May 30, 2022 Category: Business (5 minutes read)

Key Questions to Ask When Signing Up for a New 401(k) Plan

Key Questions to Ask When Signing Up for a New 401(k) Plan

It would help if you asked the following questions when signing up for a new 401(k).

You have the option of a defined contributor plan. This is similar to a 401k. However, each project is different, so you must know the details and options. These are the five questions to ask your company about its 401k plan.


  • A great way to save money for retirement is to contribute to your company's defined-contribution plan, such as a401(k).
  • Contribute up to your company's match limit - it's like receiving money for nothing.
  • To ensure you get the highest returns, find out which investment options your 401(k) plan offers and which have the lowest expense ratios.
  • You can get your share of the company's plan once you have been vested. If you move to another job or retire, you can also take your earnings.
  • You can withdraw funds before 59 1/2 by avoiding foreclosure under certain hardship exemptions.
  1. Is the company able to match my contributions?

As a company match can significantly increase your retirement account's value, this is the most critical question you should ask. Employers usually match a portion of your contributions. Your employer will usually check a percentage of your contributions. For example, if you earn $50,000 per year and contribute 5% ($2,500), your company will match 50% of your donation. This adds $1,250 to the account. You may have to limit your employer contribution (e.g., it may reach 50% of your salary up to 4%) or your annual contribution limit set by the Internal Revenue Service.

If your company has one, try to contribute as much as possible. However, you may not want the maximum amount allowed by your company's match. Michael Zhuang, principal at MZ Capital Management, Bethesda, MD, says that many small businesses have high-cost 401(k) plans. Therefore, it is not worthwhile to pay more for the project in this instance, as you will be paying hidden fees and what you have saved in taxes.

  1. What are my investment options?

Most plans allow you to choose between a range of investments such as stocks, mutual funds (which can include your company's store), bonds, and guaranteed investment contracts. In addition, you may be able to transfer a portion of your retirement plan to another account if you are not satisfied with the investment options provided by your employer. This is called a partial.

 Ask your 401k if it offers a full brokerage, self-directed option. However, not all 401(k) plans offer this option. Dan Stewart CFA(r), chief investment officer at Revere Asset Management, Inc., Dallas, TX. This would enable you to open a brokerage account to trade individual stocks, bonds, mutual funds, ETFs, and other investments. It wouldn't restrict you to the usual 10-12 mutual funds. This is not a common practice, but larger companies have better chances of having full brokerage options.

People tend to invest more aggressively in their younger years (and can recover from losses) and become more cautious as they get closer to retirement. This means that you will need to adjust your allocations as required. Many plans allow you to make changes at any time. However, some restrictions may apply: Some limit changes to once per month or quarterly.

  1. Which investment option has the lowest expense ratio?

Many investments, such as mutual funds and exchange-traded funds (ETFs), require shareholders to pay an expense rate to cover their total annual operating expenses. The expense ratio is a percentage of the fund's average net assets. It includes administrative, compliance and management costs and record-keeping fees.

The expense ratio directly affects shareholder returns and thus lowers the value of your investment. Do not assume that the investment offering the highest return is the best. You might be able to make more money by investing in a lower-returning asset with a lower expense ratio.

You should be aware that not all options are equal. You should do thorough research, not just focus on the cost.

  1. When do I become vested?

Your 401(k) vested portion is the money you can keep even if your job is terminated. All money you contribute is 100% vested. Your company will have to meet a vesting obligation for contributions. There are two types: cliff and graded vesting schedules.

Funds vest with graded vesting over time. For example, 25% may be vested in your first year and 50% the following year. You can then vet until you have all of your funds. Cliff vesting: The employer contribution is 0% until you have worked for the specified time (such as two years). At that point, it becomes 100%. You can always take the money to change jobs or retire, regardless of whether you are fully vested.

The IRS now allows hardship withdrawals from a retirement plan. These can include your contributions and your company's earnings and match. 2 Discuss this with your human resources department.

  1. What is the best time to withdraw my money?

If you withdraw before 59 1/2, you will have to pay a 10% penalty tax. You may be exempted from paying the penalty in cases of hardship

  • Suffering a disability
  • Death (the distribution to a beneficiary is made)
  • Certain medical expenses
  • Your first home purchase
  • You, your spouse or your children can pay for college
  • Avoid Foreclosure and Eviction
  • Funeral or burial expenses
  • Certain home repairs
  • Adopting or having a child 1

After you reach 72 years old, you must take the required minimum distributions from all your 401(k) s (except for plans offered by companies you are still working for). You must withdraw money from your 401(k)s by April 1, after you turn 72. The minimum distribution depends on your age, life expectancy, and account value.

Understanding the basics

  • What are the plans available, and what are their features
  • What is the best time to start contributing?
  • Is the company willing to match your contribution? If so, how much?
  • Contributions can lower your taxable income. Is there a Roth option?
  • What is the maximum annual contribution?
  • What is the time it takes to vest in the plan?

How to manage your plan

  • What are your investment options
  • Are you able to choose your investments?
  • How often can your assets be adjusted to meet your current needs?
  • Are there provisions to allow older workers to make higher contributions?
  • How do you get a schedule and an explanation of plan management fees?
  • What are the roles of fund managers?


Monitoring and accessing your money

  • Are there any online resources for planning tools, statements and tools?
  • Are you able to make an emergency withdrawal during financial hardship?
  • If borrowing from an account is allowed, what are the conditions?
  • At what age do payouts begin?
  • What is the best time to start receiving payouts?