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

Written By Mary Beth Eastman
Last updated June 21, 2019

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October 1, 2018

Simple. Thrifty. Living.

Having a 401(k) can make you feel more secure about your retirement. Not all plans are the same, so reviewing the information you get from your employer is essential. That way, you will know how to structure your financial investments both inside and outside your retirement accounts. Also, a careful review can help you to make the best of the choices you have within your employer’s 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.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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