Roughly four out of five U.S. employees have access to an employer-sponsored 401(k)—and that’s a good thing. What it means is that retirement accounts are fairly accessible, if somewhat underutilized. However, not all 401(k)s are created equal, and in fact they can vary wildly from one plan administrator to the next. As such, it behooves any safe investor to think critically and strategically about the 401(k) on offer.
We believe that this encompasses two basic practices. The first is to have a 401(k) review from an external financial consultant. Have your account appraised and earnestly graded for its strategic insight and its efficacy. You may even find that you’re better off rolling it into an IRA—certainly a helpful thing to know, and you can’t really know it unless you sit down with a financial advisor and have a 401(k) review.
The other thing we recommend is sitting down with a company representative—this will likely be your HR representative—and figuring out some of the specifics of the 401(k) that your company offers. But what should you ask during this important sit-down meeting?
Questions to Ask About Your Company’s 401(k)
There are a few basic questions we recommend asking:
Does the company match your contributions? It is common, though by no means mandatory, for companies to match employee contributions; if you contribute five percent of your annual salary to the 401(k), the company itself might pitch in an additional 2.5 percent. This can total hundreds, if not thousands of “extra” dollars each year, and may help you decide whether you actually want to use the 401(k) or invest in an IRA, instead.
What are the available investment options? There are countless investment opportunities available to retail investors, but many company 401(k)s allow for just 10 or 12 of them. Ask what the investment options are—mutual funds, stocks, and so on—and decide whether you feel it’s sufficient for your investment needs.
What are the most cost-effective investment options? Some investments will come with expenses and fees, which means—in short—that the high-returning investments are not necessarily the most valuable. Educate yourself, and be ready to make an informed choice.
What are the vesting requirements? Any money you contribute to the account is yours to keep—period. Even if you leave your job. But if the company makes a matching contribution, you may forfeit that part of the account if you leave your job before a pre-specified time. For instance, you may have to stay with the company a full three years before this company contribution is really yours to keep. When it is, that means you are truly vested.
Ask these critical questions today—and contact Stonepath Wealth Management if you’re ready for your 401(k) review!
Note: Please be sure to speak to your advisor to carefully consider the differences between your company retirement account and investment in an IRA. These factors include, but are not limited to changes to availability of funds, withdrawals, fund expenses, fees, and IRA required minimum distributions.