What are common mistakes when negotiating your 401(k)? (2024)

Key takeaways from this article

• Maximize employer match:

  Understanding and maximizing your employer's 401(k) contribution match is crucial. It's like getting a raise for your future self! Contribute enough to get the full benefit—it’s free money that adds up.

• Rebalance regularly:

  Keep your retirement investments in check by rebalancing them periodically. This ensures your portfolio aligns with your risk tolerance and prevents any one investment from throwing off your strategy.

This summary is powered by AI and these experts

• Ajinkya Mahajan HR - RPO @ LTIMindtree | Vendor…
• Sriram Eranki (L.I.O.N) Owner at Robust Staffing LLC…

• Ajinkya Mahajan HR - RPO @ LTIMindtree | Vendor Relations, HR, Client Requirements

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  Not negotiating at all: Many employees don't realize they can negotiate 401(k) terms. Always inquire about your options.Ignoring employer match: Ensure you contribute enough to receive the maximum employer match, as it's essentially free money.Not understanding fees: High fees can eat into your returns. Pay attention to expense ratios and administrative costs.Lack of diversification: Don't put all your money into a single investment. Diversify to spread risk.

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  There are many aspects, not just one. I am listing a few of them.1. Focusing on price: Price is important, but it's often just one aspect of a deal.2. Not knowing retirement needs: You should become an expert in the retirement accounts available to you.3. Failing to prepare: You should prepare and rehearse your arguments carefully.4. Not saving enough: You should make saving a habit.5. Failing to rebalance investments: You should use the rebalancing tool that most plans now have as a standard feature.

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  A few quick things to understand when evaluating prospective employers 401k benefits.Understanding eligibility, for not only when you can participate, but when you can rollover any 401k balances. Also, when do the matching contributions start, and what is the structure of the match? Is it competitive based on other company match 401k structures?Similarly, understanding if there is a vesting schedule to know when that match or profit sharing is 100% yours to keep.Another strong benefit would be if your company profit shares or has in the past as this is additional money past the match/personal contribution.

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• Joe Brummel Retirement Plan Advisor and driven leader for 401(k), 403(b), 457, pension, ESOP and other group retirement plans

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  The biggest mistake is not recognizing the value of the 401(k) plan, which includes the employer match and potential profit sharing contributions. Too many people, especially low to middle wage workers, look at the wage and don't consider the 401(k). That is a big miss. Many companies have increased their match during the last few years and the average match is now close to 4% of wages. Saving enough in your 401(k) to get that is like a 4% raise - don't pass that up!Everyone wants to have a successful retirement - why not take the help along the way of the employer match, tax deductions, and the Retirement Saver's Tax Credit for low to lower middle wage workers to achieve your retirement success with a lot less out of your own pocket!

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• Viswash Beesetti Senior Recruiter at ZapCom Group Inc | Strategic Talent Acquisition

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  Ignoring employer match: Ensure you contribute enough to receive the maximum employer match, as it's essentially free money. Not understanding fees: High fees can eat into your returns. Pay attention to expense ratios and administrative costs. Lack of diversification: Don't put all your money into a single investment.

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  See Also

  401k: A Quick-Start Guide for Beginners - NerdWalletErrorLowering 401(k) Fees – Options for Sponsors and Participants

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  A valued employee, Sarah, contemplated leaving our company after several years. During our discussion, she expressed concerns about her 401(k) and whether she'd lose the employer match by leaving.I explained our graded vesting schedule, which meant she was partially vested. Understanding this, she chose to stay a bit longer to reach full vesting and secure the full employer match.This experience highlighted the importance of understanding the vesting schedule and the need for clear communication about 401(k) benefits between employers and employees when considering job changes.

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  A vesting schedule is a great way to retain employees for longer periods. If you're an employee it's important to understand how long the commitment is. A vesting schedule can not be longer than 6 years, as of right now. It's not a huge commitment and could potentially provide an earlier exit from the workforce.

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• Noe Garcia 🚀 Talent Acquisition | Human Resources | Diversity Builder | Servant Leadership

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  Vesting will vary from company to company. If a company has you vested since day 1 that's a big win! But I would say if your vesting were 25% each year that seems to be the norm, you'd be 100% vested in just 4 years. There are some places that have a longer vesting schedule, always a good idea to ask. You'll want to keep as much of your 401k as possible.

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  I once had a colleague named Mike who hadn't adjusted his 401(k) contribution rate for years. After a discussion about financial planning, he realized the missed opportunities. Mike decided to review and increase his contribution rate, aligning it with his goals and the annual limit. This simple adjustment significantly boosted his retirement savings and lowered his taxable income. Mike's story reminds us to regularly review and optimize our 401(k) contributions for a more secure financial future.

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  Nobody wants to have to work. Having the freedom to work is nice and a great tax benefit. The faster you max out your 401(k), the faster you can reach the finish line and exit the workforce.

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• Noe Garcia 🚀 Talent Acquisition | Human Resources | Diversity Builder | Servant Leadership

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  Adjusting your 401k contribution will be different for everyone due to salary, bills, etc... I'm not a financial advisor so I can't say how much someone should contribute, but if your company has a match, you should contribute the max of the match to take advantage. Again, only if it makes sense based off your financial situation. Later on, in your career with promotions and merit increases, you can revisit and up your contribution.

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  I once had a colleague named John who had invested a significant portion of his 401(k) in our company's stock. We discussed the importance of diversification, and John realized the risk in having all his retirement savings tied to a single asset.He decided to diversify his 401(k) investments, spreading them across various asset classes. This strategy paid off when our company faced challenges, as John's overall retirement savings remained stable.John's story teaches us the value of diversifying 401(k) investments to reduce risk and secure your financial future.

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  Diversification is key in all investments to reduce risk. Thankfully the stock market has historically made 9% gains every decade for quite some time. Since a 401(K) has a long time horizon it's important to review. When the market turns remember to keep contributing because you're buying low.

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• Noe Garcia 🚀 Talent Acquisition | Human Resources | Diversity Builder | Servant Leadership

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  I can't speak for every employer or financial invest company. But through my 401k plans I've had the benefit of being able to speak with the financial advisors free of charge, asking questions and being able to make changes if I chose to do so. Definitely a nice perk to take advantage of, if it's available to you.

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  Meet Lisa, a new employee at our company. During her onboarding, she was primarily focused on her salary and the 401(k) plan. However, I emphasized the value of our health insurance, flexible spending account, and tuition reimbursem*nt.After our discussion, Lisa realized the potential in these benefits. She decided to pursue an advanced degree using our tuition reimbursem*nt program, balancing work and education successfully. Her career flourished, and she found great value in these additional benefits.This experience highlighted the importance of employees exploring and leveraging the full range of benefits their employers offer, beyond just salary and retirement plans.

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  A 401(k) is a very important benefit and after the Secure Act 2.0 passed December 29, 2022, most employees should be providing it for their employees. As a business owner, it provides huge tax benefits and diversifies your time spent growing your business. As an employee, it's a great way to save on your taxes and strategize for your future. Working forever can be optional.

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• Noe Garcia 🚀 Talent Acquisition | Human Resources | Diversity Builder | Servant Leadership

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  I'm a big advocate of transparency and viewing the entire job offer, benefits and total rewards. The 401k match is awesome, especially when an employer matches 100%of each dollar. Another great perk is an HSA (Health Savings Account) this is pre-tax money put in an HSA account for medical expenses such as doctor visits, medication, Lasik eye surgery, etc... Not only is it pretax saving, but a lot of employers also contribute to single or family plans. And, on top of that some employers have well-being programs that help you earn more additional money into your HSA. This HSA money rolls over year over year and always stays with you regardless of employer.

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  Understanding and minimizing fees is crucial for maximizing 401(k) growth. Review fee disclosure documents to know the charges. If fees are high, discuss with your employer or opt for lower-cost investment options like index funds within your 401(k). Over time, even small fee differences can significantly impact your retirement savings due to compounding. Employers play a key role in selecting 401(k) plan providers and ensuring reasonable fees. Continued education on fee impact and options to minimize them is vital for a favorable retirement savings outcome.

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• Corey Coleman, AIF®, CPFA® Retirement Plan Consultant at Precept Advisory Group

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  This should not be under a category of Salary Negotiations. 401(k) is not a negotiable part of salary negotiations. While you should be aware of the benefit as part of the process, the various provisions such as match, vesting, eligibility, etc are identical for all employees and additional 401(k) benefits cannot be given to select individuals.

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