Managing a retirement account takes some work. Your plan administrator generally handles your portfolio's actual transactions and the recordkeeping and reporting, but you decide when and how to reallocate and rebalance your assets.
Beyond keeping tabs on the performance of your portfolio, you’ll want to know your plan’s rules and procedures and how much your plan and its investments are costing you. Take time to read your summary plan description, a document that lays out the rules, fees and procedures of your plan. You might want to review the document with a financial adviser or ask your plan administrator or human resources department about any details you’d like clarified or explained in more detail.
Fees and Expenses
Employer plans such as 401(k)s carry asset-based fees and expenses that have a direct impact on your investment return and your long-term financial security. It can be hard to calculate how much these fees cost because you don’t pay them directly by writing a check. Rather, they’re subtracted before your return is reported. Your account statement documents the amount of money you actually paid for various services and investment expenses, and most fees are also explained in your summary plan description. You can also ask your human resources or personnel department for an explanation.
Monitoring Performance
Although your fees cover the administrative services needed to manage your employer-sponsored plan, it’s up to you to keep track of how your investments are doing.
One strategy to consider is spreading out your IRA contributions over the year on a regular schedule. This is called dollar-cost averaging, a strategy that can help you incrementally meet your yearly savings maximums without regard to market ups and downs.
Learn more about different ways to measure performance and how benchmarks such as key stock or bond indexes can serve as helpful reference points for assessing how well your portfolio is doing. Also, keep in mind that you might need to rebalance your portfolio from time to time. The investment allocation you started with (say 60 percent stocks and 40 percent bonds) will change, sometimes dramatically, and making adjustments over time will help you reach your financial goals.
Your account statements are a valuable resource for managing your retirement plan and keeping tabs on how your investments are performing. Your employer must give you an account statement at least once every quarter, but many plan providers send you statements on a monthly basis.
Early Withdrawals
Retirement plan policy discourages taking out money early. You generally cannot make withdrawals before age 59½ without paying an early withdrawal penalty. The penalty is 10 percent of the amount you withdraw.
There are exceptions, however, if withdrawals are used to meet certain emergency personal or medical expenses, purchase your first home or pay college tuition bills or for certain other reasons listed in the federal tax laws.
In any event, before you make any early withdrawals, check with your tax or legal adviser to be sure you're following the rules. Even if you don’t face a penalty, you’ll likely have to pay income tax on any withdrawal you make.
Hardship Withdrawals
You might be able to withdraw from your employer-sponsored retirement account to meet the needs of a financial emergency. The IRS provides information about circumstances that may qualify as a hardship withdrawal, including:
- out-of-pocket medical expenses;
- down payment or repairs on a primary home;
- college tuition and related educational expenses; and
- threat of mortgage foreclosure or eviction.
It’s up to your employer to determine the specific criteria of a hardship withdrawal. For instance, one plan may consider a medical expense to be a hardship but not payment of college tuition. And keep in mind, hardship distributions permanently reduce your account balance. In addition, you’ll have to pay taxes on the amount you withdraw, plus a 10 percent penalty if you’re under age 59½.
Just as laws and regulations generally discourage you from taking your money out too early, there are rules that govern when you must start withdrawing retirement assets. In 2023, Congress increased the age for taking required minimum distributions (RMDs) to 73 for people who turn 72 years old on or after January 1, 2023, and 73 years old on or before December 31, 2032. (Additional changes will go into effect in 2033.)
Your RMD is the minimum amount you must withdraw from your account each year. You can withdraw more than the minimum required amount, and withdrawals will be included in your taxable income, except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).
Where to Look for Information and Advice
You're not alone when it comes to managing your employer-sponsored plan. You'll want to anticipate future returns as accurately as possible—and you might need the help of outside resources to do so. Here are a few places where you can look for information and advice.
- Your Employer and Plan Administrator. Many provide educational material and seminars about retirement planning and saving. Some also provide access to investment advice for retirement online or through a financial professional at little or no cost to you.
- Investment Professionals. You also might want to consult a tax adviser and/or an investment professional. Ask any potential registered representative or adviser about their background, how they earned their credentials and an explanation of their fees. Most importantly, check their backgrounds. FINRA BrokerCheck tracks the credentials of registered representatives and investment adviser representatives. The Securities and Exchange Commission’s (SEC’s) Investment Adviser Public Disclosure website also allows you to search for information about investment adviser firms registered with the SEC or state regulators.
If a Problem Occurs
If you believe there’s a problem with your retirement plan, contact your plan administrator or employer first. If you're not satisfied with their response, there are a number of places to turn for help, including the following:
Employee Benefits Security Administration. The DOL’s Employee Benefits Security Administration (EBSA) is the agency charged with enforcing the rules governing the conduct of plan managers, investment of plan money, reporting and disclosure of plan information, enforcement of the fiduciary provisions of the law and workers’ benefit rights. Call EBSA toll-free at 1-866-444-3272 or contact your regional EBSA office for help.
FINRA. If a problem involves a brokerage firm serving as the 401(k) fund administrator or a registered financial professional who provided advice or handled transactions, you have the option of filing a complaint with FINRA. Use FINRA BrokerCheck to research whether a brokerage firm or its representatives are FINRA members, and take a look at their professional backgrounds and disciplinary histories.