Review Your Employer's Plan

Your company's retirement plan can be a major source of retirement income. Make sure you make the most of it!

Different Retirement Plan Types

How your retirement account is funded depends on the type of plan your company sponsors. For example, 401(k) or 403(b) plans typically allow both employee and employer contributions. But profit-sharing and money purchase pension plans are funded exclusively by the company.

But one thing may always be true: the amounts contributed to your company’s retirement plan and the earnings can really add up!

Take a look at the chart below, which hypothetically shows how investing in a tax-deferred retirement plan can help you accumulate more than in a taxable account.

This chart assumes a fixed annual rate of return of 8% on a tax-deferred basis, with dividends and distributions reinvested. Withdrawals prior to age 59 1/2 are subject to tax penalties. The hypothetical ending values may be subject to income tax when withdrawn. This hypothetical example is not intended to show the performance of any Oppenheimer fund for any period of time, or fluctuation in principal value or investment returns. The regular investment of money does not assure a profit or protect against losses in declining markets. The chart is for illustrative purposes only.

Your Employer's 401(k) Contributions

Matching Contributions—In plans such as a 401(k), your contributions may be matched by company contributions. The match may be made on a dollar-for-dollar basis or as a percentage of what each employee saves.

If your retirement plan offers such a feature, don't pass up this "free" money. At the very least, contribute whatever amount is required to earn the full employer match.

Profit-sharing Contributions—Your company may choose to share its success with you by making special deposits to your retirement account on a periodic basis. The amount and frequency of these profit-sharing contributions are up to your employer. An employer is not required to make a profit-sharing contribution each year. And, again, depending on the type of plan you have, such contributions may serve as your account's entire source of funding.

Mandatory Employer Contributions—In certain kinds of plans, company contributions are not optional. This is true of money purchase pension plans.  Employers must contribute a fixed amount or a fixed percentage of each employee's compensation on an annual basis.

Your Contributions

If your company plan allows employee contributions, you'll build your account primarily through your own pretax contributions.  Many plans allow you to make those contributions through automatic payroll deductions. Your contributions also may include savings you roll into the plan from another retirement plan.

Vesting

Many plans require employees to meet certain conditions before they can take ownership of company contributions to their accounts. These requirements normally involve working a specified number of years for the company. Once you've met all the requirements, you are fully "vested" in your employer's contributions. If you leave the company after being fully vested, the entire amount of company contributions in your account is yours. If you leave before that period, you may take whatever contributions you made to that account, plus whatever percentage of your employer’s contributions to your account are currently vested. Nearly all 401(k) plans have graduated vesting of employer contributions over a five-year period.

Limits apply to the amount you can save through the plan each year. These vary based on the type of program you have. Generally, you may contribute up to a specific percentage of your salary, as long as the annual amount doesn't go over a set dollar maximum. And your savings elections aren't set in stone; you can easily change the amount you contribute if your circumstances change.

Next Steps
  • Make sure you contribute as much as you can to your company’s retirement plan
  • If your company doesn’t offer a retirement plan, speak with your financial advisor about other retirement savings options available to you

This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.

WEBC 10.25.06/03    11.30.06

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