Rethinking Investment of Retirement Savings in Your 401(k) Plan

If you have been investing the money for your retirement savings in a 401(k) plan offered by your employer, then it is time to rethink your strategy. Although, 401(k) is considered almost sacred as far as retirement savings go, its value has been decreasing lately.

The main benefit of a 401(k) investment is that your contribution is equally matched by a contribution from your employer. However, recently many of the employers have either stopped or reduced their contributions. If your employer has also reduced or eliminated 401(k) contributions, then you should consider other retirement savings options such as Traditional or Roth individual retirement accounts (IRAs) and retirement plans from mutual fund companies.

You need to compare your 401(k) plan with these plans and decide which offers you better returns and other benefits. 401(k) plans of the federal government and big companies could sometimes be better than other options even if the contributions from the employers have reduced. However, quite often, the plans offered by small or medium sized businesses are usually worse than IRAs or mutual fund options.

While comparing the plans you should look at the limits of your 401(k) contributions and compare them to the investment limits in other options. If your needs are fulfilled by the 401(k) limits, then you might not need to switch. However, if you need to save more money for your retirement than what the current 401(k) limit allows, then you should consider shifting to another plan.

You should also consider additional benefits offered by other plans. Traditional IRAs would allow you tax savings and tax deferral. But remember that employees who have a high income cannot avail of tax deductions.

Employers usually make employees pay for administrative and other costs associated with a 401(k) plan. You should compare the costs of your 401(k) plan with the costs of an IRA and accordingly decide which is better. You might also want to shift to IRA because of more diversified investment options in a brokerage IRA. However, an important advantage of a 401(k) plan is that it cannot be touched by the court or even the IRS if you get into any personal financial difficulties.

After reviewing the pros and cons of various options, you can decide whether you should continue investing in a 401(k) plan or if you would be better of shifting to some other retirement plan.

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