What You Need to Know About Your 401(k) in a Volatile Market

Alright, first of all, do you even know what a 401k is?

For those who don't know, Tom Zgainer, CEO of America's Best 401k, defined what a 401k is for TheStreet

A 401k "is it's an employer sponsored retirement plan. This year, if you're under age 50, you can put aside 19,000 dollars from your pay with an extra 6,000 dollars if you're over age 50. So basically gives you a vehicle to save either pre tax, or with the Roth. Now what a lot of people don't know about the Roth 401k is it doesn't have income limitations. The Roth IRA does. As you have certain limits of income, your ability to put money into a Roth IRA gets reduced, but not in a 401k. You can still put your whole 19,000 dollars in post tax. That gives people who are doing a little analysis of reduction in tax liability or tax efficiency," Zgainer said.

Alright, knowing what a 401k is is great, but how can you protect your 401k when the market is volatile?

"It depends on what month or week you look at it, right? In December, for example, it was a crushing month. One of the worst months ever in the history of the market in December. We took a ton of phone calls from people, what should I do? Should I cash out? Should I eliminate my 401k? Take a distribution from it? Well here we are since Christmas Eve to today, the markets been up, I think close to 2000 points. So where we thought the sky was falling one month, it's decidedly different the next, your 401k plan is for long periods of investing. If you're in your 20s and 30s, there's going to be differences in the market that are going to be ugly at times, but it always bounces back. So you want to have time be in your favor, the primary thing is to just keep saving," Zgainer said. "

"Don't look at your balances every day, or your statements every month. Because it might not make you happy that particular moment in time. But if you look at it a month later, now you're completely different. The key is just steady as you go over long periods of time, and steadily increase the amount you're putting away each year, which is an important point, because a lot of folks in 401k plans, from the time they're first eligible, they never change the percentage taken out of their pay, two, three years, four years down the road," he continued. "Now you're falling behind inflation. So maybe you want to give your 401k a raise each year. Like we have New Year's resolutions, if I've been putting away two or three percent, can I stretch it to five or six? So these little things we do along the way are going to lead to more accumulation over time."

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