New Year Resolution Should Include 401(k) checkup

Posted by freetaxadvisor

January 2, 2009

Lot of people have 401K savings plan for their retirement, however only few understand it’s devastating effect if proper information is not provided to the plan organizer. I urge you to use this New Year’s time to assess your retirement plan. To ensure that you do not miss out on your retirement planning, review the checklist below and try to complete as many items as you can.

Update your savings contribution rate

Beginning of the year is a good time to access your overall expected earnings and your expenses so you can set your contribution rate. Adding a small percentage of your earnings now will give you a tremendous head start on your overall retirement savings. Once you access the upcoming New Year’s earning power, adjust your savings rate in your employer’s savings plan web site or contact your HR department to make the appropriate changes.

Re-balance your investment

This is a good time to look at the performance of your investment for past one year and rebalance your portfolio. Means that you must first decided what % of fund you want invested in stock, bond and fix income investment. If you are keeping the same percentage as last year you still need to re-balance the portfolio so that % are maintained. With the $700B government bailout to the US economy, it is possible that stock market could recover in 2009 and big gains may be ahead!

Update beneficiary section of the savings plan

This is one of the things where lot of people do not have a clue what they have put down or left it blank. Make sure that this section is filled out and it is correct. By providing beneficiary designations you are guaranteed that the benefits payable after your death will go to the person you have chosen.

Maximize your allowable contributions

IRS sets up maximum limits on the allowable contribution for your retirement every year. Maximum retirement contribution limit for 401k plans increases each January based on the cost-of-living changes during the prior year. IRS announces the new limit normally in mid-October. One can contribute maximum up to $16,500 for 2009, and additional catch up contribution is allowed for people age 50 or older.