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Tap Your 401(k)? Get Back On Track!

While tapping into your 401(k) is not the first choice that you should make, it is sometimes unavoidable. During the most recent economic crisis, you may have needed to withdraw from your retirement funding in order to make ends meet or cover certain types of expenses. The good news is that you can recover from this in the long run with some prudent actions right now. The first thing you can do is to immediately begin contributing the maximum amount allowable to your 401(k). This will not only maximize your tax savings, but it can also take advantage of the employer match. In fact, when you do not grab every penny that you can from your employer, you are leaving money on the table. Of course, there are limits to the amount that your employer will match. While your 401(k) investment options are limited to what your employers offers, there are ways to play catch-up to make up for some of what you lost if you had to withdraw from your account. You can periodically shift between bonds and stocks depending on your feeling about the market. For example, if you are using an 80-20 split between stocks and bonds, you can go 90-10 when the market has dropped, so you can try to time the market. Then, you can reallocate your portfolio when the market rises again. However, we caution against doing that with more than a small part of your portfolio. If you tapped into your 401(k) by taking a loan, you should pay it back as quickly as possible to recover account value. When you have a 401(k) loan outstanding, that money is not invested in the stock market and earning returns. The hope is that you are able to pay the money back as opposed to a straight withdrawal so you can avoid having to pay taxes on the money you took out of your account. Finally, another thing that you can do to get your retirement plan back on track is to take advantage of the ability to make catch-up contributions to your 401(k) when you turn 50. The law allows you to make a special contribution beyond the money that you are already allowed to set aside. For 2020, this amount rises to $6,500. While you may not receive an employer match on this money, it is a way to contribute additional money to your retirement from your pre-tax dollars. When you take advantage of catch-up contributions each year until retirement, it could add hundreds of thousands of dollars to your nest egg. Before you take money out of your 401(k), you should have a plan for getting your retirement back on track. You will need to make sure that you are disciplined and return to saving at the first possible opportunity. The most important thing to remember is that a dollar today grows several times over thanks to the power of compounding. To the greatest extent possible, you do not want to miss out on that. We are here to help guide you to a plan that fits your desired future.


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KEYSTONE FINANCIAL PLANNING

2405 Anderson Highway, Suite A | Powhatan, VA 23139

julie.manning@keystoneplanner.com            (804-376-7544

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Financial Planning and Advisory Services are offered through Prosperity Capital Advisors ("PCA") an SEC registered investment adviser with its principal place of business in the State of Ohio. PCA and its representatives are in compliance with the current registration requirements imposed upon registered investment advisers by those states in which PCA maintains clients. PCA may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. This brochure is limited to the dissemination of general information pertaining to its investment advisory/management services. Any subsequent, direct communication by PCA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. Keystone Financial Planning and PCA are separate, non-affiliated entities. PCA does not provide tax or legal advice. Insurance and Tax Services offered through Keystone Financial Planning are not affiliated with PCA.  For information pertaining to the registration status of PCA, please contact the firm or refer to the Investment Adviser Public Disclosure web site www.adviserinfo.sec.gov. For additional information about PCA, including fees and services, send for our disclosure statement as set forth on Form ADV from PCA using the contact information herein. Please read the disclosure statement carefully before you invest or send money. The Retirement Income Certified Professional (RICP®) certification is a professional designation provided by The American College of Financial Services, Bryn Mawr, PA.  To receive the designation, the individual must complete a minimum of three college-level courses which cover information such as retirement income planning, retirement portfolio management techniques and mitigation of plan risks to the proper uses of annuities, employer sponsored benefits, and determining the best Social Security claiming age.  In addition, the individual must pass an examination, have three years of financial services experience and adhere to the American College’s Code of Ethics. The American College can disallow use of the RICP® if advisors do not adhere to the program’s ethical standards, continuing education, and other requirements.