People choosing a 401(k) should select a plan that has a better-than-average return, is low in price, has solid management and is reasonably sized, notes CNN. Investors should decide whether to add an additional Roth 401(k) based on tax rates and whether it is more beneficial for them to pay taxes on contributions rather than withdrawals, states the Financial Industry Regulatory Authority.
An investor should choose a 401(k) plan that has performed in the top 25 percent of similar plans over three, five and 10 years, notes CNN. The chosen plan should also cost an investor less in fees, than comparable plans, as these lower overall returns. Additionally, investors should look for a 401(k) that has an experienced management team with a solid track record, and that is of a reasonable size such that managers can money move in and out of various investment sectors to maximize returns and to minimize risks.
If people have the option of investing in a taxable Roth 401(k) plan, they should consider whether they can afford to have payments taxed at the time of contribution, thus lowering their take-home pay, states the Financial Industry Regulatory Authority. People who anticipate falling into a higher tax bracket upon retirement are good candidates for contributing to a Roth 401(k), as they pay less in taxes upon contribution than withdrawal.