Spice Up Your 401(k) This Fall
With Halloween around the corner and pumpkin spice lattes abounding, it’s important to do a little spicing up of your 401(k) account.
1) Review your beneficiaries.
I cannot stress how important this is. The courts have weighed in on this one (repeatedly).
Under Federal ERISA law, your spouse will always be considered your primary beneficiary of your 401(k) account, regardless of whom you may have written on the beneficiary form.
If you were recently divorced and your former spouse was listed as your primary beneficiary, you will want to remove your ex-spouse. Otherwise, they may get your money if you were to pass.
You also want to double check “secondary” or “contingent” beneficiaries. These are the people who would get your money if you and your primary beneficiary were both deceased.
Many people list their kids or grandkids.
· Maybe you have more kids or grandkids than when you originally filled out the form and they are not all listed.
· Maybe one (or more) of your kids are driving you nuts, and you want to make sure they don’t get any money.
Either way, make sure your beneficiary form reflects exactly what you would want to have happen to your money if your are not here tomorrow. Also, make sure it reflects what you have written in your will. It does not matter what your will says, the money is going to those listed on your beneficiary form).
2) Review your contributions
I would always tell clients that at the absolute bare minimum you should be contributing to your plan enough to get 100% of your company’s “match”. Oftentimes this is written something like, “we will match 100% of your first 3% and 50% of the next 2% of your contributions to the plan”.
What this means is that if you put in 5% of your money into the plan for the year, your company will add an additional 4%. If you put in less than 5%, you will get less than 4%.
This is “free” money from your employer and you cannot go back in years and recapture missed matches.
IMPORTANT: be sure you know your company’s match. If they are making any changes to the match for 2026, you will soon receive a written notice. Pay attention to this and make sure you stay on top of any changes.
The maximum amount of money you can put into the plan is determined by the Federal government.
· For 2026, the maximum amount anyone can contribute to a 401(k) is $24,500.
· However, if you are over the age of 50, you can put in an additional $8,000 ($32,500 total).
· And, to make matters even more confusing, if you are between the ages 60 – 63, you can add another $3,250 ($35,750 total). But only for the four years between age 60 – 63. Once you turn age 64, your “catch up contributions” go back to $8,000 per year.
Be sure to double-check and ensure you are taking full advantage of your contributions if you can max them out.
3) Do a risk tolerance assessment!
You probably did this when you opened your account. You answered a bunch of “what if” questions and magically the computer revealed if you are aggressive, moderate, etc. It’s a “best practice” to repeat this process each and every year. We all can suffer from “recency bias” (overemphasizing recent experiences when forecasting future events). What if the last time you completed a risk tolerance was in the midst of the financial crisis in 2008?
· You may currently be too conservative due to seeing account values plummet for a year and half.
· And you may be too aggressive if you did a risk assessment after a big year of gains.
To ensure we stay ahead of recency bias, you will want to re-do a risk tolerance assessment every year. Then, make sure your investments line up with your risk tolerance.
(RESOURCE: If you don’t know how to do this, check out my401kadvice. We will let you know exactly how to invest your 401(k) money for less than a $1 per day!)
Every year when you start seeing pumpkins and are getting ready for Halloween, I want you to think of your 401(k), and remind yourself it’s time to do a few reviews.
Think: pumpkin spiced lattes, Halloween decorations and 401(k) review!
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