You start a new job. Great! Not long, a company representative will educate you on the perks of your new job. For many, this includes a 401k program. Not all employers offer 401k plans. If yours does, take it! Social Security may not be able to carry retirees through their golden years as it once did.
Although there are rarely any negative consequences to starting a 401k retirement plan, unless you decide to borrow or cash out early, you need answers to some important questions. Someone in your company’s office, possibly the person who introduced the 401k plan to you, should have these answers.
Question #1: How much can I contribute? Employee contributions to a 401k are automatically deducted from pay. With that said, there are some rules and restrictions. Depending on income level and company preference, there are some limits. For most, this is not an issue, as average workers rarely contribute the maximum amount to their 401k. Still, it is a good question to ask.
Question #2: Do you match employee contributions? This is very important to know. If you are unsure if a 401k plan is right for you, the answer to this question may be the deciding factor. If you are lucky and your employer matches 100% of your contributions, your investment money doubles! 401k plans with matching employer contributions is one of the easiest ways to plan for retirement.
Question #3: How much do you match? Not all employers match employee 401k contributions. If you are in a well-known company, yours likely does. That is one of the reasons why these companies survive. They extend perks to hardworking employees, ensuring they stay on the job. If your new company matches 401k contributions, there are likely to be some restrictions. The percentage can be preset, vary depending on the hours you work or time with the company.
Question #4: What type of investments can I make? This is important, as a 401k plan varies depending on the company in question. One of the worst things you can do is allow a company financial expert to handle the investment for you. Many Americans did this and many are now seeing their retirement funds washed away.
You can rely on the help of a financial advisor provided by your own company, but do your own research too. You should be able to choose between stocks and bonds. Mix it up a bit to ensure your money is spread out and safe.
Question#5: Can I change investment options and how often? 401k retirement plans are different from Social Security and pensions, as you are in control. Most allow you to change your investments, like by trading stocks or opting for short-term bonds. With that said, there may be restrictions on how often these changes are made.
Even if you are only allowed a limited number of changes a year, a 401k plan is still recommended. Just do the research to first make the right choice and choose the best investment opportunity for your personal needs.
Question #6: How can I get information on my account? Most employers make it easy for you to get up-to-date information on your account. Some mail quarterly earning reports. Others have the information available online and it is usually available over-the-phone. How often you are able to receive information on your 401k investments depends on the company’s updating system. Some update their records weekly, while others opt for monthly updates.
Now that you know a few important questions to ask your employer about their 401k program, it is important to ask. Many individuals in their 20s are unconcerned about retirement. Some even decide not to contribute to a 401k. Of course, it is your right, but there are many benefits to planning for retirement early.
As previously stated, some employers match employee contributions. This is essentially free money. Even if your employer only matches 25% of your contributions, you would be silly not to participate.