Join your employer’s retirement plan as quickly as you might be eligible

By Haley Tolitsky, CFP

Adopting your employer’s retirement plan as soon as you are eligible is vital. One of the biggest financial regrets that individuals have is waiting too long to invest. The sooner you start saving for retirement, the more time your money will have to grow. Workplace retirement plans are handy because once you sign up, your job is done. Your contributions are deducted from each paycheck and deposited for you. This saves time and energy to focus on your other financial and life goals.

Haley Tolitsky, CFP

Understand that the money you contribute to this plan is for retirement. Don’t expect to grab these funds by then, which is why it is so important to have an emergency fund of at least 3-6 months of living expenses. Remember, you can continue to build your emergency fund and pay off debts as you contribute to your retirement plan.

Once you’re eligible, take the time to understand your plan options and sign up! Here’s a guide to get you started.

Determine the type of plan being offered

There are different types of retirement plans with different contribution limits. So do some research on the type of plan and the maximum amount you can deposit each year. The most common plans and contributions for someone under the age of 50 in 2021 are:

401 (k), 403 (b), or 427 (b) plan – $ 19,500 contribution limit

SIMPLE IRA – Contribution Limit of $ 13,500

Other plans, including profit sharing, SEP (Simplified Employee Pension), and defined benefit plans, only have employer contributions.

Select a contribution amount and type

Check the employer match on offer as it is essentially free money that the company will add to your account when you deposit a certain percentage. For example, your employer can offer you a 4% adjustment if you defer 5% per pay period. If you get paid weekly and earn $ 1,000 before taxes, that equates to $ 50 from your paycheck per week and $ 40 from your employer invested in retirement. This may not seem like much in the short term, but it adds up over time.

Increase your contributions by at least 1-2% every year. Many plans have the option to do this automatically, which is known as automatic escalation. Also inquire about your employer’s granting plan. You may have to work for the company for a certain number of years before you are entitled to 100% employer match.

With some plans, you have the option to choose pre-tax or Roth (post-tax) contributions. If you select “Before Tax” you will now not pay any tax on the money you put into the plan, but you will have to do so when you withdraw the money in retirement. With Roth contributions, you pay income tax now instead of later, which enables tax-free growth. The right choice depends on your current tax situation and whether you will pay higher taxes now or in retirement.

Review your investment options

When it comes to investing, determine how much risk you would like to take and how long it will be before you are 59 ½ years old if you can tap these funds. Always check the expense ratio of each fund and be careful with funds with an expense ratio above 1% as fees can reduce your return over time.

Targeted funds are an easy way to get started. You choose the fund based on your desired retirement year and let the fund do the work for you. The closer the retirement year approaches, the more conservative the fund becomes. You may also have the option of choosing a professionally designed investment portfolio based on your risk tolerance (aggressive to conservative), or the option of choosing your own funds if you are a seasoned investor.

Choose your beneficiary

Designate a beneficiary that you would like to receive in the plan in the event of your death. Review your beneficiaries at least once a year and whenever there are major life changes to make sure your money is being distributed the way you want.

A will does not override the beneficiary designation of a pension, so keep your beneficiaries up to date!

Consider transferring old annuity plan dollars

If your plan allows, you should consider adding any old retirement plans to your new one, which is a tax-free transfer. Consolidation can make your life a lot easier.

What if my employer doesn’t offer a retirement plan?

If your employer doesn’t offer a retirement plan or you want to contribute additional funds for retirement, consider opening a traditional IRA or Roth IRA, which often have lower fees and more investment options. Keep in mind that if you are under the age of 50 you can deposit no more than $ 6,000 in 2021, and Roth IRAs have income limits.

If you still have questions, reach out to your HR department and / or schedule a contact as their job is to help you understand your options. The most important thing is to start investing now so that you can enjoy retirement and financial freedom later!

About the author: Haley Tolitsky, CFP®

Haley Tolitsky, CFP®, is a CERTIFIED FINANCIAL PLANNER ™ at Cooke Capital in Wilmington, NC providing highly personalized financial planning and investment management services. She is passionate about financial empowerment, especially women and the next generation, and loves the opportunity to motivate and guide others to take their financial lives into their own hands. Haley can be reached at

Financial advisory services provided by Acorn Financial Services, Inc. (AFAS), a registered investment advisor. Securities offered by The Strategic Financial Alliance, Inc. (SFA), a registered broker / dealer. Haley Tolitsky is a Registered Representative of SFA and an Investment Advisor Representative at AFAS. Cooke Capital is not otherwise affiliated with AFAS and SFA. Regulatory Office (703) 293-3100.

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