Four Questions to Ask If You’re Nervous About Signing Up for a 401(k)

Beth wrote in with a great question:

I have thought for months about going into the HR office and signing up for the 401(k) plan but I don’t even know what I should say when I go there. What should I ask about so that I don’t feel like an idiot?

Based on lots of reader emails, I think this fear of seeming “like an idiot” keeps a lot of people from making the simple but vital move to simply sign up for a 401(k) plan. They read about it, but they’re overwhelmed by the details, and they don’t want to seem “dumb” when they go in and sign up for a plan.

Here’s how you can do it without seeming foolish. Just go to your human resource office and tell them that you’d like to sign up for their 401(k) plan, then fill out the forms that they give you.

Here are four key questions you might want to consider asking.

1. Does the company offer any matching?
This is the first question you should ask because it’s the big reason to use a 401(k). Without matching money from your employer, a 401(k) is likely not your best retirement option – a Roth IRA is, and you don’t need to sign up for that at work.

So, if the answer is “yes,” keep going. If the answer is “no,” walk out of the office and start studying up on a Roth IRA, as this should be your primary retirement step.

If the company does offer matching, ask how much you need to put into retirement to receive the full match. That’s exactly how much you should be contributing to your 401(k)!

2. Do you offer a Roth 401(k) plan?
A normal 401(k) plan takes money out of your check before taxes. This also means that when you take money out in retirement, you’ll have to pay taxes then.

A Roth 401(k) plan takes money out of your check after taxes. This means you won’t have to pay income taxes on what you take out of that account in retirement.

If you’re unsure, my general advice is to use a Roth 401(k) if you’re eligible for it. It’s the best option if you expect income tax rates to go up in the future, which I do.

3. Which investment options are the best for someone at my age who’s retiring at age 70?
Obviously, you can change the age as you see fit.

This should prompt the person who’s helping you with the plan to point out a handful of investment options that are appropriate for you. One of them is likely to be a target retirement plan. Ideally, they point out a few other options, such as splitting your money between an aggressive fund and a conservative fund.

4. Which of these options has the lowest expense ratio?
What you’re asking here is which one of the options presented to you is the one that will see the least amount of your money vanishing to fees.

You might expect that I would encourage people to go for the one with the highest returns, but past performance is rarely related to future results. You’re better off comparing similar investments based on their expense ratios. Think of it as investment bargain shopping.

These four questions will help you find the right plan, choose a good investment, and start contributing an appropriate amount to your retirement. If you’re just looking to get started, these questions will get you in the door with a solid start.

Later on, as you learn more, you can make changes to your heart’s content, but you can never regain the money you lost by waiting. These questions will help you get into a strong option now and start saving for your future.

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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