A quick look at some of the best 401(k) companies:
If you’re in your late 20s and still building your career, retirement may not occupy your thoughts at the moment. But the reality is, someday you’ll have to retire. To guarantee yourself a financially secured retirement, you need to create a retirement plan early in life — or right now if you’ve yet to start. The reason is that, by investing early for retirement, your money has more time to grow.
As a salary earner, the 401(k) account is one of the best ways to start saving for retirement. The 401(k) plan is a retirement saving and investing option provided by employers that offers you a tax break on your monetary contributions. When you sign up for a 401(k), you automatically agree to have some portion of your salary paid into that account. Your employer offers a choice of ten or so funds that you can choose among to invest your contributions. The funds may include stocks, bonds, ETFs and mutual funds.
However, not all employers offer a 401(k), in which you case you can save for retirement in a Individual Retirement Account (IRA). The best investment strategy combines 401(k) and IRA.
The tax break can come either when you make the contribution or later at retirement when you withdraw your contribution. It all depends on your choice among the two types of 401(k) plans. For instance, in a Traditional 401(k), contributions are taken out of your gross income before the IRS takes its cut. While this can lower your taxable income and make savings less painful, you pay tax on the investment earnings during withdrawal at retirement. However, with a Roth 401(k), contributions are deducted from your net or after-tax income. Subsequently, you don’t pay any tax on the money or investment earnings during withdrawals at retirement. Many companies offer employees the choice between a Traditional 401(k) option and a Roth 401(k); if that is that case, you can put some of your contributions in each or use just one of the options.
Either way, by diverting a percentage of your salary into a tax-favorable retirement savings account, your wealth can grow so that in your golden years, you will worry less about money.
However, thanks to the large number of 401(k) investment options and service providers available, navigating the space to invest can be demanding, especially if you don’t know what to look for. Additionally, if you are already employed, your company will usually offer its plan through one provider, so unless you get a new job or are the owner of the company, your choices are limited.
Benzinga has compiled a list of some of the best 401(k) companies and what they offer so that you can learn more about options that are available.
Best Overall: Fidelity Investments
With over 70 years of experience in the industry, Fidelity Investment Inc is a figurehead in the retirement planning business. It boasts $4.2 million in discretionary assets under management (AUM), making it the fourth-largest investment company globally. As a testament to itstop-notch service in the retirement planning industry, the company has over 35 million plan participants from the roughly 23,000 employers using its service to manage retirement accounts. Fidelity serves businesses of all sizes, from small businesses of five employees to mega-corporation
However, part of what made the company stand out as the overall best 401(k) company is the extensive range of investment options it offers to investors, with zero account opening and closing costs. These include over 10,000 mutual funds from hundreds of fund companies, most of which are tradable at zero fees. Additionally, you can trade traditional stocks, bonds, ETFs, options and CDs. You can roll over a 401(k) from your previous employer to a Fidelity IRA or your new company’s Fidelity 401(k) plan.
Furthermore, the company provides integrated resources like apps, calculators and education resources to help customers improve their savings and investment strategies. And both the websites and apps have a user-friendly interface, making navigation a breeze.
Fidelity’s overall low costs, numerous fund options, efficient customer support, expert fund managers and robust service base make the 401(k) company undoubtedly the overall best 401(k) custodian in the retirement industry.
Best for Mutual Funds: Vanguard Group
Vanguard was founded by the late John C. Bogle, who pioneered index investing. The company is renowned for its razor-thin trade fees, especially for index and mutual funds. Vanguard Group is the second-largest investment company globally, with roughly $8.4 trillion worth of assets under management (AUM).
You can avoid annual account service fees when you sign up for e-delivery during enrollment in a Vanguard 401(k). However, the company charges a $20 yearly maintenance fee for 401(k) portfolios lower than $10,000. Other features include resource-rich educational materials on retirement savings, compounding returns and asset allocation. In addition, the web and app platforms are user-friendly, and the customer support teams are highly efficient.
If your company offers it, a Vanguard 401(k) allows you to invest in passively managed index funds at a low expense ratio. For instance, the expense ratio for mutual funds is 0.10%, about 81% less than the industry average of 0.55%. Vanguard’s 401(k) plans can allow access to over 262 Vanguard mutual funds and thousands of ETFs. Furthermore, Vanguard also offers target-date funds — funds dated around your planned retirement year that adjust the risk potential of its investment as the year approaches. Your company’s 401(k) benefits department will make you aware of your available choices.
Best for Low Fees: Charles Schwab
Charles Schwab is another heavyweight in the 401(k) service industry. The 401(k) company charges comparatively low fees for its services. Schwab’s Solo 401(k) plans and SEP IRA cost zero dollars.
The company adopts a learn-as-you-earn investment philosophy. Its free managed account service provides users with personalized advice to improve their retirement investment planning and strategy. While you can trade ETFs, stocks and mutual funds commission-free, service charges apply for broker-assisted trade ($25) and automated phone trades ($5).
Additionally, you can also invest in bonds, options and futures. Suppose you’re undecided about making an investment choice; you can opt for Schwab’s intelligent portfolio.
For portfolios bigger than $5,000, this option will have Schwab’s free robo-advisor set up your portfolio with low-cost ETFs in conjunction with your company’s plan offerings and in line with your investment goals and preferences. If your portfolio is more extensive than $25,000, you’ll be eligible to use Schwab’s Intel human investment advisor. This service will, however, cost you some additional fees. Schwab also offers insightful investment educational resources.
Best for Real Estate: Rocket Dollar
Rocket Dollar brings investors out of the traditional 401(k) bubble. It is the best fit for investors who do not want to be restricted to traditional investment options like stocks, bonds, mutual funds, and ETFs. If you as a company owner or the your company you work for offers its 401(k) through Rocket Dollar, you can invest in real estate, rental properties, cryptocurrencies and precious metals.
The company offers two plans. The Silver or basic plan charges a $360 one-time setup fee and a $15 monthly custodian fee. It grants access to a support portal, educational tools and a personalized checkbook.
The Gold or premium plan goes for a one-time setup fee of $600 and a $30 monthly custodian fee. The premium unlocks additional features like priority support, a debit card and a physical checkbook, tax form filing and a customization option for the company.
Rocket Dollar’s 401(k) high account fees may not work for everyone. However, if you want to gain more hands-on control of your retirement investments and diversify your 401(k) to include non-traditional investments, Rocket Dollar’s top-tier support for alternative investments with flexible checkbook control could be the best choice for you.
Beat for Every Day Workers: Beagle
Beagle fills a unique niche in the 401k space by recognizing that millions of Americans have left behind 401k accounts when they’ve changed careers, switched jobs, moved from one company to another or lost a loved one who had untapped retirement savings. Because the average “left behind” account has a balance of more than $50,000, you would want to know if you have an extra 401k account floating around out there.
To this end, Beagle offers 2 services:
- Search and rollover services, allowing you to find old 401k accounts and roll them into a new account
- 401k loans, allowing you to take loans from your old 401k accounts at net 0% interest
Plus, Beagle offers the option to build a new 401k account with a $3.99 monthly maintenance fee. You can unlock previous saving potential, start planning for retirement, bolster your current retirement portfolio and take back money you contributed long ago.
Features to Look for in Best 401(k) Companies
When shopping for a 401(k) custodian, certain features will help you make a more informed decision. Some of these features are:
Low account fees
The account fees encompass all the expenses you’re likely to incur, from setting up your 401(k) account to running your investment successfully. Different companies have different pricing or charges. Some companies charge both transaction and maintenance fees, while others do not charge at all. It would be best to look out for companies that charge the lowest possible price or those that charge zero fees. The lower your account expenses, the more money you make.
Accessibility to index funds with low annual expense ratio
Index funds are the primary investment option of most 401(k) investment plans. They are critical indicators of a good 401(k) plan. When looking for a suitable 401(k) company, you should watch out for custodians that provide access to index funds with lower annual expense ratios. Trading an index fund with a lower annual expense ratio translates to a lower-cost plan for your 401(k) account.
Another key item to tick off on your criteria list is your prospective custodian’s available assets. Your shortlisted 401(k) custodian should have a rich spectrum of traditional assets that you can choose from. A custodian with extra non-traditional investment options is a plus. A more comprehensive range of investment choices means that you have more opportunities to diversify your 401(k) portfolio with the potential for higher returns in the long run.
Efficient customer support is a must for any 401(k) custodian that’s worth it. You do not want to hire a custodian that can’t offer practical assistance when your retirement funds are at stake. Do your due diligence and ensure that your chosen company has a comprehensive customer support protocol that will not disappoint you throughout your investment journey.
How to use Your Company’s 401(k) for Your Retirement Planning
Now that you’ve known the key features to look out for in a custodian, it’s time to get started with your 401(k) retirement account. The four basic steps you need to get started are.
Step 1: Decide your contribution amount
Planning is part of the financial discipline. Decide how much you want to contribute to your 401(k) account per paycheck. It could be 10% of your gross income or 5% of your paycheck. Either way, analyze your finances and pick a suitable amount that works for you. If your company has a company match, try to contribute enough to get the maximum amount.
Step 2: Choose your 401(k) funds
Once you've decided how much you want to contribute, the next step is to choose the funds or investments within the company’s 401(k) plan that will best help you meet your retirement goals and fit with your risk tolerance.
Step 3: Set up your 401(k) account and pay account fees
Most 401(k) companies have provisions for online account registration. To set up your 401(k) account:
- Visit the custodian’s website.
- Access the account registration portal and follow the guidelines they have stipulated.
- If the custodian charges a registration or other fee, pay it.
Step 4: Contribute to your account
After completing your account setup, your paycheck will reflect your contributions to your 401(k) account. Most company 401(k)s only permit paycheck deferral not voluntary contributions, and you can only contribute money you earned to a 401(k).
How you can Improve Your Finances
A retirement account like a 401(k) helps guarantee your financial independence and stability in old age. But what if you can also achieve financial stability now that you’re young? Think of that vacation, the tour you’ve been planning and many other cool things you can do if you’re financially okay. Ironically, you don’t even need to do much to improve your finances — here’s a quick look at some hacks that’ll help you improve financially.
Budgeting is the mandatory first step in your pursuit of financial freedom. Once deployed, it is a simple yet highly effective tool that will successfully transform your finances. When you budget, you spend more responsibly. You can readily allocate your income to priority expenses like savings, debt settlement and 401(k) contributions.
Reduce credit card usage
If you plan to gain your financial independence anytime soon, you have to rethink your credit card usage. Using credit cards as a stop-gap measure to make ends meet is an expressway to racking up debt. Doing so limits how much money you’ll be able to spare for otherwise necessary expenses like your monthly bills, retirement contributions or savings.
If you rely solely on working and earning a salary, you should be prepared to spend more years in the financial trenches. Saving and investing your earnings is a smart way to scale your finances. Thankfully, there are many investment options available for you. The choice is yours whether you want to go the traditional route, like stocks, bonds and ETFs or non-traditional assets like cryptocurrency and real estate.
To be clear, though, you can’t become a millionaire overnight. So cut your coat according to your size. Never invest what you can’t afford to lose. Do your due diligence. With time, you never know how big your finances will grow.
Frequently Asked Questions
How do I choose the best 401(k) plan for my retirement account?
When comparing 401(k) custodians as a business owner, look out for features such as account fees, customer support, and investment options. These features can be an excellent pointer to a good 401(k) custodian. However, if you are an employee, you’ll need to use the 401(k) your employer offers unless you change jobs.
When can I withdraw my 401(k)?
According to the IRS guidelines, you must be at least 59.5 years before withdrawing money from Traditional 401(k) accounts. Otherwise, you’ll incur a 10% early distribution penalty tax and other taxes you might owe at the time. If you meet other criteria stipulated by the IRS, like being permanently disabled at withdrawal, you may be able to avoid the penalty. However, in a Traditional 401(k), regardless of when you take the money out, it will be added to your taxable income for that year because it was money deposited before taxes were taken out.