Do you have a 401(k) at your job? Do you know how it works, and how you can take it advantage of it to achieve financial freedom?
Whether you’re one of those people who’s like “I think I’m contributing to my 401(k)…?” or not investing any money in it at all, here are seven must-ask 401(k) questions.
#1 - What type of plan is offered?
A lot of people assume they have a 401(k) because that’s the term that’s thrown around most, but many actually have a 403(b), 457, TSP, or some form of IRA.
It’s important to know which type of plan you have because it changes the maximum amount you can contribute each year, the types of investments available, whether or not you can take it with you when you leave your job, and more.
#2 - Am I eligible to participate?
Depending on how long you’ve been with your company and your employment status, you may or may not be eligible to participate in your company’s 401(k) or retirement plan. For example, at some companies, you have to work for over a year before you can enroll in their 401(k).
Make sure to ask if this tool is available to you, and if not, when it will be.
#3 - Is there a default contribution?
Because a lot of workers aren’t contributing enough to their 401(k), some plans have started implementing automatic, default contribution amounts for employees to make sure they’re saving at least something for the future. Most automatically contribute ~3-5% of your income to your 401(k) by default.
However, that default amount is nowhere near enough for most individuals. Don’t just assume that checking the “default” box and not choosing a percentage of your own is the right move. It’s probably not.
#4 - Is there a match?
Your company match is basically free money that you should absolutely be snagging if it’s available to you.
Match structures come in a few flavors. Some match you dollar for dollar, others only match half of your dollars…. You need to know if and how your employer matches contributions so you can:
take advantage of this awesome benefit, and
take some of the hard work of saving for retirement off of your own plate and rely on your company to help.
#5 - Is there a Roth option?
Do you have the option to contribute money to your retirement on a Roth basis, aka after taxes? If so, you’ll owe no more tax on that money or on the investment gains it generates.
Depending on your earnings level and future income goals, this could make an enormous difference for you (and the tax man).
#6 - How can I change my investments or beneficiaries?
As life goes on, things change. You may need to adjust your allocation, aka investment mix, or add a spouse or children as beneficiaries to your account.
You need to know where and how you can do that. Can you do it online? Do you have to fill out a form? Do you have to call someone? Find out now so that when you need to make those changes, you can confidently do so without wasting any time fumbling around.
#7 - Are educational resources or access to a financial advisor included?
This alone could be one of the most powerful features of your company’s retirement plan.
Are there places in your online account for you to learn more about additional personal finance topics, employee benefits, and how to invest and save for a healthy financial future?
Does your company offer access to a financial advisor that you can talk to about your unique financial situation? For example, some companies have a financial advisor that comes in once or twice per year to meet with employees.
Find out if either of these perks are part of your 401(k) plan. If so, you could receive free or very low cost financial advising to make sure you’re on track to achieve your big goals.
While these seven are really the core, fundamental questions you should be asking about your 401(k), I’m sure you have many others.
Post a comment below and tell me:
What else do you want to know about your 401(k)?