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Maximize your 401(k) savings

Your employer-sponsored savings plan is a great way to save for retirement. If your employer matches part of your contributions, that’s a bonus you can use to boost your savings. It’s a benefit from your employer, and it grows tax-deferred.

In general, most 401(k) plans have the same basic structure, but company to company, plan to plan, there are some differences in rules and how plans are managed. To maximize the value of your plan, you’ve got to know how it works. Read the plan documents, talk with fellow employees and ask your human resources department.

Here are important questions to ask about your retirement plan:

  • What is the maximum percentage of my compensation I can contribute on a pre-tax basis?
  • What parts of compensation, in addition to my salary, are eligible for my savings plan?
  • Does the plan offer a matching contribution by the company? What are the terms of the match?
  • What do I have to contribute in order to maximize the company match?
  • Does the match vest immediately, or is there a waiting period?
  • How often can I change my savings rates?
  • What are my investment options?
  • How often can I change my investment elections?
  • What are the costs of the plan, including investment product costs, and who pays them?
  • Does the company offer any investment education to plan participants?
Your company’s 401(k) plan is a key employee benefit — one that’s fundamental to your long-term financial plan

Look into your employer's retirement plans

Many employers offer their employees a way of saving for retirement by sponsoring a 401(k) or other incentive plan. The beauty of these plans is that the employer automatically takes an amount out of your paycheck each pay period (you determine how much, up to a maximum) and puts it in the employer-sponsored plan.

In a traditional 401(k), the money goes to your account prior to being taxed in the year you earned it, and any earnings are tax deferred while held in the account. You pay taxes on withdrawals, and withdrawals before age 59 ½ may result in a 10% IRS penalty.

In a Roth 401(k), your contributions go to your account after being taxed but have the potential to grow tax-free and are paid out to you without taxes, provided you meet eligibility requirements.

The money you put into your retirement plan is always yours. To encourage you to stay as an employee, though, employers often have what is called a “vesting schedule" for the employer-matched funds.

That means you may have to work at the company for a required amount of time, up to several years, before you’re entitled to keep all or even any of the employer matching contributions in your retirement account.

Many employers encourage you to save by “matching" what you contribute, up to a fixed maximum

The rules will be up to your employer. Check with your human resources department for your company’s rules. The employer’s matching contributions are treated just like a traditional 401(k).

Ask about other plans

Your company may offer other benefits that can enhance your retirement savings, such as:

  • Profit sharing
  • Employee stock ownership programs
  • A pension plan
  • After-tax savings accounts

Contributing aggressively, making sensible investment decisions, and maximizing the value of your 401(k) and other savings plans can help you reach your retirement savings goals. Be sure to talk to your human resources representative to make sure you understand the full extent of retirement savings options and benefits offered by your employer. You may also wish to talk to a financial advisor to help understand the best way to take full advantage of these benefits.