Ask Your Employer These 5 Questions About Your 401(k)

In many cases, your 401(k) contributions will be vested as soon as you are on the plan. Your employer’s contributions will only vest after a period of time. Vesting means the money is locked into the plan and won’t be taken out if you leave your job. Once your money is vested, you take it with you wherever you go — you can even roll it into an online IRA if you switch jobs.

Employers may use one of two methods to vest their contributions. There is cliff vesting, where all employer contributions are 100 percent vested all at once after a waiting period, or graded vesting, where the percentage of vesting increases year-by-year or otherwise over time. Ask your employer how quickly the contributions vest so you have an idea of what you stand to lose if you move on.

Depending on your overall financial situation and personal goals, you may benefit from maxing out your 401(k) contributions. Your employer sets the maximum, however, and it may be lower than what the IRS allows. Check out this detail and see if catch up contributions are a possibility if you’ve been under-contributing.

You may have the option to choose how money in your 401(k) is invested. If you don’t have a clear idea of the risk profiles, for example between mutual funds and stocks, consider talking to an investment advisor. In some cases, you may be able to roll some of your 401(k) into a different plan that has different restrictions.

Like most investment plans, your 401(k) comes with expenses attached. These are fees taken out of your account. Because those fees affect your retirement bottom line, it’s sensible to understand what they are and where they go.

You may have a long time before you get to retirement. You may want to save your funds until you reach retirement age. But as they say, life happens, and you may need that money. Generally withdrawals come with a 10 percent tax penalty. You avoid that penalty under some circumstances, such as hardships or if you withdraw to buy your first home.

Your 401(k) is meant to be your safety net. To make the most of it, learn how it works! Make changes if necessary, or stay the course for the long term. It’s your choice.