Press Room

Take charge of your 401(K) plan

Money Management

Monthly financial advice
from the MACPA

For release: August 2005

One of the best ways to boost your retirement savings is to contribute to a 401(k) plan. These plans are self-directed, which means you are responsible for choosing how your funds are invested and for managing your plan. The choices you make impact the return you get at retirement.

To help you take charge of your 401(k) plan, the Maryland Association of CPAs offers answers to several frequently asked questions.

How do I know which funds to invest in?

Some employers offer only a few investments to choose from, while others provide dozens of choices. Research has shown that the percentage of your portfolio that you allocate to different asset categories — stocks, bonds and cash equivalents — is a greater determinant of your plan's performance than the actual stocks or funds you choose. The asset allocation that is best for you depends on your personal objectives, your risk tolerance and how long you have until retirement.

What about risk?

Generally speaking, the longer you have until retirement, the more you should invest in stock mutual funds. Investing in stocks exposes you to the volatility of the market, but over the long term stock funds have shown the greatest potential for gains.

As you approach retirement age, consider shifting your allocation toward more conservative investments. But retain some stocks for the continued growth of your retirement portfolio.

How can I reduce my investment risk?

While it's impossible to completely avoid risk, diversifying your investments can help reduce it. For example, don't invest all of your 401(k) funds in one fund. This includes your company stock. You are already dependent on your employer for your job — don't compound your risk. If your company falls into tough times, you might not only lose your job, but a good part of your retirement savings as well.

How can I track investment performance?

It's your responsibility to monitor your investments. Most plans provide quarterly reports and some offer a toll-free number or online access to up-to-date balance figures. Carefully review your balances and compare your funds' performance to performance averages for the types of funds you own.

Periodically, you should compute the percentage you have in each fund to be sure that your asset allocation remains within your goals. If one asset type has performed exceptionally well, you may need to rebalance your investments to maintain an appropriate asset allocation.

What if I don't like the investment choices my employer offers?

It is your employer's fiduciary responsibility to provide competitively performing funds. If you're not happy with the choices available, speak to your employer.

How often can I change my investment choices?

That depends on your plan. Some plans allow you to change your investments every day; others have fixed dates on which you can make changes. Still others allow a fixed number of switches per year and you may choose when to make them.

What happens to my 401(K) plan if I leave my present employer?

Employees who switch jobs have several options. If the vested account balance is more than $5,000, you can leave your money in your former employer's plan. Another option is to roll the balance into your new employer's 401(k) plan or into a rollover IRA.

To avoid paying taxes, arrange to have the money transferred directly between plans.

How can I get help?

Your CPA can provide valuable guidance to integrate your retirement investment strategies with your overall financial plan.

Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.

Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.

For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.

The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.

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