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In this video, introduce the 401K and how it works, l take you inside my 401k account and show you how to pick investments for your 401K.

401K Must know
There are two types of 401K: Traditional 401K and Roth 401K. Traditional 401K is investing with your pre-tax money. Hence, this lowers your total taxable income for the year, which means paying less tax to Uncle Sam. Say you make $60,000 per year and you contribute up to the max of 19,500. Instead of paying tax on $60,000, you will only pay tax on $40,500, a tax saving of about $4400 per year. However, you will pay tax on the money you withdraw at age 60. On the other hand, for Roth 401K, the contribution will be made with post-tax money. Hence there is no tax deduction and it won’t lower your total taxable income for the year, but the money you withdraw at 60 will be tax free. So if your portfolio grows to $1M in the Roth 401K over 30 years and you plan to withdraw all of it, you pay nothing in tax. If you were to withdraw that $1M in a Traditional 401K, you are looking at a huge 300K to 400K tax bill depending on the state you live in.

– A 401k is an employer sponsored retirement account, to be used during retirement starting at age 60. It allows employees to contribute up to 50 percent of their salary toward investments such as bonds and mutual funds. These investments, if invested properly, will grow tax free over time, allowing the employees to withdraw the money to use by the time they are 60.

– The contribution is automatically taken out of your paycheck and deposited into the account for investing. You can contribute up to 19,500 dollars annually. This is a great way to automate your investment because money will automatically be taken out of your paycheck and invested on a weekly or bi-weekly basis (depending on how often you get paid) before it gets deposited into your bank account.

– Most employers offer a match, whether it is dollar for dollar or 50 cents on the dollar, up to a certain percentage of your salary (typically up to 5%). Some employers such as mine match up to a fixed amount. Bottom line: Always take the match because it’s free money! Nothing can beat that.

– Your investment choices are limited. You are only limited to certain mutual funds and bonds made available by your employer, typically 20 something compared to more than 3500 on the open market….(read more)

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How To Pick The BEST Investments For YOUR 401K

Your 401K is a vital part of your retirement savings, and making the right investment choices can significantly impact your future financial well-being. With so many options available, it can be overwhelming to determine the best investments for your 401K. However, with a little knowledge and guidance, you can choose the right mix of investments to maximize your retirement savings.

Here are some steps to help you pick the best investments for your 401K:

Understand your risk tolerance: Before you start investing, it’s essential to understand your risk tolerance. Some people are comfortable with taking on more risk for the potential of higher returns, while others prefer a more conservative approach. Your risk tolerance will determine the mix of investments that is right for you.

Diversify your portfolio: Diversification is key to a successful investment strategy. By spreading your investments across different asset classes, such as stocks, bonds, and cash, you can reduce the overall risk of your portfolio. When one asset class is performing poorly, another might be doing well, helping to balance out your overall returns.

Consider your time horizon: Your time horizon, or the number of years until you plan to retire, should also play a role in your investment choices. If you have several decades until retirement, you may be more comfortable with a higher allocation to stocks, which have historically provided higher long-term returns. As you approach retirement, you may want to shift some of your investments into more conservative options, such as bonds or cash.

Take advantage of employer matching: If your employer offers a matching contribution to your 401K, take full advantage of this benefit. It’s essentially free money that can help boost your retirement savings. Make sure you contribute enough to your 401K to maximize your employer’s matching contribution.

Keep fees in mind: It’s important to pay attention to the fees associated with the investments in your 401K. High fees can eat into your returns over time, so look for low-cost index funds or exchange-traded funds (ETFs) that offer broad diversification at a low cost.

Review and rebalance your portfolio regularly: Once you’ve chosen your investments, it’s crucial to regularly review and rebalance your portfolio. Market fluctuations can cause your asset allocation to drift from your target mix, so it’s important to adjust as needed to maintain diversification and manage risk.

Seek professional advice if needed: If you’re unsure about which investments are right for your 401K, consider seeking the guidance of a financial advisor. They can help you assess your risk tolerance, understand your investment options, and create a personalized investment strategy that aligns with your retirement goals.

Your 401K is a valuable tool for building a secure financial future, and choosing the best investments for your 401K is crucial to maximizing your retirement savings. By understanding your risk tolerance, diversifying your portfolio, considering your time horizon, taking advantage of employer matching, keeping fees in mind, and seeking professional advice if needed, you can make informed investment choices that best suit your individual needs and goals.