401(k) Planning:  Questions to Ask

Check the background of investment professionals associated with this site on FINRA's BrokerCheck.

When was the last time you took steps to optimize your 401(k)?

If it's been a while, you're not alone. Research indicates that only one in three Americans utilize employer-sponsored 401(k) retirement accounts; even those who are contributing may not be taking full advantage of potential benefits.¹

Here are five questions to ask about 401(k) planning.

1. How Are 401(k) Funds Invested?

How does your company invest employee retirement funds? Many 401(k) plans allow participants to choose from a range of investment options, such as mutual funds, stocks or bonds. Proper asset allocation helps ensure diversification. Aim for a balanced mix over a range of investment vehicles.

For younger investors, a more aggressive approach may make sense, as they've got more time to recover from losses. For older investors who are closer to retirement, a more conservative approach may be beneficial. Either way, your investments should align with your tolerance for risk and your time horizon.

2. Does My Employer Match Contributions?

Many companies will match the contributions you make to your 401(k). Usually, the match is a percentage of the amount you contribute, but some employers offer dollar-for-dollar matches.

Find out your company's policy and take full advantage of it. If you don't, it's like you're throwing away free money. Thanks to the power of compounding interest, an employer match can help your retirement savings grow exponentially.

3. What About the Expense Ratio?

Investment vehicles, such as mutual funds, often charge expense ratios. This cost is usually based on a percentage of the fund's net assets, and it's passed along to shareholders.

Expense ratios cover operational costs such as administration, management, marketing, compliance, record-keeping and distribution.

• Expense ratios cut into your returns, so look for funds with low ratios. Keep in mind that expense ratios affect returns over the long term; even if an investment has high returns, a high expense ratio can negate it.

4. When Am I Fully Vested?

The contributions you make to your 401(k) are fully vested. That means you can keep them even if you leave your job.

Although the contributions your employer makes may be a different story. Often, you'll have to work for the employer for a certain amount of time before you can take those funds with you. This system is known as a “cliff” vesting schedule.

Some employers use a “graded” vesting schedule, in which a certain percentage becomes available after specified time periods pass. For example, you may be 50% vested after three years on the job, and 100% vested after five years.

5. When Can I Receive Distributions?

Usually, you can start withdrawing from your 401(k) without penalty once you reach age 59 1/2. If you withdraw before that age, you have to pay a penalty and income taxes. In certain cases of hardship, the IRS may waive the penalty.

After you reach 72 years of age, you must take at least minimum distributions. Your age and account value will determine the minimum amount you must withdraw.

Asking these questions can help you make the most of your 401(k).

Talk to a Financial Advisor

Financial advisors with BECU Investment Services are here to help. They can assist you on your retirement journey, ensuring you are on the right track to achieving your financial goals. Set up a complimentary consultation or call 206-439-5720.