A Study of Your 401K Investments

The government offered the 401K as a retirement account for employees desiring to save and invest while enjoying tax advantages on its income.  Contributions made to your 401K through automatic salary deduction, usually with matching contributions from your employer amounting to as high as 25% of your contribution.

All contributions, yours as well as your co-employees', are administered by the employer or his designated representative.  401K administrators have the responsibility of preparing the annual 401K plan which forms the basis of day-to-day investment operations decisions. This plan determines the shape which your 401K investments will take to enable you to bring about the retirement you envision for yourself.

The responsibility of informing 401K participants regarding the plan, your benefits and the expected outcome of your 401K investment likewise falls under the purview of 401K administrators. Traditionally, 401K funds are invested in mutual funds in brokerage houses. These brokerage houses, on their part, invest the funds into stock, bonds and the money market. These stock brokers are professionally managed by securities specialists who do research, keep abreast of stock market developments and who take charge of buying and selling financial instruments. 

It is then quite evident that opting for this method of 401K investments enables the employer, who is tasked with 401K fund administration, to avail of the most uncomplicated method of administering your 401K funds. Mutual funds provide the venue for investment diversification that enhances the capability of the funds to earn more income. This results into better profits that you can enjoy when you retire.

In addition, making traditional 401K investments into stocks, bonds and similar financial instruments can are easily be converted into cash when the need arises.  Considering the fact that your company's 401K funds are comprised of many accounts including yours, the needs of each account owner will be different from one the other.   Employees with extremely pressing circumstances such as those medical in nature can make qualified distributions from his account which can easily be served with traditional investments.  Hardship distributions are usual in 401K accounts. 

Besides, retirement ages do not come at the same time across the company; hence some will have to earlier withdrawals than the others who have not reached retirement age. Termination of employment can also account for withdrawals from the fund and to tie up the monies in non-traditional 401K investments will likely cause liquidity problems for the fund.

Such will surely be the case if 401K investments are made in non-traditional physical assets such as real estate and precious metals.  These tangible assets, although equally productive and can provide for a more stable investment, are relatively more difficult to liquidate because they require a seasoning period to allow the value to increase.

In making a comparison of IRA vs 401K it is critical that you make a careful evaluation of what your retirement plans are before going into the world of IRA investments.  The advantage of receiving matching employer contributions cannot be overlooked aside from the offer of a professionally managed account where expenses are distributed across all accounts in the fund.  Fees for a managing an IRA account will be shouldered only by your account, which can amount to a considerable sum.

Hence, it would be realistic to carefully weigh your options with regard to your retirement goals in order for you to get the best suited retirement account - 401K or IRA.  Financial advisors can make this crucial decision much easier. Find one now!

401k investments

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