Yahoo Finance I’m a Financial Planning Expert: Should You Let Your Employer Control Your 401(k)?
If you’ve ever worked a day in your life, you’ve probably daydreamed about your retirement — even if you love your job. For many workers, the 401(k) is a foundation of retirement planning. Whether you’re checking yours every month or only aware of it when reminders from HR come out, it’s good to be mindful of your options around this retirement account.
Be Aware: How a Trump Win in 2024 Could Impact Your Retirement Savings
Try This: One Smart Way To Grow Your Retirement Savings in 2024
For instance, many 401(k) plans are managed through your employer, which does make the process of putting funds away more convenient — even if it also comes with some drawbacks. However, there are other self-directed retirement options worth exploring.
To help address the question of whether you should allow your employer to control your 401(k) — and have a significant impact on your retirement — GOBankingRates talked to two financial planning experts: Taylor Kovar, CFP, the founder and CEO of 11 Financial and the CEO of The Money Couple; and Barbara O’Neill, PhD, CFP, AFC, CRPC, author of “Flipping a Switch: Your Guide to Happiness and Financial Security in Later Life.”
The Convenience Factor of Employer-Managed Plans
One of the biggest perks of having your employer manage your 401(k) is that it takes the effort out of putting money away for retirement. With money deducted straight from your paycheck, you’re basically automating the process of saving and building your retirement nest egg.
Kovar cited the value of matching contributions as an easy way of boosting retirement savings. “Employer matches can significantly accelerate wealth accumulation and enhance retirement readiness,” he said.
For O’Neill, one of the biggest perks of being automatically enrolled in an employer-sponsored program is that it cuts down on the “problem of procrastination.” With all the ins-and-outs of the day-to-day, it’s easy for employees to forget to enroll in their retirement.
“Studies have shown that auto-enrolled workers save more money,” she said.
Find Out: Here’s the Cost To Retire Comfortably in Every State by Age
Lack of Control Over Your Plan Can Be a Problem
However, what you gain in convenience with an employer-sponsored program, you lose out in terms of control. Employers determine the vendors and types of investments offered by their 401(k) or 403(b), limiting employees only to a very specific menu of options.
As Kovar explained it, these limitations can impact your ability to diversify and optimize your portfolio over time.
“Employees have little to no control over the administration and management of employer-controlled 401k plans,” he said. “They may be subject to plan restrictions, such as limitations on contribution amounts or withdrawal rules that restrict their ability to tailor their retirement savings strategy to their individual needs and preferences.”
Being a Little Proactive Can Go a Long Way in Boosting Your 401(k)
Despite the degree of control that your employer has over your 401(k), there are still ways you can show some independence when it comes to your retirement account.
O’Neil suggested that employees look into ways of increasing or decreasing their default contribution, changing their investment allocations or signing up for an auto-escalation of savings if it’s available — depending on their own preferences and needs. She also pointed out that, if they really want to, employees can opt out of their 401(k) altogether.
Exploring Other Options Is Worthwhile
While the 401(k) is one of the better-known kinds of retirement accounts, you have a number of options when it comes to funding your time in the sunset of the workforce.
Individual retirement accounts (IRAs) are a great way to start your search. Kovar said that IRAs generally allow you to enjoy more flexibility and control over your retirement savings, as opposed to employer-controlled 401(k) plans.
“With an IRA, individuals can choose from a wide range of investment options, including stocks, bonds, mutual funds and exchange-traded funds,” he said. “Additionally, IRAs are not tied to employment, allowing individuals to maintain continuity in their retirement savings, regardless of job changes.”
Kovar said that people looking to add some flexibility and liquidity to their investment strategy can consider taxable brokerage accounts. Using a taxable brokerage account also allows you to access your funds before you reach retirement age without incurring penalties. But you should be aware that these accounts don’t come with the same tax advantages as a retirement account.
More From GOBankingRates
I'm a Shopping Expert: 9 Items I'd Never Put in My Grocery Cart
Avoid This Simple Banking Mistake That Could Cost You Over $1,000
6 Things You Should Never Do With Your Tax Refund (Do This Instead)
This article originally appeared on GOBankingRates.com: I’m a Financial Planning Expert: Should You Let Your Employer Control Your 401(k)?
