Questions About 401(k) Plans
< Quick links to Questions >
1.Top Ten Reasons to Enroll
2. When Can I Make Changes?
3. How Many People Enroll?
4. How Does Matching Work?
5. What Is My Vesting Schedule?
6. Am I Eligible To Join?
7. How Much Can I Put In?
8. when do you want to quite working?
9. Aren't I just giving my money back to my company?
10. Why should I put my money away, what if I need it?
11. Won't Goverment provide for my retirement?
12. What if I need money to support my home?
13. What happen to my money if I die?
14. What happens to my money if I switch jobs?
15. Portfolios of Indexes
16. Fund Details
17. Investor Education: 12-Step Program
1. A 401(k)
Plan can be one of your best tools for creating a secure retirement. It provides
you with an important advantage. All of the contributions and earnings to your
401(k)are tax deferred, which means you only pay taxes on contributions and earnings
when the money is withdrawn. You can invest a portion of your earnings based
on the amount you make BEFORE taxes. This is favorable to a regular savings plan,
because it results in a higher take home pay at the end of the year and a lower
current taxable income. This is a retirement savings plan you cannot afford to
pass up.
2. You are likely to retire someday and will need funds other than Social Security
to pay for living expenses. It's up to you as an individual investor to plan
for your own future. The Social Security Administration estimated in 2000 that
Social Security will provide only 38-40% of an average retiree's living expenses.
3. A long time horizon is your biggest advantage. The sooner you begin investing,
the sooner you can achieve your investment goals due to the process of compounding.
4. If your company provides a matching program, it is extra compensation for
you. Do you usually turn down a raise? A company's matching contribution may
range between $0.25 and $1.00 for every dollar an employee contributes, usually
based on the number of years of employment.
5. Automatic payroll deduction makes it simple to save and reduces the temptation
to spend the money. You can relax while investing this way, because you know
your money is growing without you actually seeing it!
6. You may have a need for an extra source of emergency cash before retirement.
Generally, the IRS allows for hardship withdrawals to be used for unforeseen
situations such as unexpected emergency expenses, prevention of eviction or foreclosure
on your home, post-secondary education expenses, or purchase of a primary residence.
There is a penalty associated with early withdrawal. Another way of withdrawing
funds before retirement is to take a loan from your account with a commitment
to pay it back with interest. There is no penalty if the loan is repaid on time.
7. New job? Take your 401(k) with you! The new 2002 law allows employees to roll
eligible rollover assets into and out of other 401(k), 403(b), and governmental
457(b) plans, on the condition that the new employer accepts and honors these
rollovers.
8. You can gain access to Dimensional Funds Advisors' (DFA) funds, which are
built upon a Nobel-Prize-winning investment theory. These efficient, passively
managed, diversified index funds are available to you only through your 401(k)
plan or a financial advisor.
9. Index Funds Advisors, Inc. serves as your investment advisor, matching people
to portfolios. We provides a Risk Capacity Survey to determine what asset allocation
is best for each employee, and a 12-Step Investor Education Program that teaches
how the stock market works and how risk, return, and time are related. The 12-Step
Program to Index Funds provides a complete explanation of the most prudent and
efficient way to invest your hard-earned money.
10. With 401kasp as the 401(K) Administrator, you can access your account and
receive up-to-date information at any time. Rebalancing your portfolio is easy
and convenient, requiring only a simple click of the mouse. Keeping track of
your account is automatic and easy to understand.
You may increase or decrease the amount you are contributing at
any time. You may stop deferring at any time.
There have been few ideas by Congress more popular than 401(k) Plans.
In the 20 years since Congress invented the 401(k) Plan, over $1.7
trillion dollars have been deposited by employees. It is safe to
say that essentially 100% of the employees in companies that do not
offer 401(k) plans put pressure on their employers to start a plan.
Employers pay the cost of starting and maintaining a plan and often
provide matching as well. In these plans, the enrollment is over
90% on average.
4. Is there a Company Matching Program?
None at this time.
5. What Is My Vesting Schedule?
Please refer to your Summary Plan Description or Plan Administrator for definition of years of service for vesting purposes, and to note if any service is to be excluded when calculating your vesting percentage.
You are eligible to receive employer contributions if you:
- are 18 years of age and have 3 months of service
Once you meet the above requirements for employer contributions
you enter the plan on the first day of each month.
The annual maximum for 2009 is $16,500. If you are over 50, a "catch-up" provision
allows you to contribute even more to your 401(k). In 2009, employees
over 50 can deposit an additional $5,500 into their 401(k) account.
See more information here.
8. When do you want to quit working?
Imagine your ideal day. You can sleep in late, have a long lunch and relax in
the sunshine all afternoon. In the evening time, you can visit with your family
and friends. By saving for retirement with a 401(k) plan, you can have enough
money to stop working and enjoy each day doing the things you want to do. In
the United States, it's normal for people to live for 75 or 85 years and after
a life time of hard work, you'll want time to relax.
You may think that it would be impossible for you to save part of your paycheck for your retirement. You probably have bills to pay, a family member to take care of and other financial responsibilities. But, there is a way that you can save, and it will barely cost you anything. With just a few dollars each week, you can easily save and begin looking forward to the day you can stop working. Your company's 401(k) plan may be the easiest way for you to save for retirement.
9. Aren't I just giving my money back
to my company?
No, when you save money in a 401(k) account, that
money is yours. You are not giving your money back to your
company and most companies actually give money to these accounts!
Through matching programs, employees with accounts receive
a set amount of money from their employers. This is like
free money! Check with your company to see if they offer
this program.
10. Why should I put my money away,
what if I need it?
Most plans offer loan programs that will allow
you to take money from your account if you need it for
an emergency. With hardship withdrawals, you can withdrawal
your money for financial hardships like medical bills,
buying a house, or funeral expenses for immediate family
members.
11. I thought the government was
going to give me money when I retire. Why do I need a 401(k)?
Social Security was never intended to provide
all the money you will need for retirement. People will
have to depend on their own savings during retirement.
12. But I have family at home that
I need to send money to each pay period. If I save in a 401(k),
what will happen to the money I send them?
Even if you put a small amount of money into a
401(k) plan, you will still be able to send money to your
family. Since 401(k) is tax deferred, it will not affect
the way you are used to supporting your family. For as
little as $10 dollars a week, you can have an account that
will grow for your retirement years.
13. What happens to my money if I
die?
Keep in mind that you people are living longer. You
will probably be around long enough to enjoy your savings and
your retirement. An employee who has a 401(k) is able to select
who would receive their money if they were to die. When that
person dies, the person they have chose will receive the money
in their 401(k) account.
14. What happens to my money if I
switch jobs?
Your money is always yours. There are several
options you have when you switch jobs and you can transfer
it to your new employer plan, leave it where it is or put
it into a IRA. Keep in mind that no one is
ever going to take your money away from you.
There is only one investment decision to be made. Which portfolio of index funds is right for you? The following chart indicates the broad asset class allocation of each of the 20 index portfolios that are recommended by IFA.
The three dimensions of risk and return are shown in the rotating
cube on the right. These are the factors that explain portfolio returns.
The 20 portfolios below are increasing the exposure to these three
risk factors. Portfolio 5 has the least amount of risk and 100 has
the most. You will need to take the Risk Capacity Survey to determine
which portfolio is best for you. Please click below to get started.
There are over 10,000 mutual funds that can be purchased in our 401(k) plans; however, only about 15 of those funds are necessary to capture all of the risk factors described above. Therefore, we advise clients to stick to the best and lowest cost index mutual funds below.
17. Investor Education: 12-Step Program to
Index Funds
The low returns also reflect a number of inherent failings in 401(k) plans as currently structured, involving participants, plan sponsors and the law. Problem: Lack of Knowledge. Several studies find that many participants in defined contribution plans have an appalling lack of understanding of basic principles of investing. For example, a recent national survey of participants found:
Respondents generally considered company stock less risky than a diversified domestic equity portfolio.
44 percent thought money market funds included stocks and 43 percent
thought they also included bonds.
Nearly 20 percent didn't know they could lose money in equities.
65 percent didn't know they could lose money in a bond fund
and 60 percent didn't know they could lose money in a government
bond fund.
Small wonder that so many participants in 401(k) plans have little or no grasp of the principles of prudent investing! They may have a limited or extensive list of funds from which to choose, but they base their selection on individual funds rather than investment strategy. The fund offerings may not stress the value of index funds, which invest in the stocks or bonds used to compute a particular index and have low management fees because they are not actively managed. Participants take too little risk, as in the case of those letting most of their assets stay in money market funds or cash, or too much risk, as in the case of those putting the great majority of their assets into high-tech stocks or funds. Many participants have an appalling lack of understanding of basic principles of investing.
Most investors need a better understanding of how the stock market works and how risk, return, and time are related. Our 12-Step Program to Index Funds provides a complete explanation of the most prudent and efficient way to invest your hard-earned money. You can read only the introductions to each step, or you may want to get more information on each topic by clicking the "more info" buttons at the end of each introduction. If you have any questions about the information presented, please call an Index Funds Advisor at 888-643-3133.
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Index Funds Advisors, Inc.
The Mutual Fund Companies:
Dimensional Funds Advisors
Vanguard
The Administrator:
401k ASP
