1 Eligibility requirements
You may have to meet specific age and service requirements to join your plan. Some employers require you to be at least age 21 and have worked for the company for at least a year, while others may let you join the retirement plan immediately. Understand your plan’s rules to know when you can start saving. You can find the details in your plan’s summary plan description (SPD).
2 Contribution limits
Unlike the other seven items on this list, your contribution limit doesn’t vary by company—it varies by plan type (e.g., a 401(k) will have different limits than a SIMPLE IRA). The annual limits are set by the IRS and can potentially change each year. Stay up to date on each year’s limits to maximize how much you’re saving toward retirement.
3 Combining retirement accounts
If this isn’t your first time participating in a retirement plan, consider combining—rolling over—your older accounts into your new one.1 The benefits may include:
- Potentially lower administrative fees
- Viewing all your retirement savings in one place
- Potentially fewer required minimum distribution calculations in retirement
- Simplifying how your accounts are transferred to your beneficiaries when you pass away
Check your plan’s SPD to understand any limitations—not all plans accept rollovers from other retirement accounts.
4 Pretax versus after-tax savings
Now that you know how much you can contribute, you need to determine if you can save on a Roth (after-tax) basis. All plans allow traditional pretax contributions, but some also let you make Roth contributions. Your decision to choose traditional, Roth, or both contribution types depends on your taxable income today and your expected taxable income in retirement.
Traditional contributions—Contributions aren’t taxed now, but you’ll pay income taxes on 100% of your withdrawals in retirement (including any investments gains).
Roth contributions—Contributions are taxed now, but 100% of your withdrawals are tax free in retirement (including any investment gains) if certain conditions are met.
5 Company matching contributions
Many companies will match your contributions up to a certain amount. For example, a company may match 100% of the first 3% you save, plus 50% of the next 2%. So, if your salary is $52,000 and you save $100 per biweekly paycheck, your employer will give you an additional $80 as a match based on the formula.
Company matching contributions may have their own eligibility requirements, so check your SPD to see if you have to wait to receive them. Consider contributing at least enough to receive the maximum matching contribution.
6 Vesting schedules
Unlike your contributions, which always belong to you, your employer contributions don’t belong to you until you satisfy the plan’s vesting schedule. If you leave before you’re 100% (fully) vested, you may receive only a portion or none of the employer’s contributions. Your SPD will outline your vesting schedule. There are three types of vesting schedules:
Immediate vesting—You own 100% of employer contributions as soon as you receive them.
Graded vesting—Your ownership increases after each work anniversary and could look something like this (this is the strictest schedule possible):
|Years of service||Percent vested|
|Less than two years||0%|
Cliff vesting—You go from 0% to 100% vested—all at once, not gradually—after so many years, such as this schedule (again, this is the strictest possible):
|Years of service||Percent vested|
For example, if your company uses the graded vesting schedule outlined above and you leave the company after three and a half years, you’ll own 40% of your company’s matching contributions. The other 60% are forfeited.
7 Investment options and advice offerings
Take some time to review your investment options and research their objectives, historical performance, manager’s track record, and more. A mix of investments can help you manage your risk and build your savings over the long term.
If you prefer not to manage your investments yourself, many plans offer some form of investment advice service. Check your plan’s website or ask the plan administrator to see if that’s an option for you and what it costs.
8 Accessing your money—loans and hardships
Retirement savings are for your retirement, but sometimes life throws you a curveball, and you need to tap into them to cover an emergency expense. Review your plan’s SPD to see if you can take a loan or hardship withdrawal—it’s good to know your options. Not all retirement plans offer these features, encouraging people to leave their retirement savings invested for retirement.
Congratulations on taking the first step
Workplace retirement plans are a great way to save for your retirement. These eight items will help you understand how your plan works, so you’ll know what to expect when you join. And several of your answers are in the same place—your plan’s SPD. Go through it, highlight the main points, and keep it somewhere you can easily reference.
If you participate in a John Hancock retirement plan, you may log in here.
1 Rollovers are available for plans using John Hancock’s consolidation services and are subject to the provisions of a company’s plan. As other options are available, participants are encouraged to review whether consolidating accounts, staying in a retirement plan, rolling over into an IRA, or another option is best, as there are advantages and disadvantages to each.
This content is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.