A 401k is the most common retirement contribution plan in the United States. While a 401k is set up to help you save for your future, it is one of the most commonly misunderstood retirement plans out there. The following four questions are some of the most popular questions people have when it comes to their 401k.
How do I manage my 401k plan?
While your employer takes care of transactions on your portfolio, you are the one who decides when and how to allocate and balance your assets. Most of this can be done on the website of the company that supports your plan. Make sure you know the rules, fees and procedures of your 401k, and review your benefit statements when you receive it.
When can I withdraw money from my plan?
Some companies allow you to withdraw money from your 401k in the event of a hardship or financial emergency. When borrowing from the 401k, it is common to sign a loan agreement that details repayment and interest rates. When borrowing from your plan, the IRS allows you to borrow either the lesser of $50,000 or half of your vested amount. The following qualify for a 401k loan:
- Out-of-pocket medical expenses
- College tuition and related educational expenses
- Down payment or repairs on a primary home
- Burial and funeral expenses
- Threat of mortgage foreclosure or eviction
Remember, it is up to your employer to set the stipulations for withdraw, so check with them before you decide to make a withdraw.
How much can I contribute to my 401k plan and how much should I contribute?
The IRS sets an elective deferral limit for 401k accounts every year. They also allow for catch-up contributions for participants age 50 or older. The elective deferral limit only refers to the money you are choosing to have withheld from your paycheck. It does not include employer matching contributions.
You should be contributing enough to take full advantage of your employers matching program if there is one available. Most 401k plans have a calculator that can show you how much of each paycheck you would be contributing by percentage.
Are there 401k fees?
All plans are charged asset-based fees. These fees impact your investment return and your long-term financial goals. The fees are not easy to calculate because you are not paying them directly. They are subtracted from your plan before your return is reported. If you have additional questions about your plans fees, reach out to your employer for further information.
Your 401k shouldn’t scare you. Remember, your employer knows all of the details when it comes to your plan, but it’s up to you to make sure you are maximizing your contributions.