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401(k)
Do's and Don'ts for the Over-60 Crowd
Between automatic deductions and professional management, it’s easy to leave your
401(k) on autopilot — maybe too easy. In the last few years, many investors
have watched their 401(k) assets decline sharply when they might have been able
to do something about it.
The
following guidelines can help you safeguard your 401(k) assets in any market
climate.1
 | Know
what you own. In other words, make sure that your asset
allocation suits your unique situation and retirement goals. For example,
if you’re getting ready to retire in the next few years, you may want to
reduce risk and focus on steady gains.
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| Diversify.
Even after accounting scandals wiped out the 401(k) plans of
thousands of Enron employees, one-third of the nation’s 401(k)
participants aged 60 and older still had the majority of their funds in
company stock.2 Leaving assets too heavily
weighted in any one investment can expose your portfolio to serious risk.
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| Check
for errors. Each month, make sure paycheck deductions
actually make it to your 401(k) and are allocated correctly. The Department
of Labor recently found that some companies have abused employee
contributions by either using the money or delaying deposits into employees’
accounts.3
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| Take
advantage of higher contribution limits. In 2003, workers
aged 50 and older may contribute up to $14,000 a year of pre-tax income to
their 401(k) plans.
Pre-tax contributions and tax-deferred growth potential make 401(k)
investing one of the easiest ways to save for retirement. By adhering to a
few basic guidelines, you can help protect your 401(k) savings in good times
and bad.
1) Distributions from employer-sponsored retirement plans are
taxed as ordinary income and, if taken prior to reaching age 59½, may be
subject to an additional 10 percent federal income tax penalty.
2) USA Today, August 25, 2002
3) AARP, 2002 |
©
2002 Emerald Publications
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