{"id":8817,"date":"2024-11-30T09:59:07","date_gmt":"2024-11-30T09:59:07","guid":{"rendered":"https:\/\/finderica.com\/does-your-401k-suck-9-questions-you-need-to-ask-your-boss\/"},"modified":"2024-11-30T09:59:07","modified_gmt":"2024-11-30T09:59:07","slug":"does-your-401k-suck-9-questions-you-need-to-ask-your-boss","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=8817","title":{"rendered":"Does Your 401(k) Suck? 9 Questions You Need to Ask Your Boss"},"content":{"rendered":"\n
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\"ScoreCard<\/p>\n

If you\u2019re a new employee, conventional wisdom tells you to sign up for your 401(k) as soon as you can. Otherwise, you\u2019re simply missing out on free money<\/a> you could accumulate in compound interest and employer contributions.<\/p>\n

I was sure it couldn\u2019t be that simple, so we reached out to some retirement experts to clear things up.<\/p>\n

Turns out \u2014 like most things involving your finances \u2014 it\u2019s not totally cut-and-dry.<\/p>\n

\u201cPersonally, I don\u2019t believe there is a bad 401(k) plan, considering that something is better than nothing,\u201d said Dolph Janis, an income specialist at Clear Income Strategies Group1<\/sup> in Charlotte, North Carolina.<\/p>\n

However, Janis added, \u201cthere is a lot involved to 401(k)s and a bunch to understand.\u201d<\/p>\n

It can be easy to sign up for something that\u2019s not a good fit or pay too much in fees. Retirement planning is complicated, and many people just don\u2019t have the tools to navigate it.<\/p>\n

Fortunately, some people do. If your employer sponsors a 401(k) plan, you should have access to people who can answer questions in your best interest.<\/p>\n

Which questions should you ask?<\/p>\n

Here\u2019s what to look for when you start a new job to ensure you\u2019re putting your retirement savings in the best possible hands.<\/p>\n

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1. When are You Eligible to Join?<\/h2>\n

The first question is probably one of the most obvious: When can you join your new employer\u2019s 401(k) plan?<\/p>\n

Among the bustle of starting a new job, you can easily lose the details of your new (hopefully awesome) benefits. Will you be contributing a portion of your first paycheck to your retirement plan, or will you have to stay in the job for a year to see the benefit?<\/p>\n

Catherine Collinson, president of the Transamerica Center for Retirement Studies2<\/sup>, said it\u2019s not unusual for a 401(k) plan to come with a waiting period\u00a0\u2014 even up to a year.<\/p>\n

If you can\u2019t start contributing immediately, you can still save for retirement.<\/p>\n

Collinson recommends opening an IRA or starting with the more short-term myRA to get started.<\/p>\n

\u201cThe other thing you can do is just save on your own,\u201d she said. \u201cRun the numbers. Save the same percentage in a regular savings account or IRA. The key is to get into the habit of saving.\u201d<\/p>\n

2. Does Your Employer Match?<\/h2>\n

The greatest benefit of an employer-sponsored 401(k) plan is if your employer also contributes to your retirement. Employers may match a percentage of each paycheck you choose to contribute but with a limit.<\/p>\n

The most common match is 50 cents on the dollar, up to 6% \u2014 but this varies a lot.<\/p>\n

Make sure you know how much your employer will match and for how long, Janis notes.<\/p>\n

3. Will You Be Enrolled Automatically?<\/h2>\n

Collinson said automatic enrollment in an employer-sponsored 401(k) is becoming more common, so be sure to check when you\u2019re hired.<\/p>\n

If your employer\u2019s plan includes an auto-enrollment provision, you\u2019ll have a much easier time opting out before<\/i> you\u2019re enrolled than getting out of the plan after you\u2019ve made contributions.<\/p>\n

If you\u2019ll be auto-enrolled, find out the default contribution rate. Collinson said most plan sponsors will set your contribution to only 3%, even though \u201cfor most employees, 3% is nowhere close to enough\u201d to save for retirement.<\/p>\n

Auto-enrollment is certainly a convenient option, so don\u2019t let it deter you. Just \u201cdo your homework,\u201d as Collinson suggests, so you can make an informed decision.<\/p>\n

While we\u2019re talking about homework\u2026\u00a0do the math to determine the right contribution rate for you.<\/p>\n

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4. Can You Rollover From an Existing 401(K)?<\/h2>\n

Most 401(k) plans should come with an option to roll over into a new plan when you move on to a new employer.<\/p>\n

\u201cThis tends to be the best course of action,\u201d Collinson explained.<\/p>\n

But even the rollover comes with variables, and you should know what they are. Not taking care of your 401(k) when you move jobs could mean losing a lot of money, particularly if your balance is less than $5,000.<\/p>\n

\u201cMany plans include the ability to automatically cash out balances under $5,000 of terminated employees,\u201d Collinson said.<\/p>\n

You\u2019ll get that cash, but it will likely be susceptible to income taxes and a 10% penalty if you\u2019re younger than 59\u00bd years old. That could mean losing more than one-fifth of your savings.<\/p>\n

Even if your new plan has a waiting period, you\u2019ll likely be able to roll over your old plan before you start making contributions. Acting early can help you avoid cashing out.<\/p>\n

If you can\u2019t roll existing savings into your new 401(k), roll it over instead into an IRA and avoid the penalties, Collinson suggests.<\/p>\n

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5. What Fees Are You Paying?<\/h2>\n

\u201cWith 401(k)s, it\u2019s all about the fees,\u201d said Ash Toumayants, founder of wealth management firm Strong Tower Associates3<\/sup>.<\/p>\n

Toumayants explains 401(k) fees are relatively high because the plans are subject to more regulations than other retirement plans. These regulations are in place to protect employees, but you may not want to absorb the brunt of the cost.<\/p>\n

\u201cRegardless of how expensive it might be, it\u2019s still a good idea to sign up for a workplace 401(k) if the employer matches,\u201d because you stand to gain more than you lose,\u00a0Toumayants added.<\/p>\n

But either way, find out which fees you\u2019re paying and how much they\u2019re costing you \u2014 not only now, but over time.<\/p>\n

But just like interest compounds, so do fees.<\/p>\n

\u201cUnderstanding all of the participants\u2019 costs involved in participation is important as it can add up to make a big difference over the long run,\u201d said Wealth Consulting Group\u2019s4<\/sup> CEO Jimmy Lee, CFS.<\/p>\n

Lee said your fees shouldn\u2019t amount to more than about 1% of your investment.<\/p>\n

\u201cThe more aggressive strategies can go over 1% and the more conservative options are typically under 1% but the average should be around 1% or less,\u201d he added.<\/p>\n

Your fees might not be obvious, so don\u2019t be afraid to ask.<\/p>\n

Collinson said the Department of Labor requires plan sponsors to provide information about fees and expenses. Ask a human resources representative where you can find this information, and be sure to review it.<\/p>\n

What if your fees are out of whack? Keep reading!<\/p>\n

6. Who Provides Your Plan?<\/h2>\n

Your 401(k) fees might be high simply because of ignorance.<\/p>\n

Your employer likely isn\u2019t a financial expert, so they rely on plan sponsors \u2014 and their sales reps \u2014 to help them understand retirement plans. Lack of research or resources could land you and your co-workers in a lousy plan.<\/p>\n

However, your fees might also be outrageous because your employer is considering their<\/i> best interests over yours.<\/p>\n

\u201cBe suspicious of 401(k)s that are provided through banks,\u201d Toumayants warns.<\/p>\n

Banks will target employers they have a lending relationship with, he explained. For example, if your company has taken out a loan with a bank, it might offer a better rate in exchange for using its 401(k) plan.<\/p>\n

This doesn\u2019t mean your employer is trying to take advantage of employees \u2014 but it doesn\u2019t mean they\u2019re not, either.<\/p>\n

If your 401(k) provider is a bank and not a fund company like Fidelity or Vanguard5<\/sup>, do your research.<\/p>\n

Ask your employer why this is the best plan for the company and how often they audit to be sure. It might not hurt to find out whether your employer has an existing relationship with the bank, as well, and how it might be affecting your retirement plan.<\/p>\n

7. Where is Your Money Invested?<\/h2>\n

Many of us don\u2019t want to worry about where our retirement funds are invested, as long as they\u2019re going to be there for us when we need them!<\/p>\n

But this information can be valuable \u2014 and it could actually cost or save you money.<\/p>\n

All of the experts we talked to urged everyone to ask about the types of investments available in your 401(k) plan.<\/p>\n

And in case you don\u2019t know much about investing, here\u2019s what you should ask in particular:<\/p>\n

Is the money invested in index funds or professionally-managed mutual funds?<\/p>\n

Professionally-managed funds come with higher fees because a professional is, in fact, actively managing them. But the average person is better off with low-cost index funds, so those fees could be an unnecessary cost.<\/p>\n

Toumayants points out you may have restricted investment options for your 401(k), but that\u2019s probably a good thing. It helps prevent \u201cparalysis by analysis\u201d \u2014 having too many options to ever make a choice.<\/p>\n

Just make sure the choices you have are the best for you and your coworkers\u00a0\u2014 low-cost and in line with your retirement goals.<\/p>\n

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8. Who Can Answer Your Questions?<\/h2>\n

You\u2019re probably not a retirement or financial expert, so you shouldn\u2019t be expected to keep all this information straight on your own.<\/p>\n

\u201cIt\u2019s important that you find out who the plan custodian is,\u201d Janis said. \u201cThis is the person you will communicate with every month and\/or year.\u201d<\/p>\n

This is the representative with your retirement plan provider who can help you understand your plan. They are not a personal financial planner, though, so don\u2019t expect investment advice.<\/p>\n

You can <\/i>ask the plan custodian:<\/p>\n