Just remember: Not all employer-provided plans are good ones. Some are downright awful, stuffed with high-cost, low-quality investments. How do you know whether your plan is a winner? The costs you pay for the plan are typically a telltale sign — and paying too much can cost you tens of thousands of dollars, if not more, over the course of your career.
“If you see a bunch of funds that are charging more than 1 percent a year, that is a red flag,” said Christine Benz, director of personal finance at the investment research firm Morningstar, referring to investments that charge more than 1 percent of your total money invested. You can also ask human resources (or the person coordinating the plan) to see a copy of the summary plan description, which should list any other administrative fees that aren’t immediately obvious. (BrightScope also has a tool that ranks thousands of plans.)
If you’re in a high-cost plan, save enough to get any company match, but consider investing anything extra into another type of account.
For younger people, Roth I.R.A.s are often the preferable choice. That’s because you deposit money that has already been taxed, and you’re probably in a lower tax bracket now than you will be later in life when you’re earning more. In contrast, with a traditional I.R.A., investors get a tax deduction now, but pay taxes when the money is withdrawn. Your Roth I.R.A. balance is what you will actually have to spend; in a traditional I.R.A., it will be reduced by the amount of tax you will owe later.
Another upside to a Roth: In an emergency, you can withdraw contributions — but not any investment earnings — without penalty. (Not that you want to do that!) However, there are income ceilings that determine who can contribute, as well as other rules around withdrawals.
For a more comprehensive look at the various other types of plans, including traditional I.R.A.s, read our retirement guide here.
Why you should use index funds
Resist the temptation to use the latest slick app promoting its ability to invest in single stocks or cryptocurrencies. You want to do the opposite: Own a collection of cheap and boring mutual funds that invest in different kinds of stocks from all over the world, with a helping of safe bond funds to cushion the inevitable swings of the stock market. That way, if anything goes wrong with a particular stock or sector of the market — say, technology or emerging markets — you’ve hedged your bets.
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