However, when something becomes so important, there are bound to be several questions that pop up. When do I start? What should I contribute? Is this really the best? A recent article from The Network Journal works to answer some of these burning questions.
For a start, let’s assume you join a company that has a retirement plan. 401(k)s and 403bs are most common in this case. If so, your HR department will help you with enrollment when you are first hired. If a new one is implemented at your work, generally HR and a rep from the plan sponsor will hold a group meeting summarizing the plan. Generally, you will get your login credentials for your plan to get you started, but there are two main things you want to keep in mind during enrollment.
For one, if there is a company match, make sure you contribute as much as possible up to the match to maximize your employer’s contribution. If there is no such thing, think about a personal Roth IRA or traditional IRA before going the employer plan route. The major difference (although this is simplifying things a lot) is when you pay your taxes on your contributions. With a Roth, you pay your taxes on dollars going into the account before you contribute. With a traditional IRA, you will actually pay your taxes during retirement. Which is better will depend on you, but it’s important to know your options.
Figuring out how much you will invest is another example of something that is very personal. You will need to determine your age, risk tolerance, investment time horizon, other retirement assets available to you, fees, taxes, how much you can afford to contribute. Employer plans often come with high-level guidance in this area, but it often pays to take some of this into your own hands. Don’t be afraid to call up your plan representative for help. A financial advisor will also help you identify proper investment strategies specific to your life and your overall retirement preparation.
Another modern reality is changing companies. It is possible to roll your funds over between company 401k plans, but putting them into a personal IRA will grant you more flexibility when it comes to investments. However, be sure you roll them into “like” accounts. Pre-tax 401(k) funds must go into a traditional pre-tax IRA, and Roth 401(k) funds must go into a Roth IRA.