401(k) Plan Information

For employers

Helping Yourself to a Successful Future

Start as soon as you can

The earlier you begin saving, the better off you will be. Here's why:

• Starting early gives your money more time to compound. Compounding is what happens when you investment earnings are reinvested and earn an investment return of their own.
• It's easier to save a little each pay period throughout your career than a lot at the end of your career.
• You will probably need more money for retirement than you parents or grandparents since costs are higher and people are living longer.

How much will you need for retirement?

A financially secure retirement requires more money than you'd think. Generally, experts agree that retirees usually need from 70% to 90% of their preretirement income to enjoy a comfortable lifestyle when they stop working. Since Social Security isn't enough to cover most retirees' income needs, where will the rest come from? For the most part, from your earnings and savings.

The threat of inflation

The amount of retirement income you'll need cannot necessarily be determined using today's pay alone. The reason is inflation - increases in the cost of living. Even at low inflation rates, the buying power of money you save erodes each year. So, when figuring how much retirement income you'll need, take potential inflation into account.

Two Options to Help You Get There

Your retirement savings plan offers significant tax benefits. You have two options regarding how your contributions and benefits will be taxed.

Traditional pretax contributions are paid to the plan before federal (and, in most cases, state) taxes are deducted from your paycheck. So, you'll owe no income taxes on the money while it is kept in the plan. And there are no current taxes on any investment income your account earns. Taxes are due only when you withdraw money from the plan. This feature is called "tax deferral," and it can make a big difference in the amount you can save for retirement.

Roth contributions are treated differently. You pay current federal and, if applicable, state taxes on your contributions, but not on plan earnings. However, if you keep your money in the plan for at least five years from the time of your first Roth contribution, on reaching age 59 1/2, you generally can withdraw all of your Roth account (contributions and plan earnings) without paying any taxes on the money.

Your Decision

So, why would anyone choose to pay taxes now rather than later? The answer, for some people, is to have more after-tax income when they retire. Depending on your situation, making after-tax Roth contributions now could mean more money in your pocket during retirement.

The decision, however, is not the same for everyone and what is right for you depends largely on your individual situation. Your current age, your expected retirement age, your current tax bracket, your expected retirement tax bracket, and the amount of your contributions are all important factors.

The chart below can help you weigh the various factors in making the "pretax versus Roth" decision. Before making any decision, though, you should talk with a tax advisor who can help you look at your specific situation and determine which route - traditional pretax or Roth contributions - is best for you.

Risk Profile: What Type of Investor Are You?

Once you are enrolled in your employer's retirement plan, you should develop an investment strategy. This questionnaire can help you determine whether you are a conservative, moderate, or aggressive investor and which investments offered by your retirement plan may suit your needs. Use this information in combination with other investment planning advice available to you.

Please read the following statements. Rank yourself on a scale from 1 to 5 as to whether you agree or disagree with the statement. Total up your score to see where it falls on the Investor Profile. Remember, neither the five statements nor your total score is meant to tell you which investments to choose. Rather, this questionnaire may help you better understand your objectives and feelings about risk so you can select investments that are right for your situation.

1 = Strongly disagree  |  2 = Disagree  |  3 = Neutral  |  4 = Agree  |  5 = Strongly agree

1) To obtain above-average returns on my investments, I am willing to accept above-average risk of investment losses.

     1   2   3   4   5

2) Staying ahead of inflation is more important to me than maintaining stable principal values.

     1   2   3   4   5

3) If an investment loses money over the course of a year, I can easily resist the temptation to sell it.

     1   2   3   4   5

4) I do not plan on withdrawing my retirement money for major expenses before I retire.

     1   2   3   4   5

5) I consider myself knowledgeable about economic issues and personal investing.

     1   2   3   4   5

Investor Profile

5-9 = CONSERVATIVE
10-15 = MODERATE
16-20 = MODERATELY AGGRESSIVE
21-25 = AGGRESSIVE