According to the Bureau of Labor Statistics, 74% of full time workers and 37% of part time workers have access to retirement benefits through their employer. More times than not, these benefits come in the form of the company 401(k), and many employees have all or the majority of their retirement savings in their 401(k). With so much of your future riding in one vehicle, we think it appropriate to know a little more about the basics of your 401(k). Here are the top seven questions to ask about your nest egg.
1. What is the company match?
Most 401(k) plans offer a company match. This means that your employer will match up to a certain percent of what you contribute to your account. We previously covered why it’s important to maximize the employer match, but in short, it’s free money. Those who are auto-enrolled into their company plan will want to make sure that their contribution percent is at the max, as the default amount is not always the maximum.
2. How often can I change my contribution?
Assuming you have a relatively up to date plan provider (for example, one with a website) you should be able to log in at any time and change your contribution amount.
3. Is there a vesting schedule?
You have immediate access to your contributions to the plan, but that’s not always the case with your employer matching contributions. Most plans offer a vesting schedule that grants you access to their contributions after a certain number of years of service. The Department of Labor has some examples here. You are either vested gradually over time or all at once when a threshold for service is met. This may be worth considering if you are thinking about leaving your current company for another job.
4. What is the plan objective or investment policy statement?
This might might sound intimidating even to ask, but it’s worth it for peace of mind. Unfortunately, much of the responsibility to oversee the 401(k) plan objectives falls on one person: the plan sponsor. They often have a myriad of other duties to tend to, so it’s good to check with them to make sure they have a good grasp of what the plan is trying to achieve. If they can’t provide you with resources or an answer on the spot, that’s a red flag, as they are personally liable for the successful execution of the plan.
5. What are the investment fees being charged to my account?
There are many fees that are charged to a 401(k) plan by the plan administrator and there are a variety of ways they can be charged. You’ll want to get exact fees from your plan sponsor including which fees are being charged to your personal account and which are being covered by your employer. Unfortunately, many employees are not aware fees are being taken from their account.
6. What is the fee being charged to the fund in my 401(k) account?
This is what we call the hidden layer of fees in your plan. Typically, you are invested into a single fund in your 401(k). Depending on who’s offering the fund, the fees that the fund itself requires for management run anywhere from .15% to 2%. That’s a huge range, especially when many of these funds have similar objectives. Make sure you have chosen a fund with the lowest fee that matches your long-term objectives. If not, you could have thousands less in your account when you retire.
7. How can I access my account balance?
You’ll want to make sure you have clear instructions on how to access your account as many of the details of your account will be available through same portal that gives you access to the account balance. You should check periodically to ensure your account is being managed according to your expectations since, in the end, it’s your retirement. Make sure you keep an eye on it.
Have questions about your 401(k)? Interested to know how much your 401(k) investment fund is charging you? Send us an email at getstarted@arkfi.com and we’d be glad to help.
photo courtesy of Scott Wills
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