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What to Do if Your Employer’s Retirement Plan Is Bad

business woman's employer-sponsored retirement plan isn't good

4 Tips to Keep Your Retirement Savings on Track

Employer-sponsored retirement plans play a key role in helping many save for retirement. Benefits typically include automatic payroll deferrals, tax-deferred growth and the potential to receive an employer matching contribution.

However, some plans are better than others. Signs of a poorly designed employer-sponsored retirement plan may include:

  • High investment fees
  • Limited investment options
  • High administrative fees
  • No employer match

If you’re unhappy with your employer’s plan, there are important steps you can take to continue optimizing your retirement savings.

#1 – Don’t forego any employer matching contributions.

In most cases, it makes sense to contribute enough to an employer-sponsored plan to receive the full employer matching contribution. Even if your plan has high fees, the money offered by employers can often make a meaningful impact on your long-term retirement savings.

#2 – Understand how much you pay, and take steps to lower your costs.

With any type of account, it’s important to understand the exact fees you’re subject to. That’s because high fees have the potential to significantly erode your retirement savings over time.

Many employer-sponsored retirement plans charge administrative fees as well as investment-specific fees. Often the plan sponsor will cover plan administration fees on their participants’ behalf, but sometimes they pass these fees on to participants.

Investment fees can vary widely between different investment options, and high fees don’t always lead to higher returns. Consider investing in lower-priced options, such as index funds. If your plan doesn’t offer cost-efficient investments, you may want to reach out to your plan administrator or HR department to express your concerns and request additional options.

#3 – Save in an IRA.

Fortunately, a bad employer-sponsored plan doesn’t preclude you from saving for retirement. If you’re unhappy with your employer-sponsored plan, it may make sense to contribute to an individual retirement account (IRA). There are two main types of IRAs to consider:

  • Traditional IRA – Traditional IRAs are funded with pre-tax money, which can help reduce your taxable income in the year contributions are made. Withdrawals are then taxed at ordinary income tax rates when you withdraw funds in retirement. Once you’ve retired and reached a certain age, the IRS mandates that you begin withdrawing a portion of the account each year, which is referred to as a required minimum distribution (RMD).
  • Roth IRA – Contributions to Roth IRAs are made with after-tax funds. While these contributions don’t reduce your taxable income during the year in which they’re made, withdrawals in retirement are typically tax-exempt. Roth IRAs aren’t subject to RMDs, which means your money can continue growing indefinitely to fund your retirement.

#4 – Talk to your employer.

Sometimes employers have the best intentions and genuinely don’t realize their plan is subpar. Consider bringing up your concerns with your company’s owner (if it’s a small business) or human resources department. If other employees have similar concerns, garner their support in advocating for change. After all, improvements to your plan’s design and investment options have the potential to benefit all employees. Could you use some help optimizing your retirement savings? Creative Planning is here for you. Our experienced professionals help clients develop custom retirement plans to meet their needs and achieve their retirement goals. To learn more, schedule a call with a member of our team.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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