1 Know when you're eligible
Some retirement plans have rules about when you can join. For example, your employer may require you to be at least 21 years old and have been working at the company for one year. Other companies may let you join immediately. Check your plan rules, so you know when you can start saving. You can find the details in your plan’s summary plan description (SPD).
2 Review contribution limits
Your contribution limit doesn’t vary by company. It depends on the plan type. For example, a 401(k) has different limits than a SIMPLE IRA. The IRS sets annual limits that can change each year. Stay up to date on the limits to maximize how much you’re saving toward retirement.
3 Combine retirement accounts
If you have retirement accounts from a former job, consider combining—or rolling over—those accounts into your new one.¹ The benefits may include:
- Potentially lower administrative fees
- Easier to manage all your retirement savings in one place
- Potentially fewer required minimum distribition calculations when you retire
- Simplify estate management for your beneficiaries when you pass away
Check your plan’s SPD to understand any restrictions—not all plans accept rollovers from other retirement accounts.
4 Choose to save pretax or after-tax
Now that you know how much you can save, you need to think about whether you want to save before or after paying taxes. All plans let you make pretax contributions, but some also let you make Roth (after-tax) contributions. Your decision to choose traditional, Roth, or both contribution types depends on your taxable income today and your expected taxable income in retirement.
Traditional (pretax) contributions—You don’t pay taxes on the money you save today, but you pay income taxes on 100% of your withdrawals in retirement (including any investment gains).
Roth (after-tax) contributions—You pay taxes on contributions now, but 100% of your withdrawals are tax free in retirement (including any investment gains) if you meet certain conditions.
5 Take advantage of company matching contributions
If your employer matches your contributions, try to contribute at least enough to get the full match. Turning this down is like turning down part of your pay. For example, your company matches 100% of the first 3% you save, plus 50% of the next 2%. If your salary is $52,000 and you save $100 per biweekly paycheck, your employer will add $80 to your account.
Some company matching contributions have eligibility requirements, such as a waiting period. Check your SPD to see if you qualify.
6 Learn the vesting schedule
Any money you save is always yours. Contributions that your employer makes, however, become yours over time based on the plan’s vesting schedule. If you leave before you’re 100% (fully) vested, you may receive only a portion or none of your employer’s contributions. The SPD outlines the vesting schedule.
There are three types of vesting schedules:
Immediate vesting—You own 100% of employer contributions as soon as you receive them.
Graded vesting—Your ownership increases gradually after each work anniversary. Here’s an example of the strictest possible schedule:
