Retirement plan decisions made easy
Drill Down: Your 401k and the rest of your life
You have a life apart from your 401k. That’s as it should be. Your 401k is not jealous. For best results, you should integrate your 401k decisions with the rest of your life. The major points of decision regard contributions to your 401k plan, how to invest those contributions properly, and how to withdraw funds in retirement.
Should you contribute to your 401k before a college savings plan for your children? Before an IRA or Roth IRA? Before saving for a house, or paying off the credit card bills? It’s easy for us writers to say fully fund your 401k—we’re not worrying about your children, your house or your IRA. But there are some good rules that can help you make wise decisions about which debt to pay off before you begin 401k contributions. There’s also a good strategy in the next chapter where I’ll lay out how you should prioritize 401k contributions and other uses for your money.
Investment decisions should be integrated across all of your investment vehicles. Most young families have a 401k as their only investment, so decision making is easy. However, middle aged folks with other investments—such as IRAs, stock or mutual fund holdings, and investment real estate—will want to think about how their 401k interrelates with other investments. This adds some complexity, but that’s a small price to pay for having more assets. The general rule I’ll advance later is this: First, choose what investments you want to own, and then decide in which accounts the various investments should be made. In this approach, the 401k is nothing special, just another investment box.
When you have retired, you’ll need some money. You will have to choose from where you will take the money you need: your 401k or IRA, the sale of stocks or real estate, or cash in your bank certificate of deposit. This is fairly easy to figure out, but doing it right will save you a ton of money in taxes.
Think of your 401k as just another tool. It’s a great tool, versatile and inexpensive, but no one tool can do everything. To achieve financial security, you need to use this tool in conjunction with others, and use it wisely.
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» Lesson 1: What the Heck is a 401k, and What’s So Great About It?
Lesson 2: Contributions to Your 401k
Lesson 3: Investments “Cook Book” Approach
Lesson 4: Investments: How Investments Work
Lesson 5: Loans and Hardship Withdrawals from Your 401k
Lesson 9: Your 401k, Your Other Assets, and Your Life
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