Our clients often ask, “What investments should I choose in my 401(k)?”

A 401(k) is a workplace retirement savings plan that has certain tax advantages for both the employer and the employee. Typically, when you elect to participate in your employer’s plan, you set aside a certain amount of each paycheck to be contributed to your 401(k) account. The employer may also contribute a matching amount to your account as well. The contributions from you and your employer enter the account as cash.

The 401(k) may either be Traditional or a Roth. The tax implications are different. In a Traditional 401(k), taxes are not taken out on the contributions you make in the present (they are “pre-tax”). This reduces your current tax liability. When you make withdrawals in retirement, taxes are assessed at that time. With a Roth, you make contributions with money that has already been taxed (“after-tax”), but you pay no taxes when you withdraw the funds in retirement.

In a 401(k), your cash is invested according to your own wishes. 401(k) plans have a menu of investment options pre-selected, and you make your choice from those. Most options are mutual funds. You can select to have a percentage of each contribution invested in a fund, so that you will be invested in more than one fund.

The options available in your employer’s 401(k) plan may be helpful when you are first starting to save for retirement. But as time goes by, those options can become less and less appropriate for you. Most 401(k) plans include mutual funds that may not fit your desired risk/return profile, and many of them have high internal fees that drag your investment returns down.

Unfortunately, most plans also require that you keep your investments in the employer’s plan until you leave their employment.

When you do have the opportunity to take full control of your savings and roll them over into your own account, you will gain more flexibility and opportunity to get more out of your investment account. Endress Capital Management can help you roll over your 401(k) into an IRA, and create an investment portfolio that is catered to your unique situation.

In the meantime, if you have questions about the options in your 401(k) and which ones might be right for you, we can help. A consultation with Endress Capital Management can steer your 401(k) in the right direction for the time being, while preparing you for the opportunity to take control of your money when the time comes.