Answers to the 10 Most Common 401(k) Questions

A major factor in achieving your financial goals is being engaged with your finances and investments. This includes your 401(k).

According to CNBC, though 401(k)s are the “most common retirement savings vehicles, 63 percent of Americans don’t understand exactly how it works.”¹

Additionally, when people in the survey were asked common 401(k) investor questions, only 37% could answer confidently.²

If you want to be more engaged with your 401(k), take a minute to read through the most common 401(k) questions our clients ask

#1 What Are My Investment Options?

When you enroll in a 401(k) plan, you should receive a menu of investment options to choose from.

You have the right to choose how your 401(k) contributions are invested within the options on the menu.

You also have a right to make changes to your investment choices.

#2 Can I Change My Investments to Match My Current Needs?

Yes, you have the right to change investments to meet your current needs.

For example, if your risk tolerance changes or the market conditions are different, you may want to change your 401(k) investments to maximize your returns.

This is called rebalancing.

Rebalancing is the process of realigning the holdings of the assets in your portfolio. This can involve periodically buying and/or selling assets in the portfolio in order to maintain the initial desired level of asset allocation.

If you aren’t making changes as needed (or rebalancing), you may run the risk of unmanaged allocations experiencing much larger losses in down markets and miss the opportunity for growth during good markets.

[Related Read: What Every Investor Needs to Know About Rebalancing a 401(k)]

#3 How Often Can I Change My Investments to Match My Current Needs?

How often you can change your investments depends on your 401(k) plan.

Some 401(k) plans place a limit on the number of changes you can make per year. Others may charge a fee for making frequent changes to your investments.

Check with HR or your plan administrator to see if there are rules regarding how often you can change your investments.

[Related Read: Is Professional 401(k) Account Management Right for Me? ]

#4 Do Contributions Lower My Taxable Income?

Yes, contributions do lower your taxable income because with a traditional 401(k), you contribute pre-tax income into your 401(k) account.

This means you don’t pay taxes on the contributions when you invest them in the 401(k), but you will be taxed when you do eventually withdraw the money during retirement.

#5 Do I Have a Roth Option?

Some 401(k) plans offer a Roth option, but not all.

With a Roth 401(k), you contribute after-tax dollars into the account, which means you don’t get an immediate tax benefit. However, the withdrawals you make during retirement are tax-free, including both the contributions and any earnings.

Check with HR or your plan administrator to see if the Roth provision is available.

[Related Read: Pros and Cons of a Roth 401(k): Key Differences and Tax Implications ]

#6 Does My Company Match My Contributions and How Much?

The 401(k) company match is essentially free money and a smart way to maximize your 401(k) retirement income.

If your company offers a match and how much the company match is depends on the terms of your 401(k) plan. This information should be disclosed to you when you enroll in a 401(k) plan.

Many employers match a percentage of employee contributions, up to a certain portion of the total salary. Others match employee contributions up to a certain dollar amount.

Contact your plan representative or HR department to find out your company’s match – then strive to contribute at least enough to reach the match amount.

[Related Read: 4 Ways to Potentially Maximize Your 401(k) Company Match ]

#7 What Is the Maximum Annual Contribution?

Employee contribution limits for 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan are $22,500 for 2023.

For those ages 50 and older, the 401(k) catch-up contribution is $7,500, for a total maximum contribution of $30,000.

[Related Read: Big Increases to Retirement Plan Contribution Limits for 2023 ]

#8 How Long Does It Take to Be Vested in My 401(k) Plan?

Vesting means that you own the money in your 401(k).

Any money you personally contribute is always yours – or 100% vested. However, if your employer offers matching contributions, they will use a vesting schedule to determine when this money is actually yours to keep.

This is referred to as the vesting schedule, and it varies from plan to plan.

And it’s important to know what yours is. Should you change jobs before you are fully vested, depending on the vesting schedule, you may have to return part or all of the money your company matched.

Your vesting schedule should be clearly spelled out in your plan agreement. If you don’t see it in your info packet, make sure to ask your plan representative or HR department.

[Related Read: Don’t Lose Your Match: The Danger of Ignoring Your 401(k) Vesting Schedule ]

#9 What Are Target Date Funds and Are They Right for Me?

Target date funds, or lifestyle funds, are supposed to automatically adjust account allocations throughout life.

Investors are grouped solely based on their expected retirement date. This means target date funds do not take into consideration an investor’s…

    • Location
    • Profession
    • Salary
    • Risk tolerance
    • Retirement goals and objectives
    • Retirement savings history

Target date funds were created to take away the hassle of having to research mutual funds in your 401(k) and build and construct your own portfolio. They make investing easier.

But the reality is that target date funds will often underperform in good markets and do a poor job of managing downside risk during down markets.

Target date funds do not take into consideration changes in the economy, tax policy, trade, earning reports, or investment trends – and may not make adjustments for any of these driving factors that affect investment performance.

If these adjustments are not made, you may not stay on course to reach your retirement goals.

Check out our guide 5 Ways Target Date Funds Fail to Live Up to Their Promise.

#10 How Can I Obtain a Schedule and Explanation of the Plan Management Fees?

Your plan agreement should clearly spell out information regarding your vesting schedule and plan management fees.

If you can’t find it, be sure to ask your plan representative or HR department for copies.

You can also find out your vesting balance and how much you are paying in fees by reading your 401(k) statement.

[Related Read: How to Read a 401(k) Statement and Understand It ]

Where to Get Professional 401(k) Account Management

401(k) Maneuver exists to help employees grow and protect their 401(k) accounts.

We provide independent, personalized professional account management to help employees, just like you, grow and protect their 401(k) accounts.

And we do this without in-person meetings so you don’t have to drive to an appointment or spend hours preparing for the meeting.

Our done-for-you, virtual service allows you to keep your 401(k) right where it is while we review and rebalance your account as needed based on your risk tolerance and current market conditions.

All you need to do is to connect your account to our secure platform, and we manage your account for you. There’s no need to move your account – you can keep it right where it is.

As a fiduciary, we are bound by law to put your interests first. To avoid a conflict of interest, we are fee based. We do not receive commissions on transactions or when we rebalance your account.

Have questions about your 401(k) performance? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.

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