By Linde Murphy
If your company offers a 401(k), congratulations! A 401(k) is one of the easiest ways to start investing. Plus, your employer has a fiduciary obligation to make sure the 401(k) plan they offer is cost-efficient and provides you an array of investment options. Here are a few FAQs that can help you get started with making the most of your 401(k).
What is a 401(k), and why would I use it?
A 401(k) is an investment account your employer offers to help you save for retirement. When you sign up for a 401(k), you tell your employer how much money you want to save every paycheck and how you want it invested. Every paycheck, your employer will deduct the amount you specified and put it in your 401(k) account.
You said investments. How does that work?
Most retirement plans are employee-directed, which means you get to decide how you want to invest your money. Be sure to look at your own personal situation to decide, and if you have a financial advisor, take the enrollment forms to them and ask them for advice.
Will my employer put money in, too?
It depends. If your employer offers a “safe harbor” plan, then they may match a certain percentage of your contributions or possibly put money in your account even if you’re not contributing. Other plans may provide a match determined by the company.
To find out about the match, call your HR department and ask them for a summary plan description and the participant helpline number. This will have all of the information on the match.
What happens if I leave my company?
Remember, the money that you contribute to your 401(k) is always yours. If you ever leave your employer, you get to take the money with you.
When you leave your job, you normally have several options: 1) Roll your account into an IRA, possibly even without changing providers or investments; 2) Roll your account to your new employer’s 401(k); or 3) Withdraw your money, which is the least beneficial option. When you withdraw your money, you will face penalties if you are under the age of 59 ½ and will have to pay taxes on any pre-tax funds.
Can I pull my money out at any time?
There are restrictions on withdrawing your money. Your plan may have provisions that allow for some types of withdrawals, but you would need to check with your HR department. Typically, if you pull your money out before you are 59 ½ years old, you will have to pay a penalty and income taxes.
It is never too late or too early to start saving for retirement! Remember, you can take a loan out for many events in life, but retirement is not one of them. Take advantage of the tools your employer provides by using the 401(k), maxing out the company match, and keeping track of your money. When you leave a job, don’t leave your money behind!
Linde Murphy, CRCP®
Argent Retirement Plan Advisors
Office: (210) 352-2428
Argent Financial Group
755 E. Mulberry, Ste. 400
San Antonio, TX 78212