401(k) FAQs
Why Start Now?
Q. My retirement seems so far in the future. Why should I start investing in a 401(k) now?
A. Investing early helps your retirement account grow faster through compounding. The money you are saving on taxes from a pre-tax 401(k) deferral will be earning additional money for you.
Q. What if I start investing now, but decide I can no longer afford it?
A. It’s ok. The rules of a 401(k) plan allow you to stop your deferral at any time. The important thing to remember is that you may not be able to start deferring again until the next entry point allowed by your plan. Ask your plan administrator for more details on these rules before you make any final decisions.
How Do I Invest?
Q. I want to choose my own funds, but I don’t know much about them. How can I get more information that will help me select the right funds in which to invest?
A. Your 401(k) provider will have licensed fund advisors who can explain the ins and outs of it all, helping you make informed decisions.
Q. What is a pre-allocated portfolio?
A. A pre-allocated, or pre-determined, portfolio is one that has a preset allocation of investments. The pre-allocation is determined by the risk level of the portfolio. The funds selected in these portfolios are typically tailored based on how long you will be investing. Three types of pre-allocated portfolios might include Conservative, Moderate, and Aggressive. For example, if you are late to the investment game, you may want to choose a Conservative portfolio, as there is less risk involved. If you are starting early, you can choose an Aggressive portfolio. Although there is more risk with aggressive funds, there is also the possibility of greater returns over the long haul.
Are My Funds Available to Me?
Q. What if I need to take money out of my 401(k)?
A. Review your Summary Plan Description to see if your plan allows for loans or hardship distributions. Also, check for any fees or penalties that may be incurred for taking advantage of these provisions. Otherwise, a 401(k) plan is for long term investing and may not be available while an active employee.
Q. OK, I’m ready! What do I do next?
A. Ask your HR or Benefits Manager if your company offers a 401(k) plan. Make sure to ask about the waiting period as it can vary from your other benefit waiting periods. Ask if the company makes a match on the 401(k) plan. If there’s a match, then it just makes good cents (pun intended) to participate. Make sure you are deferring an amount that will allow you to receive the maximum employer match. Otherwise, you’re leaving money on the table that could be working for you!
You work hard for your money. Make sure your money is working hard for you too!
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