I wanted to share a few tips and questions to ask yourself when reviewing your corporate retirement plan. There are many different types of plans, but for simplicity we will stick to 401(k) today. As I touched on last week, participating in your company’s retirement plan is an important part of your financial life. Taking some time to review your plan to make sure it is working for you is vital to building a successful plan.
Does my employer offer a company match? If so, what is it and am I maxing that match out?
A company match is a very attractive aspect of 401(k) planning because your employer is rewarding you for saving for retirement. If your employer does indeed offer a company match, be sure to max that out and get the most out of your 401(k). If you can’t afford to do that currently, don’t beat yourself up. Save what you can and increase your contribution gradually.
What is the vesting schedule?
The word vesting is a fancy way of saying ownership of your 401(k) account. Any money you deduct out of your paycheck is always 100% yours. However, in many instances the employer matching contribution does follow a vesting schedule, usually based on years of service. Be sure to have a clear understanding of how the vesting schedule of your 401(k) account works.
Does my employer’s plan offer a Roth 401(k) option?
This is a very important thing to consider when analyzing your retirement savings. Many people confuse the Roth 401(k) with the Roth IRA. While similar, there are some differences. First, there are no income restrictions on Roth 401k contributions Secondly,, you can save a higher dollar amount per year in a Roth 401(k) versus the Roth IRA (see 401k contribution limits below).
What am I invested in and why?
This is something that should apply to any and all investment accounts you own regardless of whether those are retirement assets or not. You should be receiving statements with details of your accounts including asset allocation and returns. It is crucial to understand what fund(s) you are invested in, and if those investments align with your specific needs and risk tolerance. Like I have said in the past, the 401(k) is important, but it is not the only thing you should be considering. Thus, be sure that your 401(k) investments are in line with your overall financial plan. If you find they are not, talk to your advisor about what changes need to be made.
There have been some important changes to the 401(k) and IRA environment over the past few years. The maximum employee contribution has changed drastically, up to $22,500 in 2023. This does not include any employer match dollars. In addition, the annual catch-up provision provided investors over the age of 50 to contribute an additional $7,500 in 2023. Meanwhile, the maximum contribution a person can make to an IRA increased to $6,500 (under 50), and $7,500 if you are over 50 in 2023.
Knowing and reviewing what you are doing to save your retirement is very important, and I always recommend to my clients to complete this activity multiple times per year. As always, your financial advisor works for you so be sure to reach out to him or her with any questions you may have!
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