How to Choose 401k Investment Options

In recent years, the 401k investment plan has become a popular investment option among many company workers. Basically, a 401k plan is a retirement saving account in which employees can save a small portion of their salary into a long-term investment. According to the Internal Revenue Service (IRS), 401k is classified as a defined contribution plan, similar to a pension plan. So, how to choose 401k investment options?

Usually, there are several options available in this investment plan. As someone new to this type of investment, you might feel confused about how you can choose the best 401k investment option.

How to Choose the Best 401k Investment Option

1. Understand the company’s investment plan

One of the first steps that can be done before choosing a 401k plan is understanding the company’s plan. Read some documents which specify what kind of plan your company offers. Other than that, you should also know what the employer match and the vesting schedule. This information should help you decide how much money you are willing to contribute from your paycheck.

2. Fill out the enrollment form

After understanding your company’s 401k plan, it is time to fill the enrollment form. During these steps, usually, you will be given two options: Pre-tax or Roth. A pre-tax will allow you to contribute to your 401k plan without having to pay taxes. Taxes will be paid after you withdraw your investment after you retire.

On the other hand, Roth requires you to pay income taxes during your employment. Then, you can put your taxed money for investment in your retirement account. So, you don’t have to pay taxes by the time you retire.

3. Choose the right investment option

Choosing the right investment option is crucial to get the maximum result from your 401k plan. A good company will provide detailed information about their 401k investment option. So, how to choose 401k investment options? Some experts suggest that you ignore the target date fund. This usually consists of investment options that emphasize the date of your retirement. This could be fatal if you aim for a high return rate on your investment.

4. Consider Investing in Gold

For some, gold is considered the best 401k investment option. There are several ways to invest in gold using your 401k plan. If you have some flexibility, you might want to consider investing in gold through mutual funds or exchange-traded funds (ETF).

Through mutual funds, you will have the option to find several mutual funds that offer some types of exposure to gold investment. This is done by giving you the opportunity to act as a stockholder in gold mining or gold mining-related companies. On the other hand, ETF allows you to invest in shares of funds that hold gold bullion. Please be aware that the last option is only available for employees with brokerage plans in their 401k plan.

In conclusion, there are several steps on how to choose 401k investment options. While usually not offered in 401k plans, gold investment using your 401k can be accomplished in two ways. Two of which are done through mutual funds and exchange-traded funds (ETF). However, you must possess certain flexibility before you engage in this type of investment. So, invest in gold now, before it is too late.