Is Your 401(k) Plan Working for Your Retirement Goals?

Published on May 22, 2014

is what’s referred to as a defined contribution plan that many employers offer. By “defined contribution,” we mean that the amount of allowable contributions that employers and employees can make to the plan is defined (set percentage of income, for example).

In many cases, the plans provide for employer matching contributions (worker contributes 3 percent; employer matches it with another
3 percent of salary). However, most 401(k) investments come from the employees.

So, how’s that working for today’s workforce members that participate?

Unlike defined benefit plans, which are becoming less common, a 401(k) does not specify how much retirement income will be waiting for you. Therefore, it becomes ever-more important to make sure you are contributing enough to your retirement account to reach a comfortable level of retirement savings. It’s not your employer’s concern—but it should be yours!
The majority of employers offer a 401(k) in order to compete in the marketplace and attract and retain good employees. And many choose these defined contribution plans instead of defined benefit plans because they may believe a 401(k) is a more dependable source of retirement income. This is not necessarily so.

Remember also that with typical 401(k) plans the investments, allocation, and fund performance are not in your control but are controlled by the plan administrator.

One way to make this employee benefit work harder for you (since you are working so hard to save) is to find out if you can open a self-directed 401(k) plan or if your employer offers this option. Take control of your retirement plan if you are comfortable making your own investment decisions. Or consider rolling over your existing 401(k) into a self-directed IRA. Through self-direction, you can invest in many different assets that you already know and understand. Why let your employer call the shots when it’s your retirement and financial future on the line?

You can also roll over a “forgotten” 401(k) from a previous employer (don’t let it languish where it is). You can read more about 401(k) rollovers and how to open a new self-directed retirement account here. Have a question about how to make that happen? Need more insights into self-directing your retirement? Next Generation Trust Services can help. Contact us at (888) 857-8058 or Info@NextGenerationTrust.com and we’ll give you the answers you need to get you started on a harder-working retirement plan that you direct.