海角大神

Beth wrote in with a great question:

鈥�I have thought for months about going into the HR office and signing up for the 401(k) plan but I don鈥檛 even know what I should say when I go there. What should I ask about so that I don鈥檛 feel like an idiot?鈥�

Based on lots of reader emails, I think this fear of seeming 鈥渓ike an idiot鈥� keeps a lot of people from making the simple but vital move to simply sign up for a 401(k) plan. They read about it, but they鈥檙e overwhelmed by the details, and they don鈥檛 want to seem 鈥渄umb鈥� when they go in and sign up for a plan.

Here鈥檚 how you can do it without seeming foolish. Just go to your human resource office and tell them that you鈥檇 like to sign up for their 401(k) plan, then fill out the forms that they give you.

Here are four key questions you might want to consider asking.聽

1.听Does the company offer any matching?
This is the first question you should ask because it鈥檚 the big reason to use a 401(k). Without matching money from your employer, a 401(k) is likely聽not聽your best retirement option 鈥� a Roth IRA is, and you don鈥檛 need to sign up for that at work.

So, if the answer is 鈥測es,鈥� keep going. If the answer is 鈥渘o,鈥� walk out of the office and start studying up on a Roth IRA, as this should be your primary retirement step.

If the company does offer matching, ask how much you need to put into retirement to receive the full match. That鈥檚 exactly how much you should be contributing to your 401(k)!

2.听Do you offer a Roth 401(k) plan?
A normal 401(k) plan takes money out of your check聽before聽taxes. This also means that when you take money聽out聽in retirement, you鈥檒l have to pay taxes then.

A Roth 401(k) plan takes money out of your check聽after聽taxes. This means you won鈥檛 have to pay income taxes on what you take out of that account in retirement.

If you鈥檙e unsure, my general advice is to use a Roth 401(k) if you鈥檙e eligible for it. It鈥檚 the best option if you expect income tax rates to go up in the future, which I do.

3. Which investment options are the best for someone at my age who鈥檚 retiring at age 70?
Obviously, you can change the age as you see fit.

This should prompt the person who鈥檚 helping you with the plan to point out a handful of investment options that are appropriate for you. One of them is likely to be a target retirement plan. Ideally, they point out a few other options, such as splitting your money between an aggressive fund and a conservative fund.

4.听Which of these options has the lowest expense ratio?
What you鈥檙e asking here is which one of the options presented to you is the one that will see the least amount of your money vanishing to fees.

You might expect that I would encourage people to go for the one with the highest returns, but past performance is rarely related to future results. You鈥檙e better off comparing similar investments based on their expense ratios. Think of it as investment bargain shopping.

These four questions will help you find the right plan, choose a good investment, and start contributing an appropriate amount to your retirement.聽If you鈥檙e just looking to get started, these questions will get you in the door with a solid start.

Later on, as you learn more, you can make changes to your heart鈥檚 content, but you can聽never聽regain the money you lost by waiting. These questions will help you get into a strong option聽now聽and start saving for your future.

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