What 401(k) is Best?

As a participant in a 401k plan, you’ve likely been contributing to your 401(k) for some time and are now wondering, “What 401(k) is best?” While investments and fees are crucial components of any retirement plan, several other features can significantly impact the quality and effectiveness of your 401(k). This article will explore these features, helping you understand what makes a good 401(k) and how you can maximize your retirement savings.

Employer Match: The Power of Free Money

An employer match definitely contributes to answering the question “What 401(k) is best?” This feature means your employer contributes additional funds to your 401(k) based on your contributions. For example, most small employers use the Safe Harbor 401k Match. This is a match that is a 100% match up to 3% of your salary, and then an additional 50% on the next 2% of salary. If you contribute 5% of salary or more, you will receive a 4% match.  Matching can significantly boost your retirement savings over time. If your plan offers a match, make sure you’re contributing enough to take full advantage of it.

Immediate Vesting: Retain Your Employer’s Contributions

Vesting refers to the ownership of employer contributions. Some plans require you to work for the company for a certain period before you fully own the employer contributions. Immediate vesting means you own 100% of the employer’s contributions as soon as they are made. All Safe Harbor matching is 100% vested. You want to know what 401k is best, the one that has a 100% vested Safe Harbor Match?

Roth 401(k) Option: Flexibility in Tax Planning

While traditional 401(k) contributions are made with pre-tax dollars, Roth 401(k) contributions are made with after-tax dollars. This means you pay taxes on the money now, but withdrawals in retirement are tax-free. Having the option to choose between traditional and Roth 401(k) contributions allows you to tailor your tax strategy based on your current financial situation and future expectations. This flexibility can be particularly advantageous if you expect to be in a higher tax bracket during retirement.

Additional Savings Options: Beyond the Standard Limits

Some 401(k) plans offer the ability to make after-tax contributions beyond the standard limits set by the IRS. If you are interviewing at various jobs and you want to know What 401(k) is best, look for one that allows for after-tax contributions.  This feature can be particularly useful for high earners who want to save more for retirement. In some cases, these after-tax contributions can be converted to a Roth account, allowing for tax-free growth and withdrawals. This strategy, known as the “mega backdoor Roth,” can significantly enhance your retirement savings. There are some restrictions so please consult someone before doing this.

Loan and Hardship Withdrawal Options: Access to Funds in Emergencies

While it’s generally best to leave your retirement savings untouched until you retire, life can be unpredictable. The best 401(k) plan offers loan and hardship withdrawal options, providing access to funds in case of emergencies. Loans allow you to borrow from your 401(k) and repay the amount with interest, while hardship withdrawals enable you to take money out without the obligation to repay, though taxes and penalties may apply. These features can provide a financial safety net when unexpected expenses arise.

Customer service

Another component to deciding what 401(k) is best, is customer service. Having access to knowledgeable customer support representatives can make a significant difference in your 401(k) experience. Whether you have questions about plan features, need help with account management, or require guidance on retirement planning, good customer support can provide the assistance you need. Look for plans that offer comprehensive support, including phone, email, and online chat option. Large payroll companies will not talk with employees as the client is the company not the employee.

Low Fees

The large payroll companies handle the administration of many 401ks. These large Payroll companies get paid three ways.  They charge a fee to manage the payroll , a 401k fee to manage the 401k, and a mutual fund fee. Payroll companies aren’t double billing you, they are triple billing you.

The best 401k has low fees and a company that doesn’t triple bill you.

Summary

So, what 401(k) is best? A good 401(k) plan is more than just low fees and solid investment options. For individuals, a good 401k score. Every 401k is scored on things like employer match, participation, average employee balance, fees, and many other features. Having a high 401k score definitely can enhance your retirement savings experience. If you want your free 401k score for your company’s 401k Plan, call us.