Post by SunCorp
The 401k can be a great way to save towards your retirement, however, like many savings schemes, it can come with a few hiccups along the way, including the possibility to lose it all.
The 401k allows employees to opt to take money out of their wage before tax is slapped on to the bottom line. All plans vary but most offer a relatively fair level of control over where the money is invested, with many going for equity and bond funds (Evan’s Note I hate My 401(k) Choices).
One of the most beneficial factors of a 401k is that your employer will match whatever you put in, with the limit to this usually being 3% of your annual salary. You can choose to put more away, just be sensible and make sure you are not over-saving, you need enough to live in the present as well as think of the future.
A main concern of people who have gone for the 401k scheme is whether they are at risk of ever losing their full pot of retirement money.
A 401k is not protected against market decline and depending on just how bad the market decline is or becomes, it is possible that your entire 401k could be lost. As stock prices decline, the bonds that many opt to invest in with their 401k also deplete in value and, depending on how long the recession goes on for, your nest egg could crack. Do you know how much super do you need to retire?
If you choose to leave a company for legitimate reasons, your 401k remains intact, however, if you are fired, it is a very big possibility that you could lose the contributions to your retirement fund that your employer matched if they aren’t vested. Any loans taken out against the 401k before you were fired will also become immediately payable.
Another worry that comes with a 401k is if the company you have taken the policy out with goes bankrupt, does all the investment into it go with them? In short, no. Your 401k will more than likely be cancelled if anything happens to your employers and you will just have to transfer it to another account, more than likely an IRA.
Always keep up to date with 401k paperwork as if you are one to change jobs frequently, it’s a possibility that this could go awry and you could quite literally ‘loose’ your 401k account.
Whilst the likelihood of losing your entire 401k is slim, it is a possibility, so it is important to keep yourself educated on the status of it. Key elements of keeping your 401k are your company, stocks and shares if you have chosen to invest into them and your paperwork.
As long as you check the stock market, keep a lookout as to what state your employers are in and stay organised with the paperwork, your 401k should be safe.