On the Internet: 401(k) and 403(b) Web Sites
by CI Staff
Traditional pensions, called defined-benefit plans because the employee is promised a specified amount in retirement based on years of service, have gradually been replaced among corporations by 401(k) and 403(b) retirement plans, called defined-contribution plans because the employee elects to set aside tax-deferred income for retirement on a regular basis. A 401(k) plan is offered by corporations to its employees, while a 403(b) is offered by nonprofit organizations, such as universities and charitable organizations. The switch from defined-benefit plans to defined-contribution plans shifts the responsibility to the employee to save for their retirement. However, recent studies have shown that investors are not taking full advantage of their 401(k) and 403(b) retirement plans. Some employees fail to contribute enough to maximize their employer’s matching programs, and others fail to make contributions at all.
The advantages of 401(k) and 403(b) plans include reducing taxable income by the amount contributed and delaying payment of income tax on the earnings until withdrawals are made. Deductions are automatically taken from paychecks, making it easier to save and less tempting to skip a contribution. In addition, many employers match contributions and some plans allow investors to take out loans. The number of investment options offered under these plans by companies is also steadily growing. Investors can now choose from a wealth of mutual funds to find one or a few that suit their needs.
Where can you turn to find out what you need to know to make the most of your retirement plan? When you’ve exhausted the information provided by your employer, the following Web sites can fill in your knowledge gaps.
NASD’s Smart 401(k) Investing
The National Association of Securities Dealers (NASD) is the organization responsible for the operation and regulation of the NASDAQ stock market and over--the-counter markets. Among other useful investment and stock market advice, the NASD’s Web site powers a page devoted to 401(k) investing. Users can access this portion of the site by choosing the “Investor Information” tab, then the “Investment Choices” section, and finally Smart 401(k) Investing under the “Retirement Accounts” heading.
Smart 401(k) Investing takes investors through the process of enrolling and managing a 401(k) account and provides answers to questions ranging from eligibility to rules and regulations. The home page offers a Get Started guide that discusses why it is important to take part in a 401(k) plan as well as save in other accounts for retirement. The difference between defined-benefit, defined-contribution and cash balance plans is explained, along with the tax benefits of 401(k) investing. Investors with 403(b) or 457 plans—typically offered by state and local governments—can learn the basics of these retirement accounts.
Deciding which fund or funds to choose and how much to contribute can cause many headaches, so NASD offers three sections—Opening a 401(k), Investing in Your 401(k) and Investing Strategies—that can help ease the pain. These sections also discuss employer matching programs and show investors how to make the most of the match. Creating a diversified portfolio and including company stock when possible are additional topics covered.
Once contribution and allocation decisions have been made, investors need to check the performance regularly to ensure the right decisions have been made, the fees are reasonable and to rebalance any portions that have become overweighted. The Managing Your 401(k) section deals with these issues as well as where to turn to for additional advice and help.
When employees change jobs, which tends to happen more and more often, they usually have to decide what to do with their 401(k) or 403(b) plan. Moving Your 401(k) lays out the options, including rolling over to a new employer’s plan or an IRA or withdrawing the funds. The best time to make withdrawals for retirement is discussed and whether a lump-sum or IRA rollover is the right choice for you. Required withdrawals and strategies for planning ahead are covered as well.
The final section covers 401(k) loans, hardship withdrawals and legal issues. A glossary of commonly used terms and an FAQ section are available too.
Access to this site is free.
This Fidelity-sponsored site offers good insight and information on 401(k) plans for both customers and non-customers. The site provides pricing and performance statistics on Fidelity mutual funds as well as funds offered by other companies. FAQs and basic information on 401(k) plans are offered. Topics include: reasons why 401(k)s are a good idea, options after retirement, making withdrawals, contribution limits and the effect of taxes on 401(k) accounts. An investment dictionary and a set of tools and calculators assist investors in evaluating their 401(k) investment decisions.
Excerpts from Fidelity’s Stages magazine are posted at the site; this publication for Fidelity retirement plan investors discusses planning for retirement and other investing topics.
Most of this site is free to non-Fidelity customers.
401khelpcenter.com offers “unbiased information for plan sponsors, retirement professionals, small business and plan participants.” In the section of the site devoted to plan participants, popular 401(k) topics are discussed such as inheriting a 401(k), how debt impacts savings and handling plan distributions. The “Critical Issues” section offers a multitude of articles on issues such as early withdrawal penalties, taking loans from retirement accounts, how to handle a bear market and leaving assets in a company’s plan after quitting. Over 75 topics are discussed in this section.
Information on how to manage your assets is also provided. The benefits of compounding interest rates, the value of asset allocation and diversification, and whether indexing is right for you are some of the topics discussed. On-line calculators and tools can assist investors in figuring out how much they need to retire, rates of return they need to earn, how much to save each month and what their current plan’s yield is. Tips on when to take and not take loans and hardship withdrawals are found on the site as well as links to other Web sites that offer advice on 401(k) plans and Social Security benefits.
Plan sponsors also have their own section of the site. The home page lists recent news headlines related to 401(k) investing as well as a link to an archive of news stories. The Daily Digest is continually updated and includes information on current investing trends, news, legal issues and other investors’ opinions regarding 401(k) plans. Visitors can compare retirement plan choices, familiarize themselves with the new Roth 401(k) and read about legislative actions affecting 401(k)s. This section also offers tips on benchmarking performance, resources for more information and opinions and commentaries.
Access to the site is free.
Changing jobs can raise many questions about what to do with an existing 401(k) or 403(b) account. This site offers vendor-neutral information that can guide investors through the rollover process. The home page provides quick links to contribution limits, a 401(k) checklist and common mistakes made when rolling over.
The basics of rolling over a retirement account are given along with an introduction to the different accounts offered by companies. Commonly used 401(k) and general investment terms are defined in the site’s glossary, and answers to common questions are found in the FAQ section. The site discusses four options when leaving a job: rolling your retirement account into an IRA, leaving the 401(k) with your old employer, rolling all or a portion of the account to your new 401(k) plan or taking a full or partial withdrawal. The advantages and disadvantages of each option are given. A free 401(k) analysis is available to investors as well.
Access to this site is free.
Beginning in 2006, 401(k) plans will be permitted to allow employees to designate their contributions as Roth contributions. These contributions will be subject to the same rules as Roth IRAs, which means the contributions must remain in the plan for five years to receive the tax-free advantage. Unless Congress extends this new law, the Roth provision is scheduled to end in 2010. For 2006, salary contributions to a Roth 401(k) are limited to $15,000, or $20,000 if age 50 or older, similar to a standard 401(k) or 403(b) plan.
Roth401k.com is a site devoted to this unique investment opportunity. Articles and recent news stories regarding the Roth 401(k) are archived with titles and descriptions. The articles are drawn from various sources including the Wall Street Journal and Dow Jones Newswires. Some of the articles can only be viewed by paid subscribers. Users can read the proposed and passed law and regulations and check on current happenings regarding the Roth 401(k).
This site is free.