6 Must-Know Questions to Ask About Your 401k Plan (What Beginners Really Need to Know)

If you’re a working professional chances are, you have a 401k plan at work.

Whether or not you’re taking advantage of the benefits of a 401k, you probably have (or have had) some questions about your employer-sponsored retirement plan. I know I did when I first started working!

According to the US Census Bureau, 68% of workers have a 401k at work. Despite being one of the best retirement savings plans on planet Earth, only 41% of those workers actually contribute to it.

We can do better!

Do you know if you have a 401k at your job? If you do, are you contributing? What’s stopping you from contributing?

Are you confused about the whole process, or does investing in your 401k plan seem too risky?

Do you have a ton of questions about your 401k?

It can be overwhelming navigating a 54-page .pdf of your company benefits, especially if this is your first job!

So let’s cut to the chase: what are the things you really need to know about your 401k?

This post will go over 6 basic questions to ask about your 401k plan before you sign up!

401k : The Basics

A 401k is an employer-sponsored retirement plan where employees elect to make contributions through payroll deductions. Your employer may or may not “match” these contributions, and add to the account on your behalf.

Typically, a 401k is a pre-tax account, meaning that you get a tax deduction now on the money you contribute.

However, in more recent years, Roth 401k plans have become more popular.

Roth 401k’s allow you to contribute post-tax dollars to the account, in exchange for tax-free investment growth. Your employer match will always be a pre-tax contribution, but your contributions will grow-tax free.

The IRS limits how much you can contribute to your 401k each year. For 2022, the limit is $20,500.

If you’re over 50, you’re eligible to contribute an extra $6500 per year as a “catch up” contribution (for a total contribution limit of $27,000 per year).

The employer contribution does not count toward this limit.

Typically, you are responsible for choosing the investments that your 401k is invested in. If you haven’t selected your 401k investments, it’s probably invested in an appropriate target-date retirement fund based on your age (we’ll talk more about those below!).

The money in your 401k typically cannot be accessed until you are 59 and a half (or you’ll pay taxes PLUS a 10% penalty). There are a few ways around this rule, but we won’t go into detail about them here.

The IRS will also make you start taking withdrawals from your pre-tax 401k at age 72 if you haven’t started yet, as a required minimum distribution. Roth 401k dollars do not have any required minimum distributions

Some employers will allow you to take a loan against your 401k plan as well (you’re basically borrowing money from yourself).

I highly advise against this for many reasons, but the main reason is that you have to pay the loan back in full if you leave your job for any reason (including getting laid off) or you’ll have to pay the 10% early withdrawal penalty.

So, the TLDR about your 401k plan is:

• Your 401k is tied to your employer
• You contribute to it with payroll deductions
• You can contribute up to $20,500 pre-tax dollars per year (employer contributions do not count against this limit)
• If you choose a Roth 401k, you won’t save on taxes now but your account will grow tax-free
• Your employer match is always a pre-tax contribution (even if you do the Roth 401k)
• Typically cannot withdraw money until age 59 and a half
• Pre-tax 401ks have required minimum distributions starting at age 72, Roth 401k’s do not
• You choose investments
• You can take a loan against your 401k, but it’s probably a bad idea

Should I Invest in a 401k?

If one of your 401k questions is deciding if your plan is a good way to save for retirement, the answer is absolutely yes!

I love 401k’s because they’re easy to set up, automated, and you get tax benefits. And oftentimes your employer is helping you do the heavy lifting when saving for retirement as well!

I highly recommend contributing at least as much to get your full company match. If you can afford to do more, definitely do!

Related: The Complete Beginner’s Guide to Saving for Retirement

This post may contain affiliate links, which means I get a small commission should you choose to purchase or sign up through one of my links, at no extra cost to you. I only recommend products that I personally use and believe in. You can read more about this in my disclaimer.

6 Important Questions to Ask About Your 401k

Here are 6 important questions to ask about your 401k plan.

Knowing the answers to these will help you feel more in control of your retirement savings plan and help you understand how your 401k works!

Your HR rep or manager can help you answer these questions about your 401k so you can make the most informed choices when investing for retirement.

#1 – When Can I Start Contributing to My 401k?

Most companies allow you to start contributing to your 401k right away.

However, some places may require you to be employed for a year or two before you become eligible.

Understand when you can start investing those dollars into your 401k so you can make a plan to contribute as soon as you are eligible.

#2 – Do I Have a Company Match in my 401k?

A company match in your 401k is part of your total compensation.

They’re basically saying, “Hey, saving for retirement is super important and we’re going to help you. If you save 5% of your gross salary into your 401k, we’ll also put 5% of your salary in as well!”

That number may or may not be 5%, but you get the idea.

If you have an employer match and choose to not contribute enough of your salary to get the full match, you’re leaving money on the table.

$17.5 MILLION Americans don’t contribute enough money to get their full 401k match.

It is a 100% immediate, guaranteed return on your money. You won’t find that anywhere else!

Let’s say someone making $60,000 per year has a dollar-for-dollar match up to 5% of their salary (assume they contribute 5% of their salary to take advantage of the full company match).

This person contributes $3000 per year, and the company also contributes $3000 per year on their behalf.

In 30 years, those contributions (theirs + employer, assuming no growth in salary- let’s be conservative here) will turn into over $700,000!

If another person with the same salary, but didn’t have a company match saves the same $3000 per year? They’d end up with only $350,000 in 30 years.

Less than half of the person with the company match!

I know that 3 – 5% of your salary seems small, but don’t underestimate the impact of the employer match in your 401k.

And if your company doesn’t offer a 401k match, it might be time to find one that does!

(And make sure to ask them these 401k questions before you accept the offer).

Your company match is super important. Some companies may even put money in your 401k regardless if you contribute or not!

Some may require you to defer a portion of your salary to get the full benefit.

So don’t miss out!

Understanding if you have a match, how much of your salary you need to get the full match, and the impact that 401k match has on your future retirement account balance is key.

That’s why it’s one of the top questions to ask about your 401k.

#3 – What is My 401k Vesting Schedule?

Do you know what it means to be fully vested in your 401k?

Related to that employer match we just talked about, most companies require a number of years of service before you fully own the money (and growth) that the company has contributed on your behalf.

This is called vesting.

Being “fully vested” in your 401k means that you can leave the company and keep all the money that your employer has contributed over the years.

The money that you have contributed is always 100% vested, we’re just talking about the company match here (your employer can’t take your 401k money and keep it if you leave).

Your company may require a few years of service before you’re fully vested, or it might be more of a waterfall schedule (ex. after 2 years you’re 50% vested and after 4 years you’re 100% vested).

Knowing when you’re fully vested is a key question to ask your employer about your 401k plan.

If you’re planning to leave your job soon, you might want to wait a few more months until you’re vested!

#4 – Do I Have a Roth 401k Option?

Another important question to ask about your 401k is if you can choose between a Roth or traditional 401k.

We talked a little about this in the above section, but if you have the option to choose a Roth or traditional 401k, you’ll want to do some research and figure out the best option for you.

Traditional 401k’s save you money on taxes NOW, but you’ll have to pay them in retirement (taxed as earned income in retirement)

Roth 401k‘s do not give you a tax break now, but they grow tax free (not taxed at all in retirement).

I’m not a financial advisor, but here is some general advice on choosing between a Roth 401k and a traditional (pre-tax) 401k:

• Younger workers generally benefit more from Roth dollars because they have a ton of time for compounding to do it’s thang… and having all that growth tax-free is a huge advantage! Plus you’re probably not in your peak earning years as a 20 or 30-something, so paying taxes now while you’re in a lower tax bracket is usually advantageous.

• If you are in your peak earning years (40’s and 50’s), contributing to a traditional 401k will help you lower your (potentially large) tax bill now. And then you can invest those savings elsewhere!

• If you expect to be in a higher tax bracket in the future, Roth is probably for you.

• If you expect to be in a lower tax bracket in the future, traditional is probably right for you.

• If you are currently earning a lot more than you spend, a traditional 401k might be right for you. Think about it- you’re taxed now based on what you earn, and in retirement, you’re taxed based on what you spend (because you will only withdraw as much money as you need to spend in retirement). If you’re earning more than you’re spending, your tax bracket in retirement will probably be lower.

• Historically, taxes right now are lower than what they have been in the past (hard to believe, I know). So if you believe taxes will go up in the future, Roth might be right for you.

• You can have both a 401k (Roth or traditional) AND a Roth IRA (here’s a post about why you want a Roth IRA in addition to your 401k). Hello, tax diversification!

Remember that you can make changes to your 401k at any time! So if you start with a Roth 401k and then suddenly find yourself in a high tax bracket a few years later, you can always switch your contributions to pre-tax.

When I started my first job out of college, I opted for the Roth 401k. After getting married, changing jobs, and my husband getting a promotion, we have switched our strategy to pre-tax since we are now in a higher tax bracket and spend significantly less than we make.

However, we still get Roth dollars invested into both of our Roth IRA’s as well.

Both the Roth and traditional options are great, so don’t sweat it too much if you’re on the fence about which one you should choose!

Understand what your options are, make a plan, and adjust the plan along the way as life changes.

#5 – What Fees are Associated With My 401k?

Every investment has some sort of fee associated with it- your 401k is no different. 

Understanding what fees your 401k is subjected to and how to minimize them is another one of the key questions to ask about your 401k.

The main fee you’ll notice in your 401k are the expense ratios of each mutual fund that is available to invest your 401k in.

The expense ratio is the fee associated with investing in a certain fund (it covers management and operating expenses for the fund). 

It is shown as a percentage. So if a fund has a 0.5% expense ratio, that means you’ll be paying $50 for every $10,000 you have invested within that fund.

These expense ratio fees come directly out of your 401k balance, directly affecting your returns.

This is why I’m such a big fan of low-cost index funds. A typical expense ratio for these types of funds is 0.02% – 0.08%. Much lower than actively managed funds, which typically range from 0.1% – 1%!

The difference in expense ratios may seem small, but a 0.03% expense ratio means you’ll only pay $3 in fees for every $10,000 invested. Compare that to the $50 paid in the previous example!

Your employer may also charge an additional fee along with the mutual fund expense ratios.

Understanding the fees involved is one of the most important 401k questions to ask your employer.

You won’t get away from all of them, but choosing lower-cost investments can help you minimize fees and maximize your long-term returns.

#6 – What Investment Options are Available in My 401k?

The last (but certainly not least!) of the 6 questions to ask about your 401k is understanding your investment options.

Most employers narrow down the list of available mutual funds to just a few, so this isn’t as scary as it sounds.

Just like we mentioned above, make sure you understand the expense ratio for each mutual fund, consider your age, and make sure you diversify (please don’t put your entire 401k into your company’s stock fund!).

And if you want a super simple way to make sure you do all of this? Choose a target-date retirement fund!

These funds have a mix of US and international stocks and bonds, all wrapped up into one fund that will automatically rebalance to a more conservative asset allocation as you age.

It’s also easy to identify these- they’ll be named something like “Target Date 2060 Fund” (the year is the year you would hypothetically retire).

These used to have pretty high expense ratios, but now they are pretty reasonable!

You can always DIY your own mix, of course. But target retirement funds for beginners are hard to beat!

(Pssst, Personal Finance Club’s course covers everything you know about investing, including how to answer all these questions about your 401k!). The course goes way more in depth than I can in a single blog post.

Your Top 401k Plan Questions Answered

So next time you go to check on or (set up for the first time!) your employer-sponsored retirement plan, make sure to keep this list of questions to ask about your 401k in the back of your mind.

Asking these simple 401k questions will help you maximize your employee benefits, feel empowered to take control of your retirement savings plan, and continue building wealth for financial freedom in the most efficient way possible.

Getting these questions about your 401k plan answered as soon as you can will give your army of dollars the most time to work for you.

Did any of these 401k questions surprise you? Did you have any of these questions about your 401k when you started your last job?

Let me know in the comments below!

-Megan