5-Minute 401(K) Exercise
The S&P 500 was up ~30% in 2019. And if your company offers a 401(K) plan, you’re likely in the 72% that participates. So I encourage you to do the following 5-minute exercise:
Log in to all of your active 401(K) accounts (you may have ones still being managed by previous employers); don’t worry, there’s a good chance that you have forgotten your login credentials, let alone which website to go to access your 401(K) account. Just search your corporate email for “401(K)” and I’m sure you’ll find an email from your HR/Benefits team that will point you in the right direction.
Celebrate the 1-year increase in your 401(K) balance! You likely hold ETFs or Mutual Funds that are tied to the S&P 500 or Dow (which was up over 20%).
Check what your current contribution is set at. In 2020, the limit increased to $19,500 from $19,000. You likely received an email from HR/Benefits before the start of the year informing you of this. But here’s a chance to make sure you increase(d) your contribution amount. (Increasing your amount is a good idea as long as you’re not strapped for cash in the short term).
Check which ETFs and/or Mutual Funds the 401(K) holds. You may consider modifying your holdings depending on your risk profile. For example, you may want to shift from “low-risk” to “medium-risk” ETFs/Mutual Funds or vice versa.
Check if your 401(K) allows you to invest in individual stocks like your company’s stock or other companies like Apple, Facebook, etc. Consider allocating a small portion of your 401(K) to these stocks if you’re able and comfortable.
Ask your 401(K) admin if the plan supports Mega backdoor Roth IRAs. This is essentially a way to take after-tax contributions made to a 401(K) and place them in a Roth IRA. More on that in another post.
Ask your 401(K) admin if the plan supports in-service rollovers, which enables employees to roll their 401k to an IRA (Traditional or Roth) while still employed with the company. You can then use “some” of the capital in the IRA to make higher-risk investments via a Self-Directed IRA.
Check what your company’s matching policies are and that your 2019 matching was accurate.
Model out what you’ll have in your 401(K) assuming the same contribution amount and an average return of 10% per year. This will give you an idea of how powerful 401(K) compounding is.
Hopefully this exercise enables you to feel more in control when it comes to your retirement!