Frequently Asked Questions
What is a 401(k) plan?A 401(k) is a defined contribution plan, which offers you the chance to invest pre-tax dollars in a selected group of investments, frequently mutual funds. Your employer may match some part of your contribution. The market value of your investments and any matching contribution by your employer determine the ultimate benefit of the plan
What are my options if I don't have a 401(k) plan at work?If your employer doesn't offer a retirement plan, or if you're a non-working spouse, you can use an IRA to save for your retirement. You can contribute $5,000 to a traditional IRA or Roth IRA.
Who can contribute to an IRA?A traditional IRA can be opened by anyone with earned income who is under 70½. The Roth IRA can be opened by anyone with earned income, regardless of age, if their adjusted gross income is below $129,000 (single) or $191,000 (joint).
Can I invest in both traditional and Roth IRAs?Yes, as long as the total amount of your contributions does not exceed the maximum annual contribution. For example, in 2014, if you were eligible to contribute $2,750 to a deductible IRA, you could also contribute $2,750 to a non-deductible IRA or Roth IRA.
Should I invest in an IRA or 401(k)?A company sponsored retirement plan with a matching contribution by the employer is normally the best choice. IRAs can be a useful way to supplement your retirement plan.
Can I contribute to an IRA and my 401(k) at the same time?Yes. You can contribute $5,500 to a traditional or Roth IRA in 2014 and maximize your 401(k) contributions without any penalty.
What happens to my 401(k) if I change jobs?You have a number of options available to you when you leave an employer, including leaving the assets where they are, rolling them over to an IRA, moving them to your new employer, or taking a lump-sum distribution. Each of these options have their own pros and cons. Before you make a decision, research each option to determine which one is right for you.