Employer‐sponsored qualified retirement plans (such as 401(k)s) are some of the most powerful retirement savings tools available.
If your employer offers a retirement plan and you’re not participating in it, you should be. As you do so, here’s how to take full advantage of the benefits.
Understand the plan
Before you begin, be sure to understand how the plan works. Read everything you can about it and talk to your employer’s benefits officer. You can also talk to a financial planner or tax advisor. Some common features include:
- Automatic payroll deduction of contributions
- Flexibility on how much salary you can deduct (up to the legal limit)
- Income tax deferral on your contributions
- Protection of plan assets from creditors
Contribute as much as possible
Why put your retirement dollars in your employer’s plan instead of somewhere else? One reason is that the pretax contributions to your employer’s plan lower your taxable income for the year.
This means you save money in taxes when you contribute to the plan — a big advantage if you’re in a high tax bracket.
Participation also lets you tap into the power of tax‐deferred growth. Your investment earnings may compound year after year. As long as they remain in the plan, they aren’t taxable. In the long term, you can build an impressive sum in your employer’s plan.
Know your options
When you leave your job, your vested balance in your former employer’s retirement plan is yours to keep. You have several options at that point.
1. Take a lump‐sum distribution
This is often a bad idea, because you’ll pay income taxes and possibly a penalty on the amount you withdraw. Plus, you’re giving up continued tax‐deferred growth.
2. Leave your funds in the old plan
This may be a good idea if you’re happy with the plan’s investments or you need time to decide what to do with your money, if your company allows it.
3. Roll your funds over
You can roll your funds over to an IRA or a new employer’s plan, if the plan accepts rollovers. This is often a smart move, because if you do the rollover properly, you can avoid income taxes and penalties.
Ask for help
Employer-sponsored plans are complicated; they can be hard to understand. If you have questions, please don’t hesitate to contact Pacific Crest to set up an appointment to speak with a financial advisor. Our CFS Financial Advisor can help you understand what your plan offers and how to maximize the benefits for your retirement.
Get started today
Contact a financial advisor to get started. Our knowledgeable experts specialize in helping our members maintain a healthy financial balance and discover smart money strategies. Give us a call at (541) 850‐7765 to set an appointment to go over your investment objectives and talk through your questions.