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 simple 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 true and valued 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 what you give Uncle Sam – whether now or later – will always maximize how much you keep in your wallet.
Jeremy Wallace is founder and chief investment officer at Wallace Hart Capital Management, an independent financial services firm committed to offering comprehensive advice and customized services. Jeremy has 20 years of experience in the financial industry and is passionate about helping clients preserve and enhance their wealth so they can pursue their passions. Jeremy graduated from Emory University with a degree in international economics and a certificate in financial planning. Outside of the office, Jeremy spends most of his free time with his wife, Julie, and their three children, Isabel, Lincoln, and Reid. He is an avid Chicago Cubs baseball fan, and he enjoys golfing with his wife and traveling with his family. Learn more about Jeremy by connecting with him on LinkedIn.