Take Charge of Your 401K

By Lowes, Robert | Medical Economics, January 11, 2002 | Go to article overview

Take Charge of Your 401K


Lowes, Robert, Medical Economics


Cover Story

If you own a 401(k), you may have asked yourself questions like these over the past two years:

"How can I stop the bleeding?"

"Should I put all my money in bonds?"

"Do I know what I'm doing?"

You didn't ask such questions in 1999. No matter how you allocated your money in a 401(k) back then, the raging bull market almost always delivered robust returns. Investment mistakes were lost in the stampede. Many investors put their plans on cruise control and went to sleep.

Now the bear market that began growling in 2000-and intensified after the terrorist attacks last fall-has jolted these once-nonchalant investors into high anxiety Now they dread opening their 401(k) quarterly statements and discovering that their accounts have shrunk again.

You can say one good thing about a bear market, though-it often wakes people up to basic investing principles. And the basics very much affect 401(k)s. You set goals, decide on your tolerance for risk, build and maintain a diversified portfolio, and hang on for a long ride. With patience and discipline, you'll amass a nice pile of money.

But 401(k)s-and look-alike 403(b) plans offered by nonprofit institutions-require additional finessing because of the laws that govern them. With just a little homework, you can manage your 401(k) through good markets and bad to a comfortable retirement. Here's how.

Contribute the max-- and the max has gone up

There are three good reasons for pouring as many dollars as you can into a 401(k).

One, it's better to save too much than too little for retirement, and doctors have been tempted recently to slack off.*

Two, you want to minimize what you owe Uncle Sam. Income tax on your pre-tax 401(k) contributions and earnings is deferred until you start withdrawing the money when you've retired and you're presumably in a lower tax bracket.

And three, if your employer matches your contribution, why pass up free money? Ante up at least enough to get the maximum your employer will contribute. The most common match is 50 cents on the dollar up to 6 percent of income.

Regardless of the employer's maximum, federal law limits your pre-tax contribution to $11,000. Thanks to President Bush's 2001 tax overhaul, though, this amount will rise $1,000 a year between 2003 and 2006, to $15,000. Beyond 2006, increases will be keyed to inflation in $500 increments.

Bush's tax package also includes a "catch-up" provision that allows people 50 and older to kick in an extra $1,000 in 2002. This amount will stairstep $1,000 each year until it plateaus at $5,000 in 2006. A 50-year-old could contribute a total of $20,000 that year.

Choose the right funds for your investing goals

To build a solid 401(k) portfolio from a menu of fund choices, you've got to understand the fundamentals of investing. You can explore this subject more deeply at the Medical Economics Web site (www.memag.com), where you can read "What it takes to be a successful investor" under "Your Money 101" in the Library section. Or, immerse yourself in respected financial Web sites such as www.morningstar.com, or sites that specialize in 401(k)s, like www.401khelpcenter.com.

No matter where you get your education, you'll learn that anyone who's more than 15 years away from retirement should funnel most of his money into a spectrum of stock mutual funds: domestic and international, growth-oriented and income-oriented, large company (called a large cap, as in capitalization), medium company, and small company. Your financial education will include how to allocate your funds among the various types of investments you select (what percentage of your money to keep in each type).

Most 401(k) providers try to dumb down portfolio building. They assume participants are investment rookies and steer them to safe bets. A plan will usually include at least one middle-of-the-road choice, such as an index fund or a growth-and-income fund. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Take Charge of Your 401K
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.