What your employer probably didn’t explain about your 401(k)


When you started your current job, did anyone at your company sit you down to discuss your 401(k)?

If you’re like most people, someone from HR probably skimmed over the paperwork with you, you nodded your head a few times, signed your name, and they sent you on your way. Not exactly the most thorough, right? But it’s important to seek out information about your 401(k) plan. This is a savings vehicle that can help you reach your long-term financial goals. Making sure you fully understand this benefit could yield a large payoff in the future.

Here are a few questions you may want to ask your employer about your 401(k) to make sure you can appropriately plan for your financial future.

What is the company match, if any?

A company match program allows you to earn “free” money. When you put in a percentage of your income, your company will match that percentage up to a specified amount. Every company has a different match program. Making sure you maximize your contributions to get that match is key for your financial future. Compound interest on free money can truly help your retirement savings grow.

What are my different investment options? 

Sure, knowing the appropriate amount of stocks and bonds you should own (what we at Simply Money Advisors like to call your “investment mix”) is important. But beyond that, there are also different types of funds you might have access to in your 401(k) – options like company stock, index funds, mutual funds, exchange-traded funds, brokerage accounts, money markets, or Target Date Funds, just to name a few. Educate yourself on the differences.

Or, talk to your Human Resource department and see if there’s an opportunity for you to sit down and get the advice of a financial planner. A financial planner can explain what the different investment options are and what might be a suitable investment mix for your goals. You want to make sure you understand all the investment options available to you.

What are the fees for my 401(k)?

Make a point to ask about the fee structure. Ask if there are fees built into the funds and how much you’re paying every year. But realize that paying less isn’t always better. A higher 401(k) fee can be worthwhile if you’re actually getting something in return for the fee, such as access and the ability to work with a financial planner.

When do I become vested?

Some companies have a minimum timeframe you have to work for them before you can take 100% of your 401(k) with you if you decide to leave. This is called a “vesting” period. If you chose to leave the company before you’re 100% vested, you’ll still get everything you’ve contributed, but you won’t get all the money your employer added in the form of the match. If you do wish to change jobs, make sure you fully understand the amount of your 401(k) you’ll be allowed to take with you. It could make sense to stick it out a bit longer if you’re close to being 100% vested.

The Simply Money Point

No matter if you’re starting a new job or you’ve worked in your current role for years, it’s time to educate yourself about your 401(k) plan. Speak with your Human Resource department for guidance. They might even be able to set you up with a financial planner that can answer all of your questions. Understanding how your 401(k) plan is set up will help you protect your money and make it grow.

To learn if your 401(k) has you on track for your retirement goals, we invite you to speak with our team at Simply Money Advisors.