• Shannon

7 Questions You Won’t Ask About Your Retirement Plan, But Should

At TriStar, the phone rings all day. Monday through Friday, 8 to 5. It’s rarely quiet.

Many of our calls are participants or plan sponsors checking in on their benefits, checking on their plan, needing to know about loans, distributions or the paperwork involved, and sometimes, just wanting to chat.

We’ve noticed a recurring theme with these calls and the callers behind them. Those that know the least about retirement plans, ask the best questions.

That’s not a unique aspect in our client base or even our industry. Anywhere you go, you’ll notice the “experts” and the experienced speak loudly about what they know, but they rarely speak up when they don’t know much on a subject, or even worse, when they have a question to ask.

The stigma attached to not knowing drags everyone down. We avoid starting conversations unless we can hide behind our keyboards or a user name. As for those who don’t use the Internet for answers, and are afraid to ask elsewhere, their questions go unasked, which is worse.

Now we’d like to break that stigma, at least with those that frequent our blog. Great dialogues start when we step out of our shells and stop being afraid of not knowing. Suddenly, we get answers. Or opinions. Or a new perspective. Sometimes a conversation even sparks.

So, to start the conversation, we want to share some questions that you won’t ask, or maybe you just haven’t thought to.

Question 1:

What’s so great about a 401(k)? Why not just save my money in a CD, or invest in stocks? Better yet, why not just hope that Social Security will take care of my retirement savings?

Answer: 401(k) plans are a great savings vehicle because they’re fairly safe and versatile, and you can receive tax breaks by using one. The money saved in your 401(k) account will then compound year after year and can grow into a hefty sum. On many instances, if your employer provides a 401(k) plan, they also provide a match up to a certain percentage of what you put in. Diversifying your savings with a CD or stocks is a great idea, but having a 401(k) plan account included in your savings strategy is a must.  Also, depending on Social Security is risky. There is an enormous amount of speculation as to when Social Security will run out, and in most cases generally, the social security you receive will not provide enough income to cover your needs.

Question 2:

Can I have multiple retirement accounts?

Answer: In short, yes. You can maintain a 401(k) plan account with your employer and an IRA account, both Roth and Traditional. Just make sure not to exceed your contribution limits ($18,000 in elective deferrals and $54,000 in total contributions for 401(k) plans, $5,500 in an IRA for 2017.) Keep in mind, there are eligibility and contribution requirements associated with many of these savings vehicles, and you may not be able to contribute to all of these vehicles in the same year. Also, if you’re contributing to a 401(k) plan, ensure you’re contributing enough to meet the full employer match!

Question 3:

Why is it so difficult to get my money out of a 401(k), or other retirement saving plan, without incurring fees and penalties if I’m under 59 and a half? It’s my money, I should have access to it whenever I need it.

Answer: While some plans allow for loans and early distributions, there are penalties, fees and taxes you can’t avoid if you decide to take cash out of your retirement plan. These fees are there partially to help pay for the work that goes into administrating a plan, but also to dissuade you from taking out your retirement fund early. It is, after all, specifically for your retirement.

Question 4:

Should I cash out my retirement to pay off debts, such as credit cards or vehicle loans?

Answer: No, if at all avoidable. This answer goes with the one above. You will face fees and taxes, which will dwindle down your savings and leave you with much less to work with than if you leave the money in your retirement fund to grow. If you need to reduce debt, you may want to consider reducing your deferral percentage (but not below the amount you need to defer to receive your full match) for a period of time to allow you to pay down your debt.

Question 5:

I’m not sure how much money I’ll need to save now to retire comfortably. Is there a way to calculate that?

Answer: Admittedly, this is not a rare question. It’s one people across the board are afraid of asking, usually because they know the answer may be a dreary one. There is no way to guarantee what you save for retirement will last you through your golden years. To combat this uncertainty, save early and as much as possible. Diversify your investments and keep a close eye on them. Talk to your advisor often. Understand that having a plan is a great step, but continuing to revise that plan is also part of the process. When you’re trying to plan for something that may be decades away, it’s hard to anticipate the exact dollar amount required, especially when you don’t know how long your retirement will last. Aim high, save as much as you can and stay informed by contacting your investment advisor.

Question 6:

I’m considering starting a retirement plan for my employees, but I don’t want to include everyone (part-time employees or those that participate in a union.) Is that allowed?

Answer: So long as your plan meets the requirements of certain federal laws and regulations, you have the option of excluding different groups of people, at least for a period of time, and placing stipulations on part-time workers. Be sure to consult with a knowledgeable compliance consultant (AKA – give us a call!) when designing and administering your plan on an ongoing basis to make sure your plan meets those requirements.

Question 7:

I think I want to start a 401(k) plan for myself or my employees. How do I get started?

Answer: Call us, or talk to your investment advisor!

What questions do you have for us? Ask away! We’re listening. 

Curious about what exactly a TPA or Compliance Consultant does, and why they’re an integral part of your 401(k) plan team? Check out our post on TPA super powers!

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