What Is the Best Strategy to Invest Your Money in a 401k at Retirement?
THE BIG THING I WANT YOU TO KNOW:
The two questions you need to ask before investing the money in your 401k. 1) Are you able to move the money out? 2) What are your dreams? What’s your target — your end goal? Let’s talk about your options more…
During out Lightning Round on the show we answered a question from Ben!
Ben asked our team this:
People ask this type of question in many ways…
Whether it’s better to invest in a 401k or IRA? Which investment option will get the better return? What is the difference between a Roth IRA, IRA, and 401k?
Let me help:
A 401k, an IRA and a Roth IRA are all “shells” that go around your investments.
You could invest in any stock in any of these options and the stock would perform the same in all of them. What differentiates each of these investment “shells” is that they are treated differently by the IRS for tax purposes.
So instead of asking which gives the better return? (Because it will have the same return in each of them.) What you need to figure out, then, is what the different tax treatment options are and how that plays into the way you want to invest based on your situation and your goals…
thanks chris, but will you answer the question about 401k’s?
1 - you need to consider whether you are able to move the money to consider the best option
For Ben and his question regarding the $600,000 in a 401k, it depends on how far he is from retirement to whether he can move it or not.
If you’re working at a company and you’re not at retirement age, you usually don’t have the option to move the money in your 401k. What you need to do is look inside the options of that 401k and see how you can maximize or invest the best you can within the options that are given to you.
when the money needs to stay in the 401k and you don’t know much about investing, I’d recommend these two options:
Target funds are a great, easy option! How they work: You pick the date you are likely to retire and it will automatically diversify you across a lot of stocks AND slowly change your “aggressive level” as you approach that target date of retirement. This is a really popular option!
Get opinions from a financial firm, like us! While we can’t suddenly move that money, we can look at your options inside the 401k and give you investment recommendations based on all the pieces of your financial world: your current situation, age, dreams, etc. It’s more involved than target funds and more intentional to YOU.
when you have the right to move the money out you have some great options!
Something to note that a lot of people don’t know: If you are over 59 1/2, most companies allow for something called an in-service transfer.
This allows you to move the money out of your 401k and into an IRA, but leave your 401k open so you can keep making contributions to it.
The huge plus here is that you’re allowed to move your money if you don’t like the options within your 401k and want to manage it elsewhere.
You can also move the money to an IRA (Individual Retirement Account), which has the same tax treatment as a 401k.
This is called a rollover, then you can move that money to any investments you want. Okay then, how should you invest it? Well, that’s totally dependent on where you’re at in life right now and all the other factors of your financial world.
PLEASE!!!! Don’t scream at your computer!!! Trust us and know that the best option is you to ask our team about your situation rather than read advice that isn’t best for you.
what’s your dream for your life?
2 - before you make decisions about your investments and your strategy, you need to consider your overall goal.
The way you invest is informed by all the different parts of your world — by what your desires are for the future. Someone with a goal to own a luxury yacht and helicopter in 30 years is going to need a very different financial strategy than someone whose goal is to have a nice garden on some land in the country.
You have to have a target that will inform the way that you invest your money.
if you shoot arrows out at random how will you know if you’re making improvements toward your target?
Do you know what are you aiming for?
A quiet cabin in the woods to retire in?
A trip to Disney World for the whole family?
College tuition for all seven grandkids?
Whatever it is... there is an investing strategy that can help get you there, but it requires a look at YOU, and your entire situation.
So the two questions to answer, may have led to more questions about your investments.
If that’s true that is okay.
Let’s review 3 things I want you to know about your investing plan:
A 401k, Roth IRA, and IRA are all different shells of investing with different taxes.
You want to answer 1) Can you move your investments? 2) do you have a goal?
If you have questions you’re not alone. We would love to help you understand if you’re invested in a way that puts you on track to reach your dreams.
Do all of your investments point to ONE clearly defined dream?