10 common 401(k) questions: Understand your employer’s retirement plan

As a participant in a retirement plan, you may have questions about managing your account. Whether you’re just getting started with your retirement savings or have contributed for decades, it can help to familiarize yourself with the basics of your retirement plan. This can help you better achieve your retirement goals in the future. 

The Retirement Education team at Human Interest facilitates more than 700 customer education webinars annually. It’s this team that’s on the ground with plan participants daily, teaching them how to make the most of retirement planning. So, to shed some light on common concerns, we polled our team of retirement experts.

You asked, we answered. Below are our Retirement Education team’s responses to common 401(k) questions. 

Can I rollover funds from my previous employer?

Yes, in most cases you can rollover funds from your previous employer's qualified plan or traditional IRA. The possible benefits of rolling over the money from your old retirement account to your new retirement account may include more affordable investments and less expensive account fees. Some retirement providers are also more technology-forward than others, which may better suit your needs if you prefer to manage your savings online. 

For more information on the types of plans eligible for rollover, please refer to this chart. 

I have an old retirement plan, do I have to move it to my new one?

No, rolling over is optional. However, you should consider the fees, funds available, product ease, and consolidation of accounts before making a decision. It’s important to make a decision about rolling over funds from an old account (especially if you have less than $5,000 in your old account), because if an owner of a 401(k) plan does not make a decision about what they want to do with their old account, the money may be forced into an IRA without your consent. 

Can I contribute to my IRA if I already contribute to my retirement plan?

Yes, you can contribute to both your IRA and your retirement plan. However, both plans have different contribution limits, which change most years. For 2023, IRA contribution limits are $6,500, with catch-up contribution limits remaining at $1,000. Whether or not you can deduct your IRA contributions while also contributing to a 401(k) is based on your income. Consult a tax professional for more details.

How do I know what funds to choose?

Deciding what funds to choose for your 401(k) can depend on a variety of considerations, including your risk preference, age, and how much you plan to save for retirement. Human Interest offers a number of funds across the risk spectrum and allows you to build a portfolio for yourself. If you’re not comfortable with doing it yourself, Human Interest also offers a number of prebuilt portfolios with automatic rebalancing that can align with your time horizon and risk tolerance. This means you can take a more hands-off approach to investing while feeling confident.

Does Human Interest have an app?

Not yet, but we're working on it! Our website is mobile-friendly and provides easy access to your account information.

How often can I change my contribution amount?

There's no limit to how often you can change your contribution amount. At Human Interest, we allow all plan participants the flexibility to change their contribution rate at any time. However, it's important to note that changes may take one or two payroll cycles to take effect. This is something to keep in mind if you're looking to make changes to your contributions.

What are my account fees?

It depends. To find out the specific fees that apply to your plan, please refer to your Fee Disclosure under Documents in your profile. Some 401(k) providers may charge fees that can potentially eat into your savings over time because some of them can compound. Human Interest is a zero transaction fee company, meaning you won't be charged any fees for transactions such as loans, withdrawals, rollovers, and more. However, it's important to note that plan fees may still apply. Click here for more information about Human Interest's pricing.

How much should I save?

How much you save depends on your individual plans for retirement. Generally, the longer your retirement, the more you’ll need in savings. Ronnie Cox, Investment Director at Human Interest Advisors, says you should consider contributing between 10% to 15% of your annual income to your account. "Depending on your situation, however," Cox says, "that may mean starting at a lower rate like 7%, and gradually increasing each year through automatic increases."

Why should I save in a retirement account and not a brokerage account?

Saving in a retirement account versus a brokerage account has some unique advantages. Retirement accounts, such as 401(k)s and IRAs, offer tax benefits that can help you save more money over the long term. Contributions to traditional retirement accounts are made with pre-tax dollars, which can lower your taxable income, potentially resulting in lower tax bills in the present. Additionally, investment earnings within the account grow tax-free until you withdraw them in retirement.

In contrast, brokerage accounts do not offer the same tax advantages. They are funded with after-tax dollars and any investment earnings are taxed as capital gains. While brokerage accounts offer more flexibility in terms of when and how you can access your money, they are not specifically designed for retirement savings and do not come with the same tax benefits as retirement accounts.

What are the conditions for borrowing from my account?

When considering withdrawing from your 401(k) before age 59 ½, it’s important to consider your options. Most plans permit participants to take a distribution when they reach the age of 59 ½, the age you’re permitted to withdraw from your 401(k) without incurring a 10% early withdrawal tax penalty. The IRS lists exceptions for penalty-free withdrawals before age 59 ½, including the following:

• You are disabled

• You gave birth to or adopted a child

• You were a disaster victim

• You were a military reservist called to active duty

• You quit your job in the year you turn 55 years or older

• You complete a direct rollover of your 401(k) money during a job change

If you make an early withdrawal from your 401(k) that doesn’t qualify for an exception under the IRS, you may be subject to a 10% early distribution penalty assessed on your annual income tax return. You may pay taxes and penalties on a portion or all of your withdrawal, depending on your contribution types, because the money may be taxable income. 

Plan participants may take a 401(k) loan if offered by their plan. A 401(k) loan allows you to borrow up to $50,000, or half of your vested balance. The primary advantage of a 401(k) loan is that you don’t have to pay taxes or penalties on the amount, as long as you repay the amount in full within five years on a regular repayment schedule. Your employer can limit the amount and terms of your 401(k) loan. If you leave your place of employment, you need to repay your loan in full.

Get answers to your retirement questions

At Human Interest, we're committed to helping you achieve your retirement goals regardless of your experience level. As always, please reach out to us if you have any questions or need assistance with your account. To learn more about commonly asked retirement savings questions, contact our team today.