Answering your 401k questions

May 6, 2009 The market has had a boost, now what do you do with your retirement plan?

The stock market has bounced back a bit lately but if you've taken a look at your 401(k), you know the same is not true for your retirement portfolio.

Click here to read a transcript of the web chat where experts answered your 401(k) questions.

Your 401(k) is not covered by any sort of insurance so it is critical you know where your money's invested.

Now is the time to asses your finances.

"I think that this has been a scary enough ride that everybody should be looking at their plan and saying 'hey does my plan still make sense'," said Kenneth Podell of First Financial Group.

Here are some general guidelines: number one, continue to contribute to your 401(k). You should pay into it at least enough so you get your company's match. This tip holds true even if you have high-interest credit card debt.

Number two ask 'Is your 401(k) right for your risk tolerance level'?

"Most 401(k)s go from conservative to aggressive and everything in between. So it's important that just because you're adding money doesn't mean you have to be in aggressive investments."

If you're under the age of 55 it makes sense to allocate more of your money into mutual funds that invest in stocks. If you're over the age of 55 more of your money should be in mutual funds that invest in bonds, or fixed income investments

"I'm waiting it out. I'm not a panic kind of person. I'm hoping for the best," one investor told us.

But beware because today's volatile market dramatically affects funds your portfolio could quickly become more or less risky than you intended.

"I just haven't looked at it. I can't look at it. I was laid off. I don't want to know. I don't want to be anymore stressed out than I already am," one worker told us.

But that goes against number three which is more important now than ever before.

"Be proactive not reactive," Ken said.

Check and rebalance your investments regularly so you can stick with your asset allocation, if you're in your twenties or even in your forties you can afford to be aggressive. Remember, when the market is down you're getting stocks on sale, although you may have to consider working longer so you have more time to add to your 401(k).

"Should I retire at 62 or do I need to continue working and building up social security credits and building up my assets," Ken said.

Do not make decisions based on Wall Street's ups and downs. You lock in a loss by taking funds out when your 401(k) fund is low and it's nearly impossible to jump back in time to catch the market's uptick.

If you've already converted your 401(k) to cash be careful about plunging back into the market all at once.

"The risk they run is that if they get back in at 8,000 and we go back to 6500 they'll have to run that course twice. "

So use a financial expert to work on a strategic plan.

And finally,

"When you or if you're laid off you do not want to spend your retirement assets in order to cover the time you're laid off."

Tip number five is trying to treat your 401(k) like a lock box. The worst thing you can do if you lose your job or change jobs is to cash out your 401(k) you'll have to pay taxes and a 10-percent penalty.

The best thing is to complete a 401(k) rollover and move the assets to an IRA.

Now in today's tough economy we have received a lot of questions from folks thinking about tapping into their retirement funds early and there are two options that minimize how much you'll pay in penalties and taxes.

See if you qualify for a Non-financial hardship 401-k Withdrawal, you'll have to pay taxes but the 10-percent penalty fee will be waived.

Also consider a 72-T, this allows you to withdraw from retirement accounts penalty-free before you turn 59 ½. But you have to follow certain rules.

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