Plan Options

To determine your 401(k) plan options you will need to login to your company's private page on this website for specifics. If you are not sure of your access code, contact RiverNorth Retirement Plan Services at our toll free number or via email at 401k@rivernorth.com. You may also contact your company's H.R. Department or benefits coordinator.

Service Requirement

Most plans have a period of full-time work you need to fulfill before you're eligible to participate. This service requirement generally ranges from immediate eligibility to one year of service.

Entry Dates

Plans designate when you can begin contributing after you have satisfied the service requirement. Typical entry dates are first of the month following eligibility, first of the quarter following eligibility, or January 1 or July 1 following eligibility.

Matching Contributions

Your company may make a matching contribution. This is one of the biggest benefits of participating in a 401k plan. Typical matches may be 50% up to 6% of gross pay. Safe Harbor match which is 100% match up to 3% of pay and 50% for the next 2% In the first example, if you contribute 6% of your pay, your company would make a contribution of 3% If your company provides a match, it is important to start contributing immediately following eligibility as to not miss out on free money for your retirement.

Vesting Schedule

Money that is contributed by the company may not be eligible for distribution to you if you terminate your position prior to a designated period of time. Some plans are 100% vested immediately which means that all your company contributions will go with you no matter how long you work. Another typical vesting schedule is the 6 year graded which is vested as follows:


Years of ServiceVesting Percentage
10%
220%
340%
460%
580%
6100%

Remember that all contributions that are contributed from your pay is 100% vested at all times. Vesting schedules are only applicable to company contributions.

Loans

Some plans allow loans from your account which allow you to borrow from yourself and pay interest back to your account. Loans are limited to a maximum of 50% of the vested value with a limit of $50,000. Plans may make other requirements like limiting the number of loans or only allowing hardship loans. Plans may also limit loans to money contributed by the participant. Loans policies vary greatly. Contact your H.R. Department to determine your company's policy.

Hardship Withdrawals

Your plan may allow hardship withdrawal which allows you to take money from your account based on certain documents hardships. If you take a hardship you will be prohibited from contributing to the plan for 6 months following the withdrawal.

Conclusion

These are the main options that you should know before contributing to your plan. They are documented in your company's SPD (Summary Plan Description) which is available from your H.R. Department.


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RiverNorth Retirement Plan Newsletter

Benefit from retirement plan tips and relevant information in our quarterly newsletter.

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Statistics from Fidelity show that less than 50% of people in their twenties that are eligible to participate in their companies 401(k) plan to contribute. Due to the power of compound earnings, time is an important component of your 401(k) plan. Assuming a 10% annual return, to accumulate approximately $1 million by the age of 65, a 19 year old only needs to contribute $20 per week. A person waiting until 35 yrs old has to contribute $100 a week. Additionally waiting until age 45 necessitates a contribution of $300 per week. Get started ASAP.

Matching Contributions = Free Money

Many employers offer some sort of matching contribution. Make sure you know what the match is and get your contributions to at least reach that level. A match of 50 cents for each dollar you contribute translates to a 50% return. You cannot pass up those kind of investment returns.

DO NOT take premature distributions

Although tempting, taking a distribution costs more than you think. Not only do you pay taxes and a 10% penalty if you are younger than 59 1/2, you lose precious time. You need to think about the amount of money you would have if you stayed invested until retirement. A person in their twenties or thirties could reduce their final value by hundreds of thousands of dollars for a distribution of just $20,000. It may seem right at the time but make sure you understand the ultimate cost.

Increase your Contribution level by at least 1% per year

Remember that 401k investing is about the time value of money and how much is it worth in a future date. Getting your account value to a level where the investment markets can have a greater effect on that value due to the potential of the power of compounding returns is important. For example getting your account to $100,000 increases the potential for greater dollar earnings. In the following example, Bob and Joe both make $35,000 a year and start making contributions of 4% of their salary. They both achieve investment returns of 10% per year. The difference is that Bob increases his contribution by 1% at the beginning of each year until he reaches an 11% contribution level. This small 1% increase makes a significant difference over time.

 

contribution

 

contribution

 

Years

%

Joe

%

Bob

1

4%

$1,540

4%

$1,540

2

4%

$3,234

5%

$3,680

3

4%

$5,097

6%

$6,291

4

4%

$7,147

7%

$9,615

5

4%

$9,402

8%

$13,656

6

4%

$11,882

9%

$18,487

7

4%

$14,610

10%

$24,186

8

4%

$17,611

11%

$30,839

9

4%

$20,912

11%

$38,158

10

4%

$24,544

11%

$46,209

15

4%

$48,930

11%

$100,276

20

4%

$88,203

11%

$187,350

25

4%

$151,454

11%

$327,584

30

4%

$253,321

11%

$553,432

Remember that a 10% return on $10,000 is only $1000, but a 10% return on $250,000 is $25,000. Getting to these higher levels is achieved quickest by increasing your contributions not from the investment returns themselves.

Buy Investments When They Cost less

When the markets are going through a negative period, why do people want to sell? Answer is that they think of their 401k as money. In reality, we own stocks and bonds through mutual funds in these accounts. When investments go down in value we get the chance to purchase more shares for the same amount of money each paycheck, yet we are nervous to buy investments at these levels. Why is it that investments are the only things that people don't want to buy at a discount? Your goal should be to lower risk by selling mutual funds holding stocks when markets are closer to tops of market cycles and when it's time to lower your risk level as you approach retirement.

Risk equals movement

Buying diversified mutual funds that own many stocks and bonds lowers the risk of your 401k account value from going to zero. Why? Because stocks generally only become worthless when companies go out of business. Most people own hundreds, even thousands of stocks in their account through the mutual funds held in their account. Therefore risk translates to movement up and down in the value of your investments. The goal is to reduce the amount of movement as you get close to retirement and start taking distributions. That's why it is prudent to lower risk as you get closer to retirement and your account balance becomes significant. So until you get within 10 years of retirement, try to get comfortable with movement in the value of your investments. Historically in the long run it pays off.
All investments involve different degrees of risk. You should be aware of your risk tolerance level and financial situations at all times. Past performance is not a guarantee of future results. Read any and all prospectuses carefully before making any investment decisions. Investments are subject to market risk and may result in the entire loss of the investment.
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