5 Signs of a Good 401(k) Plan

Many companies now offer a 401(k) retirement plan as a valuable incentive to recruit and retain the best talent. But since 401(k) plans are not all created equal, you might wonder whether your company is really all that competitive, or whether you need to take a more diligent approach to saving for retirement. The following five signs will tell you if your 401(k) is holding up well against other plans out there.

Eligibility. Are employees eligible to begin making contributions to the plan immediately? Or is there a long waiting period before you can make contributions or earn employer contributions? When it comes to retirement planning, every paycheck counts.

Does your employer offer a contribution? Under 401(k) rules, employers can make matching or even non-matching contributions to employee retirement accounts. The exact amount contributed differs according to formulas or even company preferences, but a truly competitive employer will offer at least some contribution to your retirement fund.

Does your fund have a vesting schedule? Even if you receive contributions from your employer, that doesn’t mean you will get to keep the money. Some plans require employer contributions to be vested over a specified period of time, before the contribution becomes permanently “yours”. In other words, if you leave the company before you reach that finish line, you might lose some or all of your employer contributions. However, some 401(k) plans allow employees to be immediately vested in employer contributions.

Does your fund offer options for your contributions? Most people want to make pre-tax contributions to their 401(k) funds, and enjoy the tax benefits of doing so. But you might also want the option to make after-tax Roth contributions, so that you can enjoy tax-free distributions in retirement. For some people, this option becomes an important retirement planning strategy, so it’s nice to know whether your fund offers it.

What are your investment options and fees? Investing your money is only half of the battle; now how will you invest it? The best 401(k) plans offer a variety of index and actively managed funds, distributed across asset classes. Expense ratios should also be low.

Your 401(k) might also offer various bonus features, such as automatic enrollment and rollovers. If you need to evaluate your retirement fund, give us a call and schedule an appointment. We can help you analyze your current options, and check your long-term retirement plan for any potential pitfalls.