401(k) Plan Management

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on August 11, 2023

Are You Retirement Ready?

401(k) plan management is the ongoing process of monitoring your 401(k) balance and making changes when necessary.

There are many aspects of effective 401(k) plan management, and knowing the ins and outs of these plans can help you to get the most for your money from them over time.

401(k) Management

Participating in your employer's 401(k) plan may seem like a rather cut-and-dried affair, at least at first glance.

You fill out the enrollment paperwork, choose a selection of investments and then put it on automatic pilot.

But keeping your 401(k) plan healthy and growing is an ongoing process that will require your continued attention.

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How to Manage a 401(k)

For example, if the markets are in a definite uptrend, then your stock funds or shares of stock should probably be going up too. If they aren't, that could signal a possible problem that needs to be addressed.

It helps if you have a basic knowledge of investments and the different asset classes, because then you can see more clearly whether your plan is growing the way it should relative to the markets at large.

401(k) Matching

Another key factor that many employees overlook is contributing enough to take advantage of all of the employer's matching contributions.

While some plans will match the first few percent of employee contributions, other plans offer a partial match on every dollar that is contributed into the plan.

So if your employer offers a 50% match on every dollar that you contribute to the plan, then you will have to make the maximum allowable contribution each year in order to get all of your matching contributions.

Annual 401(k) Fees

Other things to consider when you make your investment allocations are the annual fees that your investments are charging you.

Mutual funds have 12b-1 fees to cover the costs of managing the fund, unless it's an index fund that simply holds all of the stocks in an index such as the S&P 500 Index.

401(k) Risk Management

Target date funds may seem like a tempting alternative, but these funds follow their own glide-path from aggressive to conservative asset allocations and this may not match your own risk tolerance or time horizon.

Furthermore, you will not only pay the fees charged by each fund within the fund, but you may be charged an additional fee on top of those by the target date fund itself.

401(k) Advice

Annuities are often a popular investment in 401(k) plans because of the insurance protection, and this can be invaluable during corrections and bear markets.

But most variable annuities charge at least 2-3 percent per year in annual fees, so make sure that you're getting your money's worth from this type of investment if this is what you choose.

If you take out a loan from your 401(k), be sure to get it paid off in full before you leave your current employer.

Any unpaid loan balance will be coded as a normal distribution if you fail to repay the outstanding balance within 90 days of your termination date.

If you have bought shares of your employer's stock in your 401(k) plan, then when you retire, you can spin those shares off and sell them separately in a special single transaction under the Net Unrealized Appreciation Rule (NUA).

This will allow your sale to receive capital gains treatment instead of being taxed as ordinary income.

401(k) Rollover

When the time comes to leave your employer, you have several options to choose from regarding your plan balance.

You can leave it with your former employer and let it grow, or you can roll it into an IRA.

If your new employer also offers a 401(k) plan, then you may also be able to roll your old plan into the new one.

Just make sure that your new employer's plan offers a decent selection of investment options and doesn't charge excessively high fees.

If this is the case, then rolling your plan into a self-directed IRA is probably the best option.

There are very few restrictions on how you can invest your money, and you can keep this type of account with the same custodian for the rest of your life if you want.

401(k) Plan Management FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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