4 New Year’s Resolutions for Your 401(k)

As 2022 approaches, there isn’t a better time to check in on your 401(k) plan: New years tend to bring new goals and a renewed sense of purpose for your finances. Plus, plans vary greatly across companies, so it’s good to make sure you know the specifics of the account you’re dealing with.

Here, we’ll go over four new year’s resolutions for your 401(k) plans, both old and new.

1) Consider an IRA rollover

If you’ve left a 401(k) behind at a former employer, there’s a possibility it may not be invested or allocated the way you’d like, especially if you haven’t looked at your holdings in a long time. Dated 401(k) plans also tend to come with high administrative fees and excess overhead, which you should try to avoid to the extent you can.

Rolling over your old 401(k) into an IRA at a provider of your choice has many benefits. First, you’ll have access to a wide array of investments typically not offered on most employer 401(k) menus (individual stocks and bonds come to mind). Next, IRA costs tend to be lower than 401(k) costs, and they fall more squarely under your control. Finally, by transferring your old 401(k), you’ll remove what is usually the final connection to your previous employer.

Regardless of your choice to move it or leave it, evaluating your 401(k) situation is a valuable step to take.

2) Take your 401(k) in context

401(k)s are important retirement planning accounts, but they may represent only one piece of your financial plan. When considering how to invest your 401(k), make sure you do it in the context of your entire financial picture.

Someone who has a hefty stock portfolio outside of their workplace plan may choose to invest their 401(k) more conservatively. However, for someone whose entire savings is contained within their 401(k), a more aggressive approach might make sense.

The idea here is to not view your 401(k) in isolation and instead take it as a piece of a greater whole.

3) Be mindful of fees

Though this is less of a problem than it once was, 401(k) plan fees can inadvertently take thousands of dollars off your retirement balance and consequently extend your working years. On top of potentially high administrative fees, some plans come with expensive investment options that are no longer particularly competitive with many of the low-cost alternatives on the market.

The best way to investigate this is by finding out the expense ratios associated with the funds offered by your 401(k) provider. Expense ratios should be prominently featured in the investment section of your 401(k) website. Anything over 0.25% is on the high side, and anything over 0.50% should be thoroughly reevaluated as a continued part of your portfolio.

The bottom line here is that these expenses matter — a lot. Be sure you’re getting maximum value out of your 401(k) investments by reading the fine print, and don’t be afraid to change things up if you’re paying too much.

4) Know the vesting rules

With 2021 now dubbed the year of “The Great Resignation,” people are leaving jobs now more than any time in recent memory. This is why it’s especially important to know the vesting schedule associated with your 401(k) plan.

When your 401(k) plan dollars “vest,” it means the money in the plan is now yours to keep. Many plans have a setup in which all employee contributions vest immediately, which means that whatever you contribute to the plan cannot be taken away from you. However, matching employer contributions usually vest over time, and they can be forfeited if you leave your job before the vesting period has lapsed.

Be very clear on what you stand to lose if you were to leave your employer — even staying a few more months to lock in any employer contributions can make a substantial difference in your total balance.

Details matter

If there were ever a time to block out an hour or so to study your 401(k) plan details, it’s now. As the new year approaches, it’s good practice to know the specific rules behind your account, how much you’re paying for it, and what would happen if you were to leave your job within the next few months to a year. A small time investment now can save you thousands of dollars in the long run, so don’t wait to reevaluate your total 401(k) situation.

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