If you work for a medium-to-large company, you may be entering the “open enrollment” period — that time of year when you get to make changes to your employee benefits. Your benefit package is a big piece of your overall financial picture, so you’ll want to make the right moves — especially in your employer-sponsored retirement plan.
• Take a look at your 401(k) or 403(b) if you work for a school or nonprofit group, or a 457(b) if you work for a state or government. Keep these possible moves in mind:
• Boost your contributions. If your salary has gone up or you think you have a reasonable “cushion” in your disposable income, boost your contributions to your employer-sponsored plan. Even if you can’t afford to contribute the maximum amount — in 2014, it is $17,500, or $23,000 if you’re 50 or older — to your 401(k) or similar plan, try to put in as much as you can afford. Remember the benefits of these plans: Your money grows tax deferred, and your contributions lower your annual taxable income. (Keep in mind, you will be taxed on your withdrawals, and any you take before you reach 59½ may be subject to a 10 percent IRS penalty.)
• Don’t miss the match. Take full advantage of your employer’s matching contribution, if one is offered. Your employer may match 50 percent of employee contributions, up to the first 6 percent of your salary. If you’re only deferring 3 percent of your income, you’re missing half the match.
• Rebalance, if necessary. You may be able to change the investment mix of your plan throughout the year, but you might find that the best time to review your holdings and rebalance your portfolio is during open enrollment, when you’re reviewing all your benefit options. Determine if your investment allocation is still appropriate for your needs. Always keep in mind the need to diversify. Spread your money around a variety of investments, with the exact percentages of each investment depending on your goals, risk tolerance and time horizon. As you near retirement, you may need to lower your risk level, but you’ll still benefit from a diversified portfolio. While diversification can’t guarantee a profit or protect against loss, it can help reduce the impact of volatility on your holdings.
• Review your beneficiary designations. Your retirement plan’s beneficiary designations are important and can even supersede the wishes you express in your will. If you experience changes in your life — marriage, remarriage, a birth or an adoption, etc. — you’ll need to update the beneficiary designations. It won’t take much time today — and it can help prevent a lot of trouble tomorrow.
You work hard for the money that goes into your retirement plan —so make sure your plan is working hard for you.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Information provided by Karl Ritland, Edward Jones, 1100 N. Hickory Blvd., Suite 201, Pleasant Hill, 266-8188, www.edwardjones.com.