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5 Commonly Asked Questions by 401(k) Participants

When it comes to managing your 401(k), making informed decisions can significantly impact your financial future. Whether you're just starting to contribute, thinking about changing jobs, or wondering about the best way to invest, understanding how your 401(k) works is essential.


Below are some of the most common questions people have about their 401(k) plans, along with insights that can help you make the best choices for your retirement savings.


1. How Much Should I Contribute to My 401(k)?

When deciding how much to contribute to your 401(k), there are several factors to consider that can significantly impact your retirement savings.


If your employer offers a matching contribution, your first priority should be to contribute enough to get the full match. Employer matching is essentially “free money” that enhances your overall retirement savings without requiring any additional contribution from your pocket. For example, if your employer offers a 100% match on up to 3% of your salary and 50% on the next 2%, you should aim to contribute at least 4% of your earnings to take full advantage.


As your income increases, consider gradually increasing your 401(k) contributions. Many plans offer an automatic escalation feature, where your contribution percentage increases annually by a set amount (such as 1%). This approach allows you to grow your savings without feeling the pinch too much in your take-home pay.


The power of compounding means that the earlier you start contributing, the longer your investments have to grow. Even small contributions made consistently over time can snowball into substantial savings due to interest compounding on your returns. For example, if you start contributing in your 20s, you’ll have decades of growth potential, which could significantly reduce the pressure to contribute larger amounts later in life.


2. What Happens to My 401(k) if I Change Jobs?

When you leave a job, you have several options for your 401(k):

  • Leave it with your previous employer: If your account balance exceeds a certain threshold (usually $5,000), many plans allow you to keep your funds where they are.

  • Roll it over to your new employer's plan: This can consolidate your accounts and make managing your retirement savings easier.

  • Roll it into an IRA: Rolling over to an IRA gives you more flexibility in investment choices and may offer lower fees, but be mindful to follow the rollover rules to avoid any potential tax implications.


3. Should I make Roth or Traditional Contributions?

Choosing between Roth and Traditional contributions depends on your current tax situation and expectations for the future:

  • Roth 401(k): Contributions are made with after-tax dollars, meaning you pay taxes upfront. However, withdrawals in retirement are tax-free and there are no Required Minimum Distributions (RMDs). A Roth 401(k) can be a great option if you anticipate being in a higher tax bracket later or if you value tax-free income in retirement.


  • Traditional 401(k): Contributions are made with pre-tax dollars, reducing your taxable income today. You’ll pay taxes on withdrawals in retirement and will be required to take Required Minimum Distributions (RMDs) at your RMD age. This option is ideal for those who want to reduce their current tax liability and expect to be in a lower tax bracket in the future. Many participants benefit from contributing to both Roth and Traditional accounts to hedge against future tax uncertainty.


4. How Do I Update My Beneficiaries and Personal Information?

Keeping your beneficiaries and personal information up to date is essential for ensuring your 401(k) aligns with your financial and family situation. Most 401(k) plans allow you to update your beneficiaries online through your account portal. You can also reach out to your plan administrator for assistance.


It’s important to review your beneficiary designations regularly, especially after major life events such as marriage, divorce, or the birth of a child. To update personal information like your address or contact details, log in to your 401(k) account or contact your plan’s customer service team.


5. How Should I Invest?

The investment strategy for your 401(k) should be tailored to your risk tolerance, time horizon, and retirement goals. If you’re younger, you may be able to take on more risk, allocating a larger portion of your portfolio to stocks for potential higher growth. As you approach retirement, it can be wise to gradually shift towards a more conservative strategy, incorporating bonds or stable value funds to help preserve your savings.


At Whitener Capital Management, we recommend reviewing your investment strategy regularly and making adjustments as your financial situation and market conditions evolve.

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