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How to Explain 401K Retirement Plans

by Mark P. Cussen

  • Overview

    Understanding your monthly 401(k) statement can be a real challenge if you're not financially savvy. Mutual funds, contracts, sub-accounts, total returns...what does it all mean? Clear away some of the confusion by learning what you need to look for on your next statement.
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  • Step 1

    Look on your 401(k) statement for your current plan balance. This number will equal the sum total of all of the investment choices that you have made within the plan. You can compare this number to last month's balance to get an idea of how you are doing, but don't get too caught up in your plan's month-to-month performance. Remember, you're investing for the long term.

  • Step 2

    Don't let the plan's investment choices confuse you. Although most 401(k) plans offer mutual funds as the primary investment choices, many plans offer them within a variable annuity contract, which is a stand-alone tax-deferred retirement vehicle that offers a preselected array of funds within the contract. Look for total contract value, and pay attention to the annual maintenance fees, mortality and expense fees and fund management expenses that are deducted from your plan balances.

  • Step 3

    Add on the value of any stock that you buy within your 401(k) plan. Your plan provider should household all investments, including stock, mutual funds and annuity contracts on one statement. Look for the total balance and not just the value of your funds or stocks.

  • Step 4

    Look under the "transactions" section to see a complete listing of all purchases, exchanges, sales and interest and dividends that are paid in or out of the account. There will be a standard monthly purchase amount that correlates with your monthly plan contribution; this should be invested each month according to the asset allocation choices that you made when you signed up for the plan. If you are taking a distribution from your plan, that should show under transactions as well. This amount will show up as a subtraction from your plan balance and should also reflect any applicable penalties that are assessed.

  • Step 5

    Identify the pie chart on your statement, if one appears. This chart usually breaks down the allocation of your plan balance according to how much money you have in stocks, bonds and cash. A quick glance at this should confirm that you have about as much in each category as you want.
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  • Your financial adviser or plan administrator should be able to help you decipher your statements as well. You can probably also get daily account information on the Internet.
  • Your financial adviser or plan administrator should be able to help you decipher your statements as well. You can probably also get daily account information on the Internet.
     
     
 
 

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