How to Spot a Great 401(k) BY LIZ WESTON, CFP
Any 401(k) can help you save for retirement. A great 401(k) allows you to save a whole lot more. The difference between a mediocre plan and a great one could translate into tens of thousands of dollars in future retirement money. Plus, a 401(k)’s quality can show how serious a company is about attracting and retaining good workers. That’s not to say you should leave or turn down a job if it doesn’t offer a great 401(k). But knowing how to spot a best-in-class retirement plan can help you evaluate job offers, negotiate a raise to compensate for what you’re missing and perhaps encourage your employer to make its plan better.
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HERE ARE THREE FEATURES OF GREAT 401(k)S.
A great 401(k) doesn’t make you wait to start saving A good 401(k) comes with a company match, plenty of low-cost investment options and low fees. A great 401(k) doesn’t make you wait to take advantage of those features. Many plans now allow participants to begin contributions immediately, with no waiting period. Others have waiting periods of one to six months. Some require people to wait a full year — the maximum allowed under federal law — and that delay can be expensive for workers. Let’s say you’re 25, earning $50,000 a year and able to contribute 10% of your pay. The $5,000 you can’t contribute the first year, plus a typical $1,500 match you wouldn’t earn, could mean about $106,000 less in your retirement account by the time you’re 65, assuming 7% average annual returns. If you change jobs in the future — as you almost certainly will — every waiting period you encounter could compound the damage.
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