Managing a 401(k) Plan

When you open a 401(k) plan, it is your responsibility to manage it. Whether you manage it personally or you hire a professional, it must be maintained.






You do not need to become overwhelmed or stressed when it comes to managing your retirement plan. If you are knowledgeable of your account, you will be confident in the choices that you make regarding your investments.

How to start a 401(k) Plan

Typically, you have the option to opt into a 401(k) account when you become an employee of a company that offers this retirement plan. Before you can open a 401(k), you must make sure the company offers this retirement plan. You can do so by contacting the human resources (HR) department. If the company is small and it does not have an HR representative, you can speak with the person that hired you.

If your company participates in a 401(k) plan, you must ask for any paperwork regarding retirement accounts. You should also ask about the conditions of the account and the enrollment terms. Also, the account you set up will typically already be set up a specific way as chosen by the company, which means, that the number of funds you will need to contribute each month from your paycheck may already be determined. You may also be given a default investment option, which is often not customized to your finances. To make sure that the plan works best for you and your finances, you may need to make adjustments.  

How to choose my elective salary deferral amount

When you set up a 401(k) plan, you will need to select your “elective salary deferral” amount. Your elective salary deferral amount is the amount of your paycheck that you plan to contribute to your retirement account each month. When you choose the amount, you will select the percentage of your paycheck that is deducted. Then, this money will be placed into your 401(k) account. You can choose any amount of funds you wish, as long as the amount does not cause you to go over the annual contribution limit.

Employer contributions

One of the many great benefits of having a 401(k) plan is employer contributions. Employer contributions are when an employer matches a certain percentage of what an employee contributes to their account. Some employers have a maximum amount that they contribute. Typically, companies do not contribute money to an employee’s retirement account until he or she has been with the company for a specific amount of time. This is also known as being “fully vested.”

Once you determine whether your employer will match your contributions, you should be able to decide how much you will contribute to your account. You will need to take this step seriously, as doing so can help you benefit significantly from employer contributions.

How to choose investments

When you sign up for a 401(k) retirement plan, you will need to decide what investment accounts you want your money in. Typically, your employee will give you a list of other investment options. They will include investment opportunities like bonds, stocks, and money-market funds. When you manage your 401(k) account, you will have the option to alter where you are investing your funds. To determine what investments you should choose, if you are not sure, you can consult a broker or other financial professional for the best advice.  

Automatic Enrollment

While it is common for companies to give employees the option to enroll in a 401(k) plan, others take part in automatic enrollment. Automatic enrollment is when an employer automatically enrolls employees into a 401(k) plan. It will also determine what percentage of its employee’s paycheck it will deduct and transfer to their retirement account. If a company participates in automatic enrollment, it will notify all its employees before it deducts any wages. Employees do have the option to opt out of this plan or adjust the contribution amount, if desirable.

How to Manage your 401(k) Account

To a specific degree, all 401(k) plans are manageable. For optimal convenience, most plans are managed online through your plan’s website. To ensure that you set aside the time that you will need to assess and manage your account, you will need to discover how you can manage your account. The more you manage your account, the greater your investments will be.

However, managing your plan is not only about looking over your paper or paperless statements every so often. You will also need to adjust your withholdings when it becomes time. For example, say you were only contributing a small percentage of your paycheck but you recently got a raise, and you can contribute more, you may want to adjust the amount that you are putting aside in your retirement account each month. If you do not increase your elective salary deferral amount and you can, you may miss out on significant money, especially if your employer matches some or all of your contributions. To maximize your retirement account, you will need to manage it thoroughly.

Why is it necessary to manage my 401(k) account?

When you open a 401(k), you are taking an active step towards bettering your future. When you save for retirement, you are putting aside money that will impact your lifestyle once you are no longer working. It is never too early or too late to take on an active role with your 401(k) plan.

With the convenience of managing retirement accounts online, it is now easier than ever to make changes to your account, if necessary. Since some investment options are riskier than others, you will need to determine where to allocate your funds and to do so wisely. Then, you can sit back and relax and check that your account meets your requirements. Moreover, when needed, you can make adjustments as necessary. Once you get the hang of managing your account, you will soon notice the process getting more relaxed and more comfortable. With time, you will have the confidence to make educated decisions about your 401(k) plan.