10 Questions to ask your employer to maximize your 401(k)
2 minute read
There are a lot of opportunities within your 401(k), but not all of them may be well communicated to participants, and they can change from employer to employer. You must ask your employer for the following details to make sure you get the most out of this employee benefit:
Does my 401(k) have the option of pre-tax, Roth, and after-tax deferrals?
Pre-tax contribution: Contributions are excluded from income, but withdrawals are taxable.
Roth contributions: Contributions are taxable as income, but withdrawals are tax-free.
After-tax contribution: Contributions are taxable as income, but earnings are deferred (like pre-tax contributions). This is a pre-requisite to the Mega Backdoor Roth strategy.
Is there a True Up feature?
A True Up feature considers full-year salary and deferrals when determining the full-year matching contribution. You will not receive your full match without a True Up feature if you maximize deferrals early in the year.
What is the matching formula?
Is there a profit-sharing contribution?
Profit-sharing contributions are usually discretionary annual employer contributions and are in addition to matching contributions.
Are voluntary In-Service Withdrawals allowed before age 59.5 (non-hardship)?
Per definition, 401(k) plans must allow certain in-service withdrawals for hardship; however, some plans also allow a certain number of in-service withdrawals before 59.5 without any hardship requirement.
Are In-Plan Roth conversions allowed?
In-Plan conversions allow you to convert either pre-tax or after-tax contributions to Roth. This is another pre-requisite feature for implementing the Mega Backdoor Roth Strategy.
Is my match based on total compensation, including bonuses, or base salary?
Will my deferral automatically apply to my bonus, or is there a separate deferral election?
What is the vesting period for employer contributions?
Can employees elect employer matching and non-elective contributions to be made as Roth?