401(k) open enrollment season at work? 3 things you need to know

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Growing retirement savings starts in 401k open enrollmentDuring fall benefits enrollment season, many employees focus mainly on health care. This makes sense because, most of the time, you only get one chance each year to make changes to your health plan.

“When it comes to 401(k) plans, most companies try to allow employees to enroll whenever they can,” says Andrew Meadows, consumer and brand ambassador at The Online 401(k). “But some companies only do it on an annual basis, either in the fall or the spring.”

Even if your company allows you to make changes to your 401(k) at any time, and doesn’t have a set 401(k) open enrollment period, it’s always a good time to make sure you’re saving and investing your retirement dollars as intelligently as possible.

What you should know about your company’s 401(k) plan

As you make decisions about your 401(k), there are a few important things to make sure you get clear on before the open enrollment window closes.

1. What you gain by being enrolled in your employer’s 401(k).

“The best advice is just to get started,” says Meadows. “Something like 86 percent of small businesses don’t have a way to save at work at all, so if your company offers you a plan, you should take advantage of it.”

One of the first things to understand is whether or not your company offers a match, and how that match works.

“A match is free money,” says Meadows. He says that many companies offer a 4 percent match, which means that your company will match 100 percent of what you put in, up to 4 percent of your income. “You can put in more than that, but your company will only match up to the maximum. If you can, it makes sense to get the full match,” he continues.

2. How soon until you’re vested.

Meadows suggests that you pay attention to the vesting schedule.

“The money you contribute is always yours, no matter what,” he says. “But the money the company puts in on your behalf may not be yours immediately.”

Companies can require that you work for a set number of years, such as three or five, in order to be fully vested. If you leave before you are fully vested, you might not get to keep all of the money in your account, since some of it was put in by the company.

3. What investment choices are available.

“How are investments handled?” says Meadows. “Do you pick them yourself? Is there an asset allocation quiz?”

Find out whether or not there is guidance available from experts. Because a retirement portfolio is long term, getting help with asset allocation can be a big help, especially if you are unsure of how to proceed.

Don’t forget to look for low cost investments in a variety of asset classes. Your plan should offer you the chance to invest in low-cost funds that provide you with the ability to meet your long-term goals and risk tolerance.

Meadows also points out that you need to pay attention to fees.

“If your 401(k) plan charges more than 1.5 percent, consider looking at other options, such as IRAs,” he says.

However, even if your 401(k) plan isn’t the best, it still might be worth investing. “You just can’t put away as much with an IRA as you can with a 401(k),” Meadows says. “Sometimes the amount you can put in makes up for some of the costs.”

What do you think? Do you have an open enrollment period for your 401(k)?

(Photo: Flickr user Images of Money)

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3 Responses to “401(k) open enrollment season at work? 3 things you need to know”

  1. adam carolla fan says:

    also that $17,500 is the max contribution if you’re under 50.

    but equally important is that you have until dec. 31st to contribute for that year. so if you started late this year (like my dumba$$), then you won’t be able to fully max out, since it’s through payroll deduction.


  2. JoeTaxpayer says:

    After depositing to the match, I’d look very carefully at the fees. 1.5% is a 14% (yes, the math works that way) hit after 10 years. The gain for most folk is to shift from 25% at deposit to 10-15% at withdrawal, so this kind of extra expense is really a long term killer. Long term cap gains treatment is lost in a 401(k) as well so the disciplined investor should avoid an expense, in my opinion, that’s any higher than .75% or so.

  3. Valerie Rind says:

    There are 2 different kinds, correct? The “plan administrative fee” or “participant fee” that your employer charges, based on your total balance. And each fund in your account has its own fees. Double hit.

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