Employer-sponsored plans like 401(k)s play a critical role in the retirement goals of most working Americans. Unfortunately, it’s not always clear whether or not your particular employer’s plan is a good one relative to your specific needs and goals. Thankfully, a handful of cues can help you determine if your organization’s retirement plan is both fair and sufficient in helping you prepare for your retirement.
1. Investment Choices
The investment world is immense. Investors now have the opportunity to invest in all sorts of companies, industries, regions and other financial products. A good 401(k) will offer a wide selection of investment choices, usually through mutual funds, that afford employees the chance to take advantage of the immense investment landscape.
While the opportunity to take advantage of that immense investment landscape is important, so are investment solutions that are convenient and straightforward. Many employees lack the knowledge needed to combine different investments from a variety of asset classes to form a sound investment allocation.
For that reason, it is important that a retirement plan offers allocation or age-based solutions for employees that want suitable, well-rounded investments that don’t require a significant level of investment savvy.
3. Fair Fee Schedules
Every dollar that goes towards administrative or investment fees is a dollar that’s not working towards your retirement goals. However, that isn’t to say that all fees are inherently counterproductive to your financial plan.
Almost all plan administrators – as well as the mutual funds that serve as the investment choices – have fees associated with them. A fair employer-sponsored plan will include services and investment choices that minimize fees while not sacrificing performance or suitability.
Since a 401(k) is often used as a benefit to entice employees to stay with an organization – as well as attract new ones – companies can offer a variety of perks to make their plans more attractive. By including employer matches, shorter vesting schedules and eliminating a wait period before a new worker can participate, a 401(k) can be much more than just a straightforward retirement account but a benefit to an employee.
5. Different Types of Contributions
Depending on a particular employee’s financial circumstances and goals, different types of contributions – at least from a tax perspective – can be extremely beneficial. For instance, if you happen to be in a lower tax bracket today but will likely be in a higher one later in life, a Roth 401(k) that taxes your contributions as ordinary income upfront but doesn’t tax you upon distribution can be a great benefit to you down the road. Minimizing the impact of taxes – whether now or later – will always maximize how much you keep in your wallet or purse.
Gary Marriage Jr. is the founder and CEO of Nature Coast Financial Advisors, which educates retirees on how to protect their assets, increase their income and reduce their taxes. Marriage is a national speaker, delivering solutions for pre-retirees, business owners and seniors on the areas affecting their retirement and estates. He is an approved member of the National Ethics Bureau, and has been featured in “America’s Top Hometown Financial Advisors 2011” and was selected to contribute to a book with Steve Forbes titled “Successonomics”
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