Understanding your 401(k) plan

Dear Matt: How can I get most out of my company-sponsored 401(k) and/or my company retirement plan? I know I have a 401(k) and I contribute but I don't really understand what I should do or how to take advantage of it.
Matt: You are not alone. Many busy professionals know they should contribute to their 401(k) or company-sponsored retirement plan, and they do contribute, but they do so without a strategy. They just know they should contribute because that's what everyone says to do.
Robert Bayer, president of Stonebrooke Wealth Management Inc. in Lakeville, offered these five helpful and easy to understand tips:
1. Contribute at least up to your employers matching percentage if they offer it. Let's say your employer matches 50 percent of what you contribute up to the first 6 percent. In that plan, the employer contributes 50 cents for every dollar you put in, up to 6 percent. If you contribute 10 percent to your 401(k), the employer still contributes a match up to 6 percent. If you make $50,000, the employee contribution would be $1,500. However, if you contribute less than what the employer requires (say only 4 or 5 percent), you won't receive the match. And you wouldn't receive the $1,500. "It's free money you don't want to leave on the table," said Bayer.
2. Consider contributing to the Roth portion of your 401(k) if the plan allows. This will provide tax-deferred growth on earnings and tax-free distributions as long as they are considered qualified.
3. Don't take distributions out of the market when you want to access your funds the in the same fashion you put money into the market. You'll erode your portfolio at a much faster rate.
4. Keep contributing — everything's on sale when the markets are at their worst.
5. Get help from a professional who can assist you in developing a retirement strategy that can help you reach your long-term goals. At the very least, tap the resources through your company for more information.
Nicole Middendorf, an independent LPL financial advisor with Strategic Financial, Inc. in Wayzata suggested using free online retirement calculators to really understand how much money you need to retire.
"Use the financial advisors that come into your company, check out their website, tools and calculators and then find your own financial advisor who can help you pull everything together and develop a plan," said Middendorf.