Land a great new job? Awesome. Now is the perfect time to think about your 401(k) and retirement plan, whether you had one before or not. Saving for retirement is important at all ages, so don’t let this opportunity fall to the bottom of your list.
Here are four tips to consider when starting a new job and a new 401(k).
1. Make more contributions if you have a bigger paycheck. When you get a raise, it is a good idea to increase the amount you contribute to your 401(k). You didn’t have this money in your pocket, so you don’t miss it when you put it straight into your 401(k).
The contribution limit for 2014 is $17,500, or $23,000 if you are over 50. The cap for 2015 is $18,000, or $24,000 for people over 50. If you already meet the limit, ask your financial advisor whether you should consider contributing to an individual retirement account (IRA) for even more retirement savings.
2. Don’t pass up the new employer’s match. Sometimes, employers provide a 401(k) match as part of their employee benefits package. They may match your contribution dollar for dollar or a percentage of it up to a set amount.
Your company match is free money. Don’t let it slip through your fingers. If I offered you a bundle of cash — a few thousand dollars, perhaps — would you turn it down? Find out the limit and at the bare minimum, contribute that amount.
3. Name your beneficiaries for your new 401(k) plan. Keep your beneficiaries consistent across all retirement accounts and according to your estate plan. So be sure to update your new plan to reflect changes in your beneficiaries. Are you now a parent or do you have a new spouse? Updates allow your 401(k) account to pass directly to the person of your choice should you pass away.
4. Above all, don’t forget to enroll in your new plan. While this may seem obvious, it’s easy to forget signing up for your new company’s 401(k) plan, because many employers require a short waiting period before new employees are eligible to join. If you have to wait, put a reminder in place – circle the enrollment date on your calendar and set an alarm on your smartphone. Just don’t forget.
Wondering what you should do with your old 401(k) accounts? You may prefer to roll your old 401(k) over to an IRA, as it gives you the ability to invest your account in a variety of mutual funds, stocks or bonds beyond what your employer may offer. This helps you to build a well-diversified investment allocation. Choosing low-cost mutual funds in an IRA can save you money in the long-term over generally more expensive 401(k) investment fees.
For easier management, some may consider consolidating an old 401(k) account with a new one. First, you need to research what investment options your new plan offers. It is common that employer-offered 401(k)s have a smaller number of investment options than an IRA. For example, emerging markets equity funds and small-capitalization value funds are rarely offered.
Then you should compare the underlying fees and expenses in your plan with those in an IRA. The operating expense ratios of the available options can often be higher. Finally, talk to your new 401(k) plan administrator to guide you through the steps for rollover.
Taking your money out of an old 401(k) as a distribution is not a good option. If you’re under 59½, you have to pay taxes on the withdrawal and a penalty from the Internal Revenue Service. Typically, keeping those dollars in a tax-free or tax-deferred account as long as possible is a good idea.
Follow AdviceIQ on Twitter at @adviceiq.
Megan Olson is an associate consultant with Wipfli Hewins Investment Advisors, LLC, in Minneapolis.
The information presented herein is standard information and intended only as a broad discussion of generally available incapacity-planning tools that a reader might consider discussing in detail with their attorney or other qualified professional advisor(s). None of the information contained herein is specific to the laws, rules or regulations of any state or other governing body, and as such cannot be construed as, or used as a substitute for, legal advice. Further, none of the information contained herein has been written or personalized for any individual, and the information may not be applicable or beneficial to anyone’s personal situation(s). The documents and processes identified herein can be complicated, and in many cases require the assistance of a qualified attorney to execute effectively. To the extent that you have questions about or wish to make use of any of the tools or processes identified herein, you are encouraged to seek the advice of your attorney. You assume full responsibility for your use of the general information contained herein and acknowledge and agree that by using the information contained herein Hewins Financial Advisors, LLC, its affiliates, agents and/or employees shall have no responsibility or liability for any claim, damage or loss resulting from your use of such information.
Hewins Financial Advisors, LLC and Wipfli Hewins Investment Advisors, LLC (together referred to as “Hewins”) are independent, fee-only investment advisers registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. Hewins is a proud affiliate of Wipfli LLP. A copy of Hewins’ current ADV Part 2A discussing our investment advisory and financial planning services and fees is available for review upon request.
AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.