Many people take company retirement plans for granted—they see the percentage taken out of their check and don’t think much more about it. But, if your goal is to set yourself up for a comfortable retirement, the more you know about your plan, the better off you’ll be.
What type of retirement plan does your company offer?
There are several ways to classify your company’s retirement plan. Your human resources representative or financial officer should be able to tell you which of the following plans the company offers.
Defined Benefit Pension Plan
You, the employee, don’t make any contributions to this plan. Upon retirement, you will receive a monthly benefit, which is determined by your length of employment and income.
401(k)/Roth 401(k), 403(b), and 457 Plan
A 401(k), Roth 401(k), 403(b), and 457 Plan are all very similar. In these plans, you contribute a portion of your paycheck to your own retirement account. Often, your employer will match a certain percentage of your investment as an incentive.
The Roth 401(k) is not tax-deductible, which means you get taxed when you put money in the account but not when you retire and begin to withdraw.
The 403(b) plan is the same as a 401(k) but for employees of nonprofit organizations.
A 457 plan is also very similar to a 401(k) but for state and government employees.
In 2017, the maximum yearly contribution for each of these plans is $18,000. This includes contributions made by an employer.
Savings Incentive Match Plan for Employees (SIMPLE)
This plan is an IRA (Individual Retirement Account) usually utilized by smaller companies. You can contribute up to 3% of your income and an employer contribution is required.
Simplified Employee Pension (SEP)
The SEP Plan is another IRA employee retirement plan. It has many of the same benefits of a traditional IRA but the employee can contribute much more money to the account annually.
Does the employer have a matching incentive?
A match means your employer will match a small percentage of the contribution you make to your company retirement account. For example, let’s say your company matches your contribution up to 3%. That means if you contribute 10% of your income to your retirement, your employer will contribute another 3% from the company.
What happens when you leave your job?
What happens when you leave your job or retire? Though each plan differs slightly, most plans allow you to move your money without much trouble. Almost all retirement accounts will penalize you if you try to withdraw before retirement age. However, if you change jobs, you can usually roll your old company retirement plan into another retirement account without a penalty. The details of such an event can be discussed with your financial advisor.
Can you meet with your work-based financial advisor?
Most company retirement savings plans are managed by an advisor. If you’re contributing to your company retirement plan, look into meeting with your company advisor so you can hear his/her strategy for your money. Although your work-based advisor likely has a lot of clients, he/she should be able to set up a time for the two of you to meet and talk about your retirement account and investment options. No matter how your company is set up, it would be unusual for your employer-based financial advisor to decline a meeting with an employee.
Everyone could use more savings. Saving for retirement now will ensure you have a secure future. Use this information about company retirement plans to your advantage by continuing to do research. The more knowledgeable you are about your finances, the better investment decisions you can make. Since you’re reading this blog, you’re already on the right path!
Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.