Dave Ramsey: 5 Simple Steps To Choosing Your 401(k) Investments

Mandatory Credit: Photo by Mark Humphrey/AP/Shutterstock (6378435j)Dave Ramsey Financial talk show host Dave Ramsey works in his broadcast studio in Brentwood, Tenn.
Mark Humphrey/AP/Shutterstock / Mark Humphrey/AP/Shutterstock

If your employer is offering a 401(k) plan with a company match, chances are you’ll be enrolling in this benefit as soon as you’re eligible. Maxing out contributions to a 401(k) plan is a great way to start saving for retirement, but you might feel a bit uncertain about how to make the right investment selections.

Money expert Dave Ramsey outlined on his website, Ramsey Solutions, the five steps everyone needs to take when investing in their company 401(k). Here are five simple steps to choosing your 401(k) investments.

Also see why you should turn part of your 401(k) into a Roth IRA each year.

1. Review Your Company’s Plan

Everything you need to know about making 401(k) selections starts by reviewing your company’s plan document. 

Some key details include the employer match, vesting schedule, any 401(k) fees, services available to you and guidance for making changes to your 401(k) investments. 

Carefully review this document and make sure you understand the details. If you don’t have a copy, reach out to your company’s HR department for one.

2. Fill Out Your Beneficiary Designation Form

If something happened and you died tomorrow, who would receive your 401(k) funds? A beneficiary form dictates whom you would like to receive these funds. 

Are You Retirement Ready?

Those new to enrolling in a 401(k) are recommended to fill out this form. If you enrolled a long time ago and did not fill out a beneficiary designation form, Ramsey Solutions recommends contacting your 401(k) plan manager. You can fill out this form with the manager or update an existing form if you have a new primary beneficiary.

3. Complete the Enrollment Form

Once you have reviewed your company’s plan document and know whom to list as your beneficiary, you can complete the plan enrollment form. 

Before you complete this form, Ramsey Solutions recommends contacting your 401(k) plan manager. Why would you do this? You might feel uncertain about whether you should contribute to a traditional 401(k) or a Roth 401(k) and whether there’s a better option between the two choices.

Contacting your 401(k) plan manager, according to Ramsey Solutions, allows you to find out whether you have the option to choose pre-tax or after-tax contributions. Their recommendation is to take advantage of the Roth option, if your plan offers it.

4. Explore Your Investment Options

Most 401(k) plan documents will list three or four investment choices as part of your company’s plan. However, it is possible you may find up to a dozen options listed in this document. 

Rather than attempt to navigate choices like target date funds or investing in company stock on your own, Ramsey Solutions recommends meeting with an investment professional and reviewing each of your 401(k) investment options. Once you know which options are the best fit for you and your financial journey, you can make informed decisions.

Are You Retirement Ready?

5. Pick Your 401(k) Investments

While Ramsey Solutions recommends choosing mutual funds, other 401(k) options also might include but are not limited to company stock, employee stock purchase plans and annuities. Using informed decisions will allow you to make the right investment choices.

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