EC 5 Important 401k Rules You Should Never Forget

After the beating most investors took last quarter, I have a feeling that when 401k statements get mailed out in the coming days, most will be left unopened and dropped in the trash. It was just that kind of quarter.

But with one quarter left in 2015, this is a good time to review some ironclad 401k rules that you’d be well advised to remember.

For most working Americans, the 401k plan is the linchpin of their savings and the single biggest piece of their overall financial plan — yet because they are “boring” and automatic, they tend to get ignored.

That’s a major mistake, and one that can cost you a comfortable retirement. So this week, take time to review your plan, and keep these 401k rules in mind.

Photo credit: 401(K) 2012

1. Investing In a 401k Does Not Necessarily Mean Investing in Stocks

Whenever I push clients to really take their 401k plan seriously, I often get the following reply: “But Charles, I don’t want to be invested in stocks right now.”

And my reply is simple: “Who said anything about stocks?”

“401k plan” does not mean “stock mutual funds.” A 401k plan, just like a brokerage account or an IRA, is merely a type of account. It can hold stock funds, bond funds, cash and — if your 401k’s limits allows for a self-directed option — you might even be able to hold nontraditional investments.

If you don’t want to own stocks right now, then don’t. But keep stuffing cash into your 401k plan so that it’s ready to deploy when you need it.

2. Returns Are Only Part of the Equation

This brings me to the second point. Let’s say that you hate the stock market right now due to high valuations, high volatility or because that last stock broker just looked at you funny. Pouring as much money into your 401k plan as you can, even if it sits in low-yielding money market funds, still makes all the sense in the world.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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