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Message
A few questions about 401ks
Posted on 7/25/16 at 6:45 pm
Posted on 7/25/16 at 6:45 pm
So as I've mentioned here before, I work for a small tech company. They just started offering employees a 401k option with a 50% company match on contributions up to 6% (3% from the company). My wife and I both work for the same company, and neither of us have ever invested into a 401k (25 and 23 years old).
My questions are:
1. What happens to the money if either my wife or I switch jobs?
2. I know these employee 401ks typically carry heavier fees than investing on my own through a company like Vanguard. Is the employer portion of the contribution worth more than I would pay in fees?
3. If the company were to go under one day, do I lose any or all of my 401k contributions?
Thanks!
My questions are:
1. What happens to the money if either my wife or I switch jobs?
2. I know these employee 401ks typically carry heavier fees than investing on my own through a company like Vanguard. Is the employer portion of the contribution worth more than I would pay in fees?
3. If the company were to go under one day, do I lose any or all of my 401k contributions?
Thanks!
4
Posted on 7/25/16 at 6:55 pm to tlsu15
1) Each company does this a little different, but you will more than likely be given an option to roll it over into the new company 401(k) or into another IRA
2) Maybe- check out the fees, compared to Vanguard or Scotttrade, etc. I bet the fees aren't more than the 3%, but definitely pay attention.
3) Check and see if you are vested immediately or if it takes time- if you're vested immediately (meaning you get the match without having to wait a certain period of time), then unless you are invested directly in the company, you should be fine if he company goes out of business. Investments are more than likely managed by a separate company that's hired by your company.
*** Not an investment expert, but I've had company retirement plans before
2) Maybe- check out the fees, compared to Vanguard or Scotttrade, etc. I bet the fees aren't more than the 3%, but definitely pay attention.
3) Check and see if you are vested immediately or if it takes time- if you're vested immediately (meaning you get the match without having to wait a certain period of time), then unless you are invested directly in the company, you should be fine if he company goes out of business. Investments are more than likely managed by a separate company that's hired by your company.
*** Not an investment expert, but I've had company retirement plans before
Posted on 7/25/16 at 7:30 pm to LSUGUMBO
That was very helpful, thank you!
Posted on 7/26/16 at 7:30 am to tlsu15
I will add some advice I was given at your age that helped me a lot now that I am 50. The company match is free money. Do everything you can to maximize that for both of you guys. It may hurt a little now but your 50 year old self will thank you.
Posted on 7/26/16 at 8:20 am to tlsu15
quote:
2. I know these employee 401ks typically carry heavier fees than investing on my own through a company like Vanguard. Is the employer portion of the contribution worth more than I would pay in fees?
You are getting a guaranteed 50% return with your employer match. No other investment is likely to get you those kinds of returns and fees won't be high enough to take much of a bite out. With that in mind your starting point for 401k contributions should be 6% each and you can decide if you want to adjust upward from there. With the protections the government gives to these accounts there is minimal downside with concern to your company going under.
Posted on 7/26/16 at 9:55 am to txtiger21
Def contribute the 6%. Like someone said before, that is free money.
You will need to know the vesting schedule. That employer contribution most likely will not be 100% yours from the get go. For instance, my company does an annual profit share that vests over a 5 year span. So if you leave the company after 1 year, then you only get 20% of that employer contribution.
Any money that YOU put in should be available to rollover to another retirement account.
You will need to know the vesting schedule. That employer contribution most likely will not be 100% yours from the get go. For instance, my company does an annual profit share that vests over a 5 year span. So if you leave the company after 1 year, then you only get 20% of that employer contribution.
Any money that YOU put in should be available to rollover to another retirement account.
Posted on 7/26/16 at 10:33 am to TthomasJR
The 401k contribution match vest over a 4 year period at our company.
Posted on 7/26/16 at 8:06 pm to tlsu15
quote:
1. What happens to the money if either my wife or I switch jobs?
Your portion that you put in is yours and can be rolled into an IRA or into your new company's 401k. As others have mentioned, you will have to see the vesting schedule for the companies match. Even though it says 4 years, that is typically when it is 100% invested; most plans I have seen start at 25% vesting after 2 years. Additionally, that typically has to do with how long you have been with the company, not necessarily how long you have contributed to the 401k; but you will need to verify that.
quote:
2. I know these employee 401ks typically carry heavier fees than investing on my own through a company like Vanguard. Is the employer portion of the contribution worth more than I would pay in fees?
This isn't always true, my investments have a less than 1% average fee, you just have to be smart and pay attention to the fees (which MUST be disclosed).
quote:
3. If the company were to go under one day, do I lose any or all of my 401k contributions?
No, your money will be managed by another company. If your company were to go under, the funds would be treated like question 1.
As others have said, your employers match is free money. Do what you can to adjust your budget to invest the 6% and max out your employer's contribution. Also, when you get future raises, consider increasing your percentage to maximize your contributions.
If you are allowed to choose your own funds, don't always look at the ones with the biggest returns. I like to look at the history of the fund (anything less than 5-10 years old is risky) and make decisions based on which ones suffered the lowest losses while still providing respectable gains.
Posted on 7/26/16 at 8:15 pm to txtiger21
quote:
You are getting a guaranteed 50% return with your employer match. No other investment is likely to get you those kinds of returns and fees won't be high enough to take much of a bite out.
Never thought of it that way
, very well putPosted on 7/27/16 at 3:13 pm to tlsu15
quote:
2. I know these employee 401ks typically carry heavier fees than investing on my own through a company like Vanguard. Is the employer portion of the contribution worth more than I would pay in fees?
Using math to explain:
If you make $50,000, the 6% you contribute = $3,000. The employer puts in $1,500 for you. Total investment of $4,500.
For the fees to outweigh what the employer puts in for you, they'd have to be 50% or higher on your contributions.
No 401k service provider or mutual fund company has fees anywhere close to this.
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