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How to Use Your 401k to Generate Income for Retirement

02 July, 2020

How to Use Your 401k to Generate Income for Retirement

Whether you plan on retiring soon or are still more than a decade away from entering your golden years, it’s important to ensure that your 401k account will consistently earn ongoing income, which can be reinvested or spent as needed on expenses after you retire. Regardless of when you plan to retire or how you are currently invested, there are some things you can do now that will turn your nest egg into a secure income stream you can count on for the rest of your life!

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“Keep in mind that there is no single ‘right’ approach [to investing]”, wrote Vanguard. “It’s important to stay flexible by adjusting your approach over time as your investment performance and life circumstances change”.

4 Ways to Generate Enough Income for Retirement

  1. Find Better Investment Options
  2. Shop for Lower Brokerage Fees
  3. Choose the Best Time to Take Distributions
  4. Consolidate All Retirement Accounts


How to Use Your 401k to Generate Income for Retirement | Find Better Investment Options

Find Better Investment Options

Fortunately, the money you have accumulated in your 401k doesn’t always have to stay in your 401k account! In fact, rolling over the assets into a self-directed IRA account is one way to maximize your ROI by giving yourself a much greater variety of investment options.

IRA’s have a wider selection of investment options than 401k plans”, wrote U.S. News & World Report. “Typically, 401ks don’t have a big catalog of investment choices. It’s hard to build a properly diversified and properly allocated portfolio using a 401k”.

For example, a typical 401k plan might have a dozen or more funds to choose from, but self-directed IRA accounts offer easy access to thousands of different investments. This includes stocks, bonds and mutual funds, along with alternative investment options like real estate (in the form of investment properties) and private real estate investment funds, commodities and more! In order to buy real estate using money in an IRA account, the property must be used solely for investment purposes, with all maintenance and other care handled by a third party management company.


Shop for Lower Brokerage Fees

This is one easy way to make more money! Simply take the time to compare the various fees and costs of investing with your company’s 401k plan, versus the cost of investing in a self-directed IRA account. Keep in mind that, although it may appear to be a bit cheaper to leave your money in a large 401k, you can actually make more when there is a larger selection of investments to choose from.



Choose the Best Time to Take Distributions

Don’t forget that different retirement plans - including 401k plans and IRA accounts - have different withdrawal schedules, rules and regulations for investors to follow. Rolling over your money from a 401k into a self-directed IRA account will give you many more options when it comes to managing your required minimum distributions, along with a greater degree of flexibility with how those distributions are made.


Choose the Best Time to Take Distributions

Just remember that any IRA withdrawals before the age of 59 and a half will trigger automatic early withdrawal penalties in addition to any income tax you owe on the distributions. Some 401ks, however, may allow you to begin taking penalty-free withdrawals at 55, which you can also choose to reinvest in income producing investments.

Consolidate All Retirement Accounts

Finally, although this article already touched on this, I believe it’s important enough to mention again! Be sure to consider consolidating all of your retirement accounts, because it can be tricky to keep track of your investments when they are spread out among various IRAs, 401ks and other accounts.

“A direct rollover from a 401k to an IRA is a penalty-free and tax-free transaction, and you can choose an IRA with the investments you want at a reasonable price”, wrote U.S. News & World Report.

Now, more than ever before, it’s time to protect your assets! Stop losing sleep in the stock market and download our FREE guide, 6 Steps to Investing in Real Estate with an IRA Account.

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Topics: Investment Retirement 401k