January is when everyone feels like they should be doing something with their 401k. New year, new statements, new headlines, and suddenly financial confusion. Instead of blowing everything up, let’s simplify this. There are four questions everyone should be able to answer about their 401k. If you can answer these, you are already ahead of the game.
1. How Much Are You Contributing?
First question, how much am I contributing? Not your balance, your contribution rate. This is the one lever you actually control. And a small increase early in the year compounds for a full 12 months. Even a 1% bump in January can matter more than a dramatic change later.
2. How Much Money Is Being Taxed?
Second question, how is my money being taxed? Pre-tax or Roth? Pre-tax gives you a tax break now, Roth gives you tax-free money later. There is no universal answer. Anyone telling you there there is is oversimplifying. Most people don’t necessarily need to pick a side. They just need to understand what they are already doing.
3. How Is It Actually Invested?
Third question. How is it actually invested? This is where a lot of people politely zone out, I get it. But this one matters. Many people are in target date funds which quietly assumes you’ll retire at age 65. In reality, most people either stop working before 65 or well after 65. That doesn’t mean that target date funds are bad. It just means defaults don’t know your life. Your 401k is the account, the investments live inside the account. January is a great time to make sure that they still match your timeline. And even if you were specifically defaulted into a target date year, you can always go in and choose a year that’s actually more appropriate for your timeline.
4. Who Gets It If I Die?
Fourth question, who gets this if I die? Fun topic, I know, but this one is important. Your beneficiaries don’t update themselves and your 401k does not automatically follow your will. If your life has changed, marriage, divorce, kids, checking this once a year is just responsible adulting.
So, if you can answer these four questions, how much am I contributing? How is it being taxed? How is it invested? Who gets it if I die? You are in control of your 401k. You don’t need a perfect plan. You need a plan you understand and stick with. That’s it for this week. This is Jeanne, the 401k lady.
Learn more about Jeanne Sutton.