4 Things You Need to Know About Your 401(k)

Always take full advantage of a company's matching program.


You've probably had a company retirement plan. You know, the one that had about 12 investment options that were all mediocre and never changed. The plan that no one really understood and no one really liked. The plan that you could not access for decades. It almost seemed like the worst place to invest. But you have also heard your friends and family all say that it is one of the best places to put your money.

There are some really great things you should know about your 401(k) and some really bad things to be aware of. You can and should take control and talk to your employer about making it the best plan it can be. It's not difficult to have the best plan, but someone needs to take the initiative and get it done. Here's how you can "take the bull by the horns:"

[See Why You Should Have a Market Evacuation Strategy.]

If your company plan has a match, take advantage. You should at least put enough into your plan so that you max out on this free money. If your company will match $0.50 of every dollar you invest up to 6 percent, this means that you should contribute at least 6 percent and the company will invest 3 percent of their money into your account. Any time your company gives you money, take full advantage of it.

Consider a Roth 401(k). Most plans do not offer the Roth 401(k), but it's something you should have. It allows you to add money to your plan after tax instead of pretax. The money you add to the Roth will grow tax free for the rest of your life. Think about it, no matter how much your account grows, you will pay no taxes.

You can add up to $16,500 per year, and if you are over age 50, you can add another $5,500. If you do not have the Roth as a part of your plan, just ask your employer. All your employer has to do is talk to the plan representative and add it in. It is really that simple.

[See Why You Should Buy U.S. Treasuries.]

Ask your employer about adding more investment options. Very few plans offer a good selection of funds to choose from. Surprisingly, some plans have not been amended for over a decade and still offer only 10 or 12 options. Talk to your employer about the investment options. They can be added and should be reviewed annually.

When we build a 401(k), it includes 25 options that incorporate commodities, emerging markets stock, global debt, natural resources, and even strategic investment funds that give the fund manager additional flexibility. The more options you have, the better the portfolio you can create.

Ask questions. Your employer is required to provide you with annual education about your plan, its options, and how to choose a good portfolio. And yes, I did say required. Your company has a fiduciary responsibility to make sure you have enough knowledge to make good investment decisions. Unfortunately, most plans do not offer such information. Talk to your company's human resources department and let them know you need more help. Most often, the broker that supplied the plan can provide that education.

[See The Appeal of Go-Anywhere Funds.]

Your corporate retirement plan can be extremely beneficial, especially if it's set up well. Your job is to expect the best and do what you must to get it. Remember, your company's plan will be one of the biggest parts of your retirement income sources. It needs to be top notch.

Good luck and happy investing.

Kelly Campbell , CFP and Accredited Investment Fiduciary, is founder of Campbell Wealth Management, a Registered Investment Advisor in Fairfax, Va. Campbell is also the author of Fire Your Broker , a controversial look at the broker industry written as an empathetic response to the trials and tribulations many investors have faced as the stock market cratered and their advisers abandoned their responsibilities to help them weather the storm.