Eight tips for succeeding with your new 401(k)

The first thing you’ll need to do is enroll in your new plan. How you go about this depends on your plan’s rules. There are two general enrollment processes—automatic enrollment or voluntary enrollment.

Auto-enrollment is pretty straightforward. Your employer signs you up for the plan with some default choices. You’ll want to learn your plan’s default contribution amount, default investment, and whether or not your contributions will be increased automatically each year.  You can stick with your plan’s default options, or you can choose to update them. 

If your plan offers voluntary enrollment, you’ll need to sign yourself up and make your contribution and investment choices yourself.

Pick a beneficiary when you enroll in your plan. And make sure your loved ones receive your hard-earned money when you pass away. All you’ll need to name a person as a beneficiary is the last four digits of their Social Security number or their birth date and mailing address. Want to designate a trust or estate as your beneficiary? You can do that, too. (If you’re married, you must choose your spouse as your beneficiary unless your spouse signs a waiver form.)

Some employers match your contributions up to a certain percentage. So, you should aim to contribute enough so that you receive the full match from your employer. Here’s a helpful lesson on employer matching contributions.

Matching contributions are often made on a vesting schedule, which limits when you can withdraw contributions. Some employer contributions may immediately belong to you, and some require that you work at the employer for a few years before those contributions are considered to be your money.

We mentioned above that some plans automatically increase your contribution rate annually.  If you can take advantage of this, it’s one less thing you have to remember to do. Your contribution rate will increase so you’ll keep saving more every year. And Vanguard recommends that you   save at least 12% to 15% of your pay in your plan, including any contributions your employer might make.* Signing up for your plan’s automatic annual contribution increase can help get you into that range.

Would you rather pay taxes on your retirement money now or later? That’s the simplest way to make your decision on how you contribute to your plan.

If you choose to save money that hasn’t yet been taxed, through pre-tax 401(k) contributions, your contributions and any earnings on them will be subject to tax when you withdraw money from your plan.

Roth 401(k) contributions are taxed up front, but if you satisfy certain requirements, you can withdraw that money tax- and penalty-free.** Plus, you can benefit from tax-free growth on Roth contributions if you satisfy the same requirements. And by choosing Roth and paying those taxes right away, you may be able to put yourself in a lower income tax bracket in the future. Learn more about Roth.

You can also choose a combination of Roth and pre-tax contributions.

It's helpful to consult a tax advisor to learn more about how these choices could affect your taxes.

In addition to saving in your retirement plan, think about opening an IRA if you have excess funds that you want to contribute to a tax-sheltered account. It can be set up as a Traditional or Roth IRA. Figure out if you can contribute to an IRA.

We’ve reviewed some key steps for saving in your retirement plan. But your employer may also offer you a Health Savings Account (HSA) if you enroll in a High-Deductible Health Plan (HDHP). This type of plan is triple-tax advantaged—you fund it with pre-tax money, earnings on contributions grow tax-free, and you don’t have to pay taxes if you withdraw the money for medical expenses.*** We’ve got a handy lesson for that, too.