How to Check on your 401(k) — And Why You Might Want To
Investing would be pretty easy if you could invest once and trust that your investment would perform exactly how you wanted it to. Of course, that’s not how investing actually works!
Over time, it’s important to check in on your investments and monitor their performance. This is all part of preparing for your financial future. If you neglect an investment for any length of time, you might find that it hasn’t performed the way you’d planned and it could set you behind.
Here’s how to check on your 401(k) — and why you might want to do so sooner rather than later.
Locating Old 401(k)s
Throughout your career, you may have participated in multiple 401(k)s through your various employers. If it’s been a while since you’ve checked in on one or more old 401(k)s, you need to contact your former employer(s) to get information regarding your investment. After all, it’s your money!
Once you locate a 401(k) from a past employer, you will likely have four options and may engage in a combination of these options
- Leave the money in your former employer’s plan, if permitted
- Roll over the assets to your new employer’s plan, if one is available and rollovers are permitted
- Roll over to an IRA
- Cash out the account value
Your financial advisor can help you to understand the advantages and disadvantages of each option.
It may not take more than a few quick calls to HR and various investment companies to locate your old accounts. But there’s the possibility that the investment company that your employer used has since been purchased or had another change of identity and requires a bit of a deeper dive to find your important info. In this case, you may be able to contact former colleagues to learn where to look or you can consult a national registry to locate your specific 401(k). Your financial advisor may have some advice in navigating this search. Additionally, your financial advisor can help you consolidate old plans so to facilitate managing them in the future.
Balancing Your 401(k)
Your 401(k) is likely comprised of mutual funds. Your 401(k) statement should have a breakdown of your investments and the returns from each.
Over the life of your 401(k), you may determine that one or more investment types aren’t the best option for reaching your financial goals. If this happens, you’ll want to rebalance your 401(k) investments to reflect a blend that more accurately captures your risk acceptance and investment objective. Making rebalancing decisions can have a substantial impact on long-term performance both positively and negatively. It is very important to seek professional advice before making these types of financial decisions.
In addition to balancing the investment portion of your 401(k), it is also wise to examine the tax choices offered in your employer sponsored plan. Many 401(k) plans today will offer employees the option of choosing between Traditional or Roth contributions. Your selection between these two options will determine the current taxation of your contributions and the taxation of the income you draw from the plan in retirement. The difference to your retirement income stream can be huge, so don’t take this decision lightly and get professional help.
Why Check on Your 401(k)?
It is easy to get caught up in life and lose track of what’s happening with your 401(k). For many of us, our 401(k) will likely be the largest asset available to create retirement income, yet despite the importance, it can be out of sight and out of mind. If you aren’t managing and maintaining this asset with care, then you might be missing opportunities or falling behind your goals.
Sitting back and letting your 401(k) — or any investment for that matter — take on a life of its own isn’t a solid investment strategy. Staying engaged with a financial advisor is one way to avoid falling into the trap of complacency.