401k Plan in a nutshell:

A 401k plan is usually sponsored by a company which offers it as one of the employees benefits to save for their retirement. Employees voluntarily deduct a percentage of their pay from each pay check to put in their individual 401k account with their employer (acting as a fiduciary). Quite often the employer matches a certain percentage of employees’ contribution to encourage their “savings” (and at the same time the employer receives tax deductions).

Commonly, 401k plans offer approximately ten to twelve investment options (although the investment choices could be “a lot more”) depending on the company size of the employer and the agreement between the employer and the custodian. Most likely the investment options within 401k plan are mutual funds, rarely are stocks available as one of the selections unless it is the employer’s company stock.

In some cases, there could be a “loan” provision built into the 401k plan. If there is, employees could borrow against their 401k account and later pay themselves back (principal plus interests).

When the employees leave their employment, they could have their 401k account stay with the employer’s plan (assuming that the 401k plan provision allows it), roll it over to the new employer’s company’s 401k plan, or roll over to an Individual Retirement Account with any custodian of his/ her choice. However, many employers/custodians have now elected to have the 401k account with smaller balances (for example: less than $5,000.00) rolled over to the plan custodian’s IRA account or send a check to the employee who is no longer works for the employer. This is because employers don’t wish to administer the smaller 401k accounts, nor to continue the fiduciary responsibility.

Let’s discuss some 401k plan ‘Reality’:

The company can choose any custodian at any time with proper notification sent to their employees. But, once you leave or retire, could you really keep in close contact with previous company’s human resources? How about when you need to update beneficiary information? How about when you move? 

Ask yourself: Which would be easier for you to manage: to leave your 401k account with your prior employer, or roll it over to an IRA account?

Every 401k plan has a designated representative and sometimes a “help desk” to serve the 401k plan and the participants (namely the employees). Most of the time, both the employer and the participants will have online access to their 401k plan/accounts. When you call the help desk, you don’t always get the same representative who is familiar with your situation, do you? When you call the financial advisor on the 401k plan, he/she isn’t familiar either because he/she was probably brought in by the owners of the company.

Something to consider: Wouldn’t it be more efficient and personal to have your own financial advisor to help you understand and help invest your 401k account?

Where to invest and what is the “right” percentage in spreading the contribution to all these possible investment options? A personal financial advisor such as yours truly, would be exceptionally capable to put this piece of 401k account into your overall financial picture — to help determine a more suitable investment mix, to sit down and review the performance within the account, etc.. Wouldn’t it seem more logical and efficient?

Common perception: some perceive that expenses within the 401k plans are less than those in IRA accounts. By comparing the 401k investment account expense ratios with the financial advisor’s fees (either commissions or management fees), you should be able to determine that yourself. You might be surprised about what you find.  Further, even if you have to pay a little more to get personal service from a financial advisor, or even in the unforeseen event that your family has to call to find out some information when you are not available, wouldn’t that be worth the “nickel and dime”?

In my humble opinion, everyone ought to participate in the 401k plan with their employer, especially if there is a company match which is like “free money”, plus the money you contribute which gives you a deduction on your current tax returns, and the tax deferred growth. It is a bargain!

If you would like to schedule a meeting to discuss further, I would be delighted to assist.

Princeton Forrestal Village
116 Village Blvd, Suite 200
Princeton, NEW JERSEY 08540
Phone: (609) 910-2600


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