Asset allocation. In 2011, 401(k) plans offered an average of 19 investment options, and the average investor used three of them. It's important to pick a mix of equities and bonds that suits your risk tolerance. "Stick with an asset allocation you are comfortable with and at least once a year, review your 401(k). If your stock portion has outperformed, then you rebalance back to your target allocation," says Madeyski. "This way, you don't let your emotions control your investing in your 401(k) and you are selling high and buying low in the sector that has underperformed."
Plan costs. A variety of fees are deducted from the money you deposit in your 401(k) plan for recordkeeping, investment management, and other costs associated with the plan. In 2012, 401(k) participants will receive new information about the fees deducted from their account, thanks to new Department of Labor rules. "Take a look at the investment fees associated with everything on the menu of investments available. The management fees are going to be disclosed as the expense ratio for each of the investment options in the plan," says Peg Eddy, a certified financial planner for Creative Capital Management in San Diego. "An actively managed mutual fund, which means a manager is buying and selling, is going to have a higher cost generally than an index fund."
How to rollover without tax. Every time you change jobs, you need to decide what to do with your old 401(k) plan. You can leave the money with your former employer or roll it over to an IRA or your new employer's retirement plan. If you decide to move your money, ask your financial institution to directly deposit the money in the new account you select. This allows you to avoid having 20 percent withheld for income tax. "If you are given a check and the check is made out to you personally, then that is counted as a distribution and could be taxable," says Madeyski. "If you are sent a check made out in your name, then send it back and ask them to make it out to the rollover IRA custodian."
Date early withdrawal penalty ends. Retirees who leave their job during the calendar year they turn 55 or later can take 401(k) withdrawals without having to pay the 10 percent early withdrawal penalty. However, if you leave the job sponsoring your 401(k) plan at age 54 or earlier, you will generally need to wait until age 59½ to take distributions without a penalty.
When to take money out. Withdrawals from 401(k)s become required after age 70½. The first required minimum distribution is due by April 1 of the year after you turn 70½, and subsequent withdrawals must be taken by December 31 each year. The penalty for failing to withdraw the correct amount is a 50 percent excise tax on the amount that should have been distributed. People who delay retirement past age 70½ (and who don't own at least 5 percent of the company sponsoring the plan) can delay 401(k) distributions from their current 401(k) plan until April 1 of the year after they retire.