Key 401(k) Questions to Ask Before You Enroll

Today, the most common way Americans save for retirement is through employer-sponsored plans, most often 401(k) accounts. Since their introduction, 401(k) plans have operated with relatively limited oversight, and many participants lack a clear understanding of how their plans work and how to make the most of them.

Important 401(k) Questions to Ask:

What is the company match? Many employers offer matching contributions. For example, an employer might match 4 percent of pay when an employee contributes 6 percent. Make sure you understand your employer’s match and contribute enough to capture any available “free money.”
How much does each investment cost? Every fund carries an expense ratio that reduces returns. Even small fees compound over decades and can significantly reduce the balance you accumulate. As a rule, expense ratios above 1 percent are generally high for broad stock and bond funds, though niche and small-cap funds often have higher fees.
What are your investment options? Most 401(k) plans offer mutual funds or ETFs that bundle many individual securities to simplify diversification. Review the lineup and ensure your portfolio has exposure to a mix of asset classes—large-cap, small-cap, international, and fixed income—to align with your goals and risk tolerance.
Who pays for the plan? Administrative and recordkeeping costs are sometimes charged to participants and deducted from plan assets. Confirm whether your employer pays these fees or passes them along to participants, since those costs also affect net returns.

Because plan details can be unclear, participants often make avoidable mistakes when investing within their 401(k).

Poor fund selection: Plans sometimes include several funds that target the same category, such as multiple large-cap growth options. Selecting more than one overlapping fund can create redundancy and dilute diversification. Evaluate options based on fund manager tenure, expense ratio, long-term performance, and strategy, and choose the single best fit for each asset category in your portfolio.
Not investing aggressively enough: Many people base investment risk solely on years until retirement, but investing doesn’t end at retirement. Retirees commonly remain invested in the markets for 25 years or more, so it’s important to plan for a longer horizon and maintain sufficient growth exposure to avoid depleting savings over an extended retirement.
Failing to capture the full company match: A company match is effectively an immediate return on your contribution. Understand your employer’s match formula and contribute enough to receive the maximum match—otherwise you’re leaving free money on the table.

To improve outcomes with your 401(k), learn the specific features and costs of your plan and make intentional choices. Start by asking your Human Resources department about available plan documents, fee disclosures, and whether a professional advisor is available to assist participants. Many resources can help you evaluate fund choices, allocation, and contribution levels so you can build a strategy aligned with your retirement goals.

If you’d like a professional review, Reilly Financial Advisors, a fee-only registered investment advisor, offers a complimentary 401(k) tune-up to evaluate your plan and provide impartial guidance at no charge.

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