As an employee and someone who wants to retire one day, it’s in your best interest to take advantage of the benefits your employer offers. One of these is your 401(k) plan, which you can contribute to and help build up your savings for a more stable future. The issue may be that you are not using it at all, or you are signed up and using it but you're not sure how it works.
Here we’ll dive deeper into and cover 5 things you may not know about your 401(k) plan. This way you can make sure you're fully informed so that you can properly plan and save for your future. After all, you likely depend heavily on your 401(k) plan as an essential part of your retirement savings, as most Americans do.
Why a 401(k) Plan in the First Place?
As, one of the most popular choices among Americans when it comes to saving for retirement is, you want to take the time to learn more about what’s exactly in them and the benefits they offer so you can properly plan for your future. Sadly, many people don’t understand fully some of the most important features about their 401(k) plans.
It’s wise to learn more so you can make better and more informed decisions regarding withdrawal decisions and investment savings. The good news is that a little knowledge can go a long way in helping you to feel more comfortable making these decisions and managing your 401(k). Unfortunately, most 401(k) providers aren’t very transparent about the realities and details of these plans.
Continue reading to understand more about these plans and learn some things you may not know about them. This way you’ll no longer be in the dark about what they offer and how they work and can make confident and fully-informed decisions about your finances going forward.
1. Plan Pricing
One thing you may not know about your 401(k) plan has to do with plan pricing. Non-transparent pricing is and continues to be one of the biggest challenges of any plan participant. While providers are required and do share this information annually with plan holders, these documents can be confusing, lengthy, and hard to read and understand. For instance, the plan fees may erode plan investment gains in some cases, so look into this further within your plan, and try to read the fine print.
2. Does the Plan Fit Your Long-Term Investment Goals?
Another aspect or question to ask yourself as it relates to your 401(k) plan is; does the plan investment align with your long-term investment goals? The element that is clearly hidden in these plans is the asset allocation and underlying investments of managed funds. Take the time to make sure the investments match your personal and long-term financial goals. In many cases, people tend to know very little about what they’re invested in exactly.
3. Roth Flexibility Options
You may not know about the Roth flexibility options you have with your 401(k) plan as well. It’s a vital element that you may not be aware of or know that you have a roth-like option within this type of retirement plan. It’s more common for large companies to offer this feature and some smaller companies may not. If you qualify, there’s the potential to make significant contributions in excess of the normal Roth contributions.
4. 401K Rollover Options
Many plan participants experience plan rollover miscues and may assume or choose to withdraw their 401(k) funds directly. However, this can be a big mistake that will have you incur hefty fees. When you leave a company it’s in your best interest to not withdraw these funds directly. Instead, know you have some other options. For instance, you can either open your own IRA account and roll the funds here or you can roll over your 401(k) to the retirement plan at your new employer. Here at Leading Edge Financial Planning, LLC, our recommendation to you is to either do this with direct 401(k) rollover via a check or by using a direct IRA transfer.
5. Risks that Come with Lifecycle Investment
You should also ask yourself if you understand the lifestyle cycle of investing and the risks that come with it. It’s a common strategy in this type of retirement plan fund. For instance, you may notice some funds have a year attached to them. They allow you the opportunity to diversify your funds and you can avoid feeling overwhelmed by investing in individual funds. You should keep in mind, however, that with lifecycle funds the bond-to-stock ratio changes on its own. What this means is that the funds can potentially shift and become more conservative over time, instead of being in a growth state.
In Summary
You should be proud that you took the first step to educate yourself and learn more about 401(k) plans and some of their hidden features. What’s important is that you continue to research and learn more about them as time goes on.
You can always reach out to your HR/benefits team at your workplace to get answers to your questions too. You want to make sure you have the full picture and that your investment goals and 401(k) plan are aligned with your future and personal and financial goals. Leading Edge Financial Planning advisors are also able to work alongside your HR representative to shop for your 401K plan for more competitive service and pricing.
Looking for More Guidance from a Financial Advisor?
Of course, we’re always here to help with any money management questions you have and offer a variety of services you may be interested in using. We not only offer planning and investment services but also wealth management and insurance services, for example.
Our expert team of financial planners has a long track record of helping a variety of clients properly and carefully manage their money and 401(k) plan for the future based on individual needs, goals, and situations.
Get in touch today to schedule an introductory meeting and learn more about how we can help you plan for a bright and prosperous future for you and your family.