401K Investing Upper Arlington Ohio

If your employer in Upper Arlington, Ohio sets up a 401k for you, jump at the chance to start saving and take advantage of any matching contributions through your company. Not using your 401k and matching options is like leaving free money on the table.

If you have a 401K in Upper Arlington, Ohio then you need to read this! Below are 10 Steps to 401K Success in Upper Arlington, Ohio! Contact State Street Adviser for more information: (614) 895-2584

1. Participate 

The dollars in your 401(k) plan may represent 20-80% of your income at retirement. The government, and by extension, your employer, are giving you the opportunity to take advantage of two very powerful financial concepts: the ability to save money on a pre-tax basis, and the tax-deferred, compounded growth of those dollars. A 401(k) may enable you to build a better nest egg than anything else you can do on your own because of that tax-deferred growth. Saving money before it is included in your taxable income reduces your annual tax bill. In addition, the earnings can grow on a tax-deferred basis, meaning you can earn money on your earnings! If your company offers a 401(k) plan, you need to be contributing, as soon as you can, and as much as you can. It is the first step in taking charge of your financial future.

In order to help you increase the size of your nest egg, as well as to encourage reluctant employees to save for retirement, many employers offer matching funds. The average employer offers a match of 50% of the amount you contribute up to 6% of your eligible salary. In the complex world of finances, we call this free money. If your employer is willing to give you money, you need to take it!

The only catch is that you must contribute some of your own money in order to receive the company match. If your employer matches up to 6%, you should be contributing at least 6%. The goal is to capture the entire company match (and then keep working there until you’re fully vested). As your financial adviser, State Street Adviser can help you with your 401K investing strategy in Upper Arlington, Ohio. For more information call us at (614) 895-2584

2. Determine your investor profile

Investor, know thyself! Every investor is different and knowing yourself is the first step to allocating your investments appropriately. Before you can determine your asset allocation strategy, you must first be able to clearly define your goals. Remember, 401(k) money is retirement money and everybody has different dreams about what their retirement will entail – traveling, boating, etc. Also, you may have some pre-retirement goals for which you need to save some money. Each goal may represent a separate pool of money and there are different investment options available to you to help fund each goal. Second, determine the time horizon for retirement. Is it more than 10 years away? In general, the longer you have until you need the money, the more heavily weighted you should be in stocks. You’ll have more time to recover any losses incurred during a market downturn. The third consideration concerns how psychologically comfortable you are with those market downturns. Will you really be able to tolerate the inevitable ups and downs that the stock market delivers? Do you need help determining your investor profile for your Upper Arlington, Ohio 401K investing strategy? Contact State Street Advisers for if you need help!

3. Allocate appropriately

Asset allocation is the principle of deciding how to spread your investments across various asset classes, such as stocks, bonds, and cash. There are subcategories within each class, such as small, medium and large cap stocks. The idea is to diversify your holdings in order to potentially increase returns while diminishing risk. A variety of factors determines the appropriate allocation for each individual – When you need the money (not automatically dictated by your retirement age), how much money you have now and expect to need later, what kind of risks you’re willing to take, and what other assets you have invested outside of your 401(k). Perhaps the most important factor is your time horizon – the more time you have, the more aggressive you can be.

4. Limit exposure to company stock

Company stock can be a double-edged sword. On one hand, as a loyal employee who understands the business, you want to participate in the growth of the company by being a shareholder. On the other hand, it is risky to have too much of your portfolio in one stock. Having too much money in a single stock issue creates a non-diversified portfolio. Most investors are able to reduce volatility significantly by having a diversified portfolio. Besides, do you really want the fortunes of one company to control your salary, benefits, pension and your 401(k)?

5. Reallocate tactically

While it is not advisable to move your money around daily (market timing in general has not proven to be an effective strategy over the long haul), it is advisable to look at what your investments are doing from time to time. If one segment of the market has outperformed other segments significantly, then your portfolio is likely to be significantly out of balance. In other words, if you wanted to have 70% of your money in stocks, and it has grown to represent 80% of your portfolio, you need to rebalance your portfolio. You may also need to consider other strategic moves if your mutual fund suffers from style drift, there’s a change in management, or if a similar fund with lower expenses becomes available. Take a disciplined approach to monitoring your investment portfolio. Do you need help with your tactical 401K relocation and investment strategy in Upper Arlington, Ohio? Then contact us now and we can help!

6. Do not panic

Listening to the evening news, and hearing about the market changes on a daily basis, can cause even the most stalwart of investors to get nervous occasionally. Stocks fluctuate in value, it’s the nature of the beast. Just remember that you are investing in your 401(k) for the long term. Although there are no guarantees that this will continue in the future, the direction of the stock market over the long term has been up. There will continue to be downward dips and swings, which is why knowing how you’ll react to those swings is a factor to consider in your overall asset allocation. Selling when your investments are down is the best way to lock in your losses. Try to remember that patience is a virtue. Unless you believe that the investment cannot recover, it is usually better to hold on for the ride. In fact, it might be a good opportunity to buy more!

Don't panic, contact State Street Advisers for all your Upper Arlington, Ohio 401K investment questions!

7. Know your plan features

Every 401(k) plan has unique characteristics. To help maximize your plan, you need to know all your options. Your plan documents, distributed by your benefits department, will outline options such hardship withdrawals, loans, vesting schedule, limitations to moving money, and in-service withdrawals. Read this document carefully or have a financial professional review it with you.

Most plans allow for hardship withdrawals. There are several tax and penalty issues associated with hardship withdrawals, so make sure you read your plan documents carefully and seek professional guidance. If you use the option for hardship withdrawal, you may be suspended from the plan for a specified period.

The vesting schedule refers to the years of employment before the company match money becomes yours. Vesting schedules either are graded, meaning you get a percentage of the money in successive years of employment; or cliff, meaning you get all the money at once after no more than five years. Keep the vesting schedule in mind if you are thinking about quitting your job. If you need help understanding your 401K investment in Upper Arlington, Ohio, then contact State Street Advisers and we will help you understand your 401K plan!

If the plan does not meet your investment needs, and it allows for in-service withdrawals, you can move some of the money into other vehicles, such as an Individual Retirement Account (IRA). An IRA gives you many options for investing your money, thereby enhancing your diversification abilities.

8. Borrow judiciously – if at all

Early 401(k) plans had no provision for loans. Providers added most loan provisions as an incentive to encourage greater participation – participants would be more likely to save for retirement if they could access the money before they retired. This does not make loans an attractive feature! Many people believe (often erroneously) that if the interest rate on the 401(k) loan is less than they would have to pay elsewhere, the 401(k) loan is a good deal. That may be, but it does not take into consideration the real cost of the loan – the lost opportunity cost. The money in your plan cannot grow if it is not there! If the investments in your plan are growing by 12%, that is what borrowing from the plan costs you, plus growth on that growth. Another consideration needs to be the tax consequences of borrowing from your plan. While you do not pay any taxes on the money when you borrow it, you do pay the loan back with after-tax dollars. Then, when you begin to take withdrawals at retirement, you pay taxes on those dollars again – you are paying taxes twice. If you do some calculations, you may find that borrowing from your plan is an extremely expensive option. Borrow only if you must. Contact State Street Advisers for 401K investing services and we will be happy to help you get a better understanding of borrowing!

9. Consider tax consequences of your actions

Most of the things we do in our financial lives have tax consequences. In the case of the 401(k), you can avoid several negative tax consequences. If you leave your current employer and want to take your 401(k) money with you, be sure to roll it over directly to an IRA or to another employer’s plan. You may leave it in your former employer's plan only if you have more than $5000 in your account. If you take a full distribution, you will pay federal and state taxes on the entire amount. If you are not yet 59 ½, you also will pay a 10% penalty. This could reduce your lump sum distribution to almost half its original value. It will not help your retirement nest egg. Do not take a lump sum at retirement, unless you need all the money at once. Take out only what you need, so the bulk of the portfolio can continue to grow tax-deferred. If you are over 72, you must follow the Required Minimum Distribution rules. Rolling your money from your 401(k) to an IRA may make sense for a variety of reasons, and fortunately, an IRA rollover is not a taxable event. Do you want more information or consulting about 401K taxes in Upper Arlington, Ohio? We can help!

10. At retirement, balance your needs for income and growth

Most people should disregard the notion that when you retire you should move all your money into bonds and stay clear of the stock market. Inflation, even when it is under control, has a nasty way of ensuring that a dollar in the future will not buy what a dollar does today. You must ensure that your investment holdings have the potential to outpace inflation, so that the income you receive from your investments can have the same purchasing power when you’re 85 as it does when you’re 65. This means you should have a portion of your money in investments that have the potential to outpace inflation, such as stocks, regardless of your age.  Now that you have all the information, you need, let us know if we can help you further. State Street Adviser will help you with your 401K investment strategy in Upper Arlington, Ohio.  Give us a call at (614) 895-2584 and we will talk!

Rebalancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional.

Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss.

Consider all available options, which include remaining with your current retirement plan, rolling over into a new employer's plan or IRA, or cashing out the account value. When deciding between an employer-sponsored plan and IRA, there may be important differences to consider - such as range of investment options, fees and expenses, availability of services, and distribution rules (including differences in applicable taxes and penalties). Depending on your plan's investment options, in some cases, the investment management fees associated with your plan's investment options may be lower than similar investment options offered outside the plan.

A diversified portfolio does not assure a profit or protect against loss in a declining market.

401(k) vs. IRA: What You Should Know

Most people have at least heard of two prevalent types of retirement plans: the 401(k) and the IRA. Deciding which is appropriate for you, however, is another story. Having a basic understanding of these two types of retirement accounts, along with their potential advantages and drawbacks, can equip you to make more informed decisions about saving and investing for retirement.

401(k) Retirement Plans - What Is a 401(k) Retirement Plan?

A 401(k) is a retirement plan provided by employers for eligible employees. This is why it is called an employer or company-sponsored retirement plan. It takes its name from subsection 401(k) of the US Internal Revenue Code.

Under a 401(k) plan, an employee makes pre-tax or after-tax contributions to their account directly out of their paycheck each pay period. The funds in this account are allocated to investments, usually mutual funds, but can have other choices. Employees don't receive the benefit until retirement age, which is why the 401(k) is classed as a “deferred compensation” plan. If contributions are made pre-tax, the money is taxed upon withdrawal, if the participant had Roth 401k, the distribution will be tax-free.

Pros and Cons of 401(k) Plans Potential Advantages

• 401(k) makes saving for retirement simple. Once set up, contributions will be automatically deducted from your paycheck.
  
• It provides a way to put money aside in a consistent, long-term strategy.
  
• Money contributed could be deducted from your taxable income, which means you’ll pay less in income taxes for that tax year.
  
• Your money grows tax-deferred in your account. And, although you’ll pay taxes when you begin to withdraw the funds in retirement (if you
• made pre-tax contributions), you might be in a lower tax bracket when that time comes.
  
• If your employer offers it, you can make Roth contributions to your 401k. That way the moneys grow tax-deferred and are tax-free when
• withdrawn as qualified distribution such as retirement or attaining age 59 ½.
  
• Your employer can contribute to your 401(k) and might offer matching contributions, up to a certain limit. If you take advantage of the offer,
• that’s essentially a 100% return on your investment. (Although your investments are subject to market fluctuations and potential loss.)
• Employer contributions can be considered part of your overall benefits package.
  
• Loans from the account may be possible in the event of an emergency or financial crisis.
  
• If you leave your job, you have the option to roll your money over to another 401(k) or to an IRA.
  Potential Disadvantages

There are always risks associated with investing, and participants have a choice to invest their money in 401(k)s.
You can't withdraw funds from a 401(k) prior to the age of 59 ½ (or 55 in some cases) without incurring a hefty penalty fee of 10%, in addition to regular income tax.

• You will see a decrease in your take-home pay.
  
• There are fees associated with 401(k) plans.
  
• There are annual contribution limits. If you want to save above those limits, you’ll need to pursue other options alongside this one.
  
• The rate of return in a 401(k) might be lower in comparison to other types of investments.IRA Plans
  
• An IRA (Individual Retirement Account), is a tax-advantaged investment vehicle designed to hold assets purchased with earned income for retirement purposes. IRA plans are offered by various financial institutions and provide tax benefits to encourage retirement savings.

IRA Plans: Important Factors to Consider

The IRS limits the amount of money that you can contribute to IRAs each year, whether it’s in one or multiple IRA accounts.
You might not qualify to make IRA contributions depending on to what type of IRA you want to contribute and your earned income levels.
If you make early withdrawals from an IRA before age 59 1/2 , some or all that money may be subject to income taxes, as well as a steep 10% penalty.

You have total control of your IRA account. This aspect is double-edged. While you have control and flexibility, unless you enlist the help of a trusted financial professional, it’s up to you to make sound financial decisions to ensure the long-term growth and security of your retirement savings.

IRAs typically offer more investment options than 401(k)s. This could also be to your advantage, but if you don’t want the added responsibility or pressure of choosing from the options available to you, you might want to consider seeking advice of a financial professional.
Not everyone finds themselves in a situation where they are an employee with an employer who offers the benefits of a 401(k) retirement plan. For small business owners, self-employed and contract or freelance workers, there are a few options to explore outside of these common 401(k) and IRA plans.

What is a SEP-IRA?

A SEP-IRA, or Simplified Employee Pension Individual Retirement Account, is often used by small businesses and self-employed workers to provide retirement benefits for themselves and their employees. Contributions are tax-deductible for the employer and grow tax-deferred for the employee. It's important to note that contributions are subject to a certain annual limit. SEP IRAs accept only employer contributions.

SEP-IRAs invest funds similarly to other IRAs. Withdrawals from SEP-IRA funds are taxed at ordinary income tax rates when qualified distributions are taken after the age of 59 ½.

For self-employed individuals with no employees, administration costs for a SEP-IRA are typically minimal. For small businesses, however, contributions must be made for all eligible employees.

What is a SIMPLE IRA?

SIMPLE stands for Savings Incentive Match Plan for Employees. A SIMPLE IRA is another type of employer-provided retirement savings plan. A SIMPLE plan allows both the employer and employee to make contributions.

SIMPLE IRA plans commonly involve employer-matching contributions or only employer contributions. Employer contributions to employee accounts are usually tax deductible, and contributions to the plan are tax-deferred for both employers and employees. However, there are limits on both employer and employee contributions.

A SIMPLE IRA has lower costs compared to 401ks and is suitable for smaller employers SIMPLE IRA is still subject to ERISA and its related regulations.

401(k) vs. IRA

Understanding and weighing your options is key to making an informed decision. Here’s a quick comparison of 401(k) plans vs. IRAs, but this isn’t a comprehensive list of considerations. A financial professional can provide you with more detailed insights and personalized recommendations.

• 401(k) plans are available through employers, whereas you can open an IRA yourself at a financial institution of your choice. This is especially the case for traditional and Roth IRA accounts. However, your employer can play a role in facilitating and contributing to SIMPLE and SEP IRAs.
  
• 401(k)s can be a good retirement savings option for employees who have access to one, it allows larger tax-advantage contributions and often employers offer matching contributions.
  
• IRAs may be ideal for anyone who doesn’t have access to an employer-sponsored retirement account, or who wants greater flexibility than what’s offered in their 401(k). (But, an employer can facilitate access to SIMPLE and SEP IRAs.)
  
• Workplace 401(k) plans typically require less involvement from the participant, but the investment options might be limited.
  
• With an IRA, you’ll have more flexibility in your investment options, but with that, some added responsibility in making investment decisions.
  
• IRA contributions might be tax-deductible, depending on income levels and if you are a covered participant or not. 401k contributions are not subject to income limits and are always tax advantaged.
  
• Call it a Draw: When the Answer Can Be “Both”
  
• Depending on your circumstances, viewing 401(k) plans and IRA plans in either/or terms might mean a missed opportunity. You can have both. Many investors use IRAs to complement an employer-sponsored 401(k) plan, and some financial professionals recommend having both for retirement to support an effective drawdown strategy. These plans have other connections, too. For example, you can convert or “roll over” a 401(k) to an IRA. Or, as your career progresses and you’re set up to get the full match in your 401(k), you can begin contributing to an IRA as well.

This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera nor any of its representatives may give legal or tax advice.

Before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Please view the Investor Alerts section of the FINRA website for additional information.