlier you start investing, the more your savings compound. Even if you change employers, you can take your account with you. While traditional 401(k) plans allow you to make pre-tax contributions, the Roth version requires after-tax contributions. The Roth tax benefit occurs when you make withdrawals from your account. That money is tax-free. Withdrawals from traditional accounts will be taxed at your income tax rate.

401(k) plans offer target-date funds and mutual funds

When you contribute to your 401(k) account, your money is invested according to your choices from the options your employer offers. These typically include an assortment of target-date funds and mutual funds. Target-date funds are the way “you’re least likely to make mistakes”, Lazaroff said. These accounts contain a mix of stocks, bonds, and other securities that are adjusted as your chosen date approaches, generally shifting toward more conservative investments as you near retirement.

The earlier you start investing, the more your savings compound. Even if you change employers, you can take your account with you. While traditional 401(k) plans allow you to make pre-tax contributions, the Roth version requires after-tax contributions. The Roth tax benefit occurs when you make withdrawals from your account. That money is tax-free. Withdrawals from traditional accounts will be taxed at your income tax rate.

The most important thing to know when making any decision about your 401(k) is to use it. In a perfect world, you put the maximum amount in it, but at a minimum, you should contribute up to the point where your company matches what you put in. Americans saved an average of 7.1% of their salaries in their 401(k)s in 2023, which was higher than the overall personal savings rate that year. Less than 12% of working-age Americans were on track in 2023 to max out their contributions.

Diversification helps you capture returns from a mix of investments—stocks, bonds, commodities, and others—while protecting your balance against the risk of a downturn in any one asset class. When you contribute to your 401(k) account, your money is invested according to your choices from the options your employer offers. These typically include an assortment of target-date funds and mutual funds.

Diversification helps protect your 401(k) account balance

When you contribute to your 401(k) account, your money is invested according to your choices from the options your employer offers. These typically include an assortment of target-date funds and mutual funds. Target-date funds are the way “you’re least likely to make mistakes”. These accounts contain a mix of stocks, bonds, and other securities that are adjusted as your chosen date approaches, generally shifting toward more conservative investments as you near retirement.

The earlier you start investing, the more your savings compound. Even if you change employers, you can take your account with you. While traditional 401(k) plans allow you to make pre-tax contributions, the Roth version requires after-tax contributions. The Roth tax benefit occurs when you make withdrawals from your account. That money is tax-free. Withdrawals from traditional accounts will be taxed at your income tax rate.

The most important thing to know when making any decision about your 401(k) is to use it. In a perfect world, you put the maximum amount in it, but at a minimum, you should contribute up to the point where your company matches what you put in. Americans saved an average of 7.1% of their salaries in their 401(k)s in 2023, which was higher than the overall personal savings rate that year. Less than 12% of working-age Americans were on track in 2023 to max out their contributions.

401(k) plans allow pre-tax contributions

Traditional 401(k) plans allow you to make pre-tax contributions, which means you contribute to your 401(k) before taxes are taken out of your paycheck. This can be a tax-advantaged way to save for retirement, as your contributions are not subject to income tax at the time of contribution.

When you contribute to your 401(k) account, your money is invested according to your choices from the options your employer offers. These typically include an assortment of target-date funds and mutual funds. Target-date funds are generally considered a safe and easy route to take, as they contain a mix of stocks, bonds, and other securities that are adjusted as your chosen date approaches, generally shifting toward more conservative investments as you near retirement.

It's important to note that while traditional 401(k) plans allow pre-tax contributions, the Roth version requires after-tax contributions. The Roth tax benefit occurs when you make withdrawals from your account, as that money is tax-free. Withdrawals from traditional accounts will be taxed at your income tax rate.

When making decisions about your 401(k), it's important to use the resources available to you. Many financial institutions that manage 401(k) plans offer online, interactive retirement calculator tools that will allow you to use different assumptions and automatically calculate the required savings amount needed to achieve your goals. They typically also have knowledgeable representatives that will walk you through the process.

It's also important to diversify your 401(k) account balance across various investment types to capture returns from a mix of investments and protect your balance against the risk of a downturn in any one asset class.

401(k) plans are offered by employers

K) plans are retirement plans offered by employers to their employees. When you contribute to your 401(k) account, your employer will typically offer you a range of investment options, including target-date funds and mutual funds. These funds typically contain a mix of stocks, bonds, and other securities that are adjusted as your chosen date approaches, generally shifting toward more conservative investments as you near retirement.

When you contribute to your 401(k) account, your money is invested according to your choices from the options your employer offers. The earlier you start investing, the more your savings compound. Even if you change employers, you can take your account with you. While traditional 401(k) plans allow you to make pre-tax contributions, the Roth version requires after-tax contributions. The Roth tax benefit occurs when you make withdrawals from your account. That money is tax-free. Withdrawals from traditional accounts will be taxed at your income tax rate.

The most important thing to know when making any decision about your 401(k) is to use it. In a perfect world, you put the maximum amount in it, but at a minimum, you should contribute up to the point where your company matches what you put in. Americans saved an average of 7.1% of their salaries in their 401(k)s in 2023, which was higher than the overall personal savings rate that year. Less than 12% of working-age Americans were on track in 2023 to max out their contributions.

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