If you’re new to the 401(k), you may have some questions about how this retirement plan works. Fortunately, you can find answers, even though some details may vary from company to company or from plan to plan. Be sure to check with your plan administrator to learn the specifics of your 401(k) plan.
What is “vested”?
If you are “ vested” in your 401(k), it means you own the employer contributions in your account. The vested amount is the amount you take with you if you decide to leave your job. While your own contributions are always 100% vested, you may not be vested in employer contributions until a certain time.
What should I do once I reach employer matching?
It’s important to take advantage of any matching that your employer offers you. For example, if they say they will match your contributions up to 5%, make sure you contribute 5% because the employer will contribute an additional 5%. It’s like you’re contributing 10% of your income at half the cost.
Do I need to understand the mutual funds I invest in?
It’s always a good idea to understand the funds that your money is invested in. You should at least understand the basic types of mutual funds and the risks associated with them. This will help you make informed decisions when choosing where to invest your money. You should also be aware that mutual funds come with certain risks, including the risk of losing money.
Should I borrow from my 401(k)?
A 401(k) loan allows you to borrow money from your 401(k) account. However, you should be cautious before resorting to a 401(k) loan. For instance, you must repay the loan within five years, along with limits on the amount you can borrow.
What if I am not eligible for a 401(k)?
If you are currently not eligible for a 401(k), you can (and should) still save for retirement. You can contribute to a Roth IRA or a traditional IRA. Additionally, there are other retirement options available if you are self-employed, such as a Simplified Employee Pension (SEP-IRA), a solo 401(k), or a Savings Incentive Match Plan for Employees (SIMPLE IRA), or a Keogh plan or taxable investment accounts. You can start saving now, even with a small initial investment.
Thank you for completing this article on questions and answers about 401(k). We hope you have gained the information you need to understand this important retirement plan.
Source: https://www.thebalancemoney.com/401k-questions-and-answers-2386371
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