• What is a 401(k) plan?

    Last Updated: January 12, 2017 4:57PM EST
    A 401(k) plan is an employer-sponsored retirement savings plan that allows you to save on a tax-advantaged basis.  There are two types of 401(k) contributions: Traditional and Roth. Traditional contributions allow you to defer pre-tax income from your paycheck. Roth contributions defer income post-tax, but your withdrawal upon retirement is not subject to income taxes. Some employers may choose to match their employees’ deferral contributions, helping them grow their retirement savings further.

    The information in this section is provided by Betterment LLC, a registered investment advisor.
  • Is it possible to rollover my previous 401(k) or an IRA?

    Last Updated: June 15, 2016 9:54AM EDT
    Yes! Betterment makes rollovers simple and efficient, minimizing your time spent and keeping costs low so we can maximize your money’s growth. Our 60-second rollover process is among the fastest in the industry. To get started, click here.  

    It is important to note that when deciding whether to rollover an old 401(k) account or other retirement account, you should carefully consider your personal situation and preferences. Relevant factors may include that: (i) 401(k) accounts may offer greater protection from creditors than IRAs. (ii) In some cases, the ability to take penalty-free distributions at an earlier age or to defer minimum required distributions. (iii) Some 401(k) accounts may also allow for loans or distributions in a broader set of circumstances than IRAs. (iv) Some 401(k) plans may also offer specific educational and advisory services to participants that are unavailable to some IRAs. (v) Some 401(k) plans may have lower fees and expenses than some IRAs. (vi) Some IRAs may offer a broader range of investment options that some 401(k) plans. (vii) Special tax rules may apply to the rollover of employer securities.

    You should research the details of your previous 401(k) and speak to a tax and/or other advisors about whether the features of your 401(k) are relevant to your personal situation. The rollover process is currently automated for rollovers from select providers. If you have a provider that is not part of our automated process, you will receive an email with a checklist for completing your rollover to Betterment. In processing you rollover request, Betterment will be acting at your direction.




    The information in this section is provided by Betterment LLC, a registered investment advisor.
  • How is Betterment for Business different from a traditional 401(k) plan?

    Last Updated: June 15, 2016 10:50AM EDT
    With traditional 401(k)s, generally participants are asked to choose between a selection of funds, often with minimal insight into their fees, track record, or how to allocate across funds. In contrast, Betterment for Business provides a 401(k) that includes personalized investment advice. This advice is holistic, and is designed to help you meet your retirement goals by accounting for your full financial picture, including cost of living, net worth, spousal assets, income, and external accounts. Learn more about how the RetireGuide, which has a Retirement Calculator, takes a holistic view of your financial life and doesn’t just consider your 401(k) contributions when giving you advice.


    This information has been provided by Betterment LLC, a registered investment advisor.
  • My company just announced that we are switching to a Betterment 401(k) - what do I do now? What happens to my current 401(k)?

    Last Updated: June 15, 2016 10:14AM EDT
    Welcome to a better 401(k)!

    When your employer switches to a Betterment 401(k), participants go through what’s called a “conversion” process.  During this process, the funds that you held at your previous 401(k) will be sold and transferred to cash, in order to move them over to Betterment and into your new investment portfolio.  A conversion triggers a “blackout” period, during which you will not have access to your funds - essentially you cannot contribute to or withdraw from your 401(k), and you may lose access to your participant dashboard with your previous 401(k).  Best practice is to download all your statements as soon as you know that you are converting to a new 401(k) vendor.  Your assets will show up in your Betterment 401(k) account in 4-8 weeks.

    30-90 days before you are eligible to join the new plan, you will receive a custom email with a link that sends you to the Betterment site to onboard to your 401(k). You can create your account, change your deferral elections and adjust your investment portfolio. Here is a comprehensive guide to help you get started.

    The amount you’ve elected to defer will automatically transfer into your Betterment 401(k) account each pay date.

    The information in this section is provided by Betterment LLC, a registered investment advisor.
  • What is the difference between Traditional contributions and Roth 401(k) contributions?

    Last Updated: June 15, 2016 10:45AM EDT
    In the most basic sense, the difference is that the Roth is after-tax dollars while the traditional 401(k) is before-tax dollars. Traditional 401(k) contributions are withheld tax-free, whereas Roth contributions will be counted as taxable income for the year during which the money is deferred. The benefit of Roth contributions comes into play when the 401(k) contributions and income are liquidated.

    Roth 401(k) contributions and earnings are federal tax exempt as long as the money is distributed at least five years after the participant’s first Roth contribution is made, and occurs on or after the date that the participant turns 59.5, following the participant’s death or is initiated by the participant due to disability.


    This information has been provided by Betterment LLC, a registered investment advisor.
  • What is automatic enrollment?

    Last Updated: June 15, 2016 10:44AM EDT
    If your plan has automatic enrollment, your employer is automatically initiating your deferral contributions into your 401(k). These funds will automatically be invested in an age-appropriate portfolio based on your years to retirement. You can log into your account to change both your deferral election, including choosing not to participate in the plan, and investment selections at any time.

    Often times, plans with automatic enrollment have higher participation rates; many employers are now choosing this option so that they can help more employees to save for retirement. A key benefit of automatic enrollment for participants is that it pushes you to begin saving for retirement earlier, as opposed to waiting for you to eventually opt in when you get around to doing so.


    This information has been provided by Betterment LLC, a registered investment advisor.
  • How do I change the amount of my paycheck, or deferral, that I contribute to my 401(k)?

    Last Updated: July 27, 2017 1:10PM EDT
    To change the amount contributed to your 401(k), simply log into your Betterment 401(k) account, go to the "Transfer Tab" and click on "Edit contribution rate". You can either choose a $ (fixed dollar) deferral amount or a % (percentage) of your paycheck.

    As you may know, many plans allow you to make two types of contributions to your 401(k) - Traditional and Roth.  See details here. Although Betterment takes both your Roth and Traditional contributions into account when helping you prepare for retirement, they are independent from each other in your Betterment dashboard, so make sure to modify your contribution rate for each separately. It takes approximately one payroll cycle for your new rate to be effective.


    This information has been provided by Betterment LLC, a registered investment advisor.
  • Does Betterment provide participant support?

    Last Updated: June 15, 2016 10:44AM EDT
    Yes. Betterment offers a dedicated Customer Success team which can be reached at:
    support@betterment.com or call +1 855-906-5281. Live chat is also available here.

    Customer Success hours are:
    Monday - Friday: 9:00 AM - 8:00 PM ET
    Saturday - Sunday: 11:00 AM - 6:00 PM ET

    You can always refer back to the Getting Started Guide.
  • What is the difference between mutual funds and ETFs?

    Last Updated: June 15, 2016 10:43AM EDT
    An exchange-traded fund (ETF) is a security that generally tracks a broad-market stock or bond index or a basket of assets just like a mutual fund, but trades like a stock on a listed exchange. By design, index ETFs closely track their benchmarks (such as the S&P 500 or the Dow Jones Industrial Average). By contrast, most mutual funds are actively managed, and attempt to beat their benchmarks; the performance of the fund can be highly dependent on the portfolio manager making the decision to invest in one stock versus another stock, and can vary from year to year. Index mutual funds do exist, but there are many other benefits to using ETFs in a 401(k). ETFs are bought and sold like stocks throughout the day, and are heavily traded amongst many different parties. This liquidity reduces transaction costs, and also makes it easier to trade for on-demand activities like creating or rebalancing a portfolio. In contrast, mutual funds only trade once a day, and the fund administrator is the only counter-party for buyers and sellers.


    This information has been provided by Betterment LLC, a registered investment advisor.
     
  • Why does Betterment use ETFs instead of mutual funds like most 401(k) plans?

    Last Updated: June 15, 2016 10:42AM EDT
    The 401(k) market is largely dominated by players who are incentivized to offer certain mutual funds. For example, fund families providing 401(k) services and the distributors who sell the plans may have a conflict of interest. Often, one or more of these parties is compensated in some way by the mutual fund company(ies) that the sponsor selects (with the investment advisor’s help). Compensation often comes in the form of revenue-sharing arrangements, including:
     
    • 12(b)-1 fees: annual distribution or marketing fee (i.e., the salesperson’s cut)
    • Sub Transfer Agent (Sub-TA) fees: the fee for maintaining records of a mutual fund’s shareholders
    • Soft dollar “excess commissions”: how mutual fund companies pay their service providers; “soft dollar” means they’re paying in the form of giving them business, rather than actual cash

    These are all included in the fund’s expense ratio, which is the fee that all funds charge their participants. ETFs, on the other hand, cannot have the same revenue-sharing relationships that many mutual funds do. That means the 401(k) players who use ETFs aren’t being compensated behind closed doors, so they have to charge explicit fees for their services. This helps make it easier for plan sponsors to evaluate, compare, and understand true costs of administration. And it allows participants to see where their money is going.


    This information has been provided by Betterment LLC, a registered investment advisor.
  • Can I have a Betterment account in addition to my 401(k) account?

    Last Updated: June 15, 2016 10:35AM EDT
    Great question! Betterment makes it easy to manage all of your assets holistically, and we provide advice accordingly. When you’re logged into your Betterment 401(k) account, click on the “Add Goal” button located in the upper right corner. You’ll be able to add a taxable individual, IRA, joint or trust account. You can also sync external accounts so that your personalized advice is based on an even more holistic financial picture.





    This information has been provided by Betterment LLC, a registered investment advisor.

     
  • How do I sync an external account so that I get holistic savings and retirement advice?

    Last Updated: June 15, 2016 9:51AM EDT
    To include a non-Betterment account to your RetireGuide plan, log in to your Betterment account here. Click on the the “Sync External Account” button in the bottom right corner. You will then be able to choose your firm where your account is located and connect to your account by providing your login credentials.

     
  • Is there a limit as to how much I can contribute to my 401(k) account?

    Last Updated: December 16, 2016 9:07AM EST
    Yes, as of 2016, the limit is $18,000. If you’re over 50, you can contribute an additional $6,000 for a total of $24,000. This is subject to change, so check here for the latest IRS guidelines.

    This information has been provided by Betterment LLC, a registered investment advisor.
  • Can I invest in an individual stock or fund (i.e. S&P 500 index)?

    Last Updated: June 15, 2016 9:50AM EDT
    You cannot invest in an individual stock or fund. All Betterment customers are invested into a globally diversified portfolio (with over 5,000 companies) of low-cost and liquid ETFs. The portfolio was chosen to help provide optimal returns at every level of risk, and is rebalanced as the market fluctuates, and as you grow closer to retirement.

    Betterment is a strong believer in passive investing. The majority of the evidence shows that active management, whether by individual investors or fund managers, can cause more harm than good in net-of-fee returns, so we invest in low-cost, passive investments and seek to match the market's performance.

    You can learn more about our portfolio and historical performance here.


    This information has been provided by Betterment LLC, a registered investment advisor.
  • What are “catch-up” contributions?

    Last Updated: December 16, 2016 9:08AM EST
    Participants over the age of 50 may make additional contributions above and beyond the normal contribution limit. For 2016 and 2017, catch-up contributions are allowed up to $6,000.

    How “catch-up” contributions are defined is subject to change, so check here for the latest IRS guidelines.


    This information has been provided by Betterment LLC, a registered investment advisor.
  • What is the difference between a 401(k) and an IRA?

    Last Updated: June 15, 2016 10:40AM EDT
    You can, and probably will, end up having multiple retirement accounts, but there are many benefits to maximizing your 401(k) contributions. The biggest difference between the two is contribution limits: an individual can contribute up to $18,000 to their 401(k) account ($24,000 if they are 50 or older), whereas the contribution limit on IRAs is $5,500. If your employer matches your employee deferral contributions, this increases the amount that you are able to save for retirement each year via 401(k).

    Generally speaking though, you can have both a 401(k) and and IRA. Learn more here.


    This information has been provided by Betterment LLC, a registered investment advisor.
  • What are the fees associated with my Betterment for Business 401(k) account?

    Last Updated: June 15, 2016 10:40AM EDT
    Fees range from 0.1% to 0.6%, depending on the size of your company’s overall 401(k) plan, and whether your employer opted to pay for a portion of the fee. The underlying ETFs that we use have expense ratios of .1% - .12% on average, so the net expense is generally .2% - .72%. As a basis for comparison, here’s an interesting chart with what 401(k) plans pay on average according to Brightscope. One of the reasons that Betterment LLC is able to keep costs low is because we choose the same, low-cost, passive ETFs to use in all of our portfolios. We don't select or offer any proprietary funds like some mutual fund companies, so there isn't the incentive or ability to "pass" admin fees through proprietary fund fees. We also don’t pass through trading or rebalancing fees that result from Betterment LLC investing on your behalf.


    This information has been provided by Betterment LLC, a registered investment advisor.
  • Am I saving enough for retirement?

    Last Updated: June 15, 2016 10:39AM EDT
    You can now easily find out what sort of annual income you can expect during retirement by using the RetireGuide feature on your account. You can even sync up other retirement accounts that you hold elsewhere, and see what would happen if you adjusted your savings rate.

    Download the full RetireGuide methodology here.


    This is provided by Betterment LLC, a registered investment advisor.
  • How and when can I withdraw funds from my 401(k) account?

    Last Updated: June 15, 2016 10:38AM EDT
    As a general rule, 401(k) funds are not eligible for distribution or withdrawal without penalty before the participant turns 59.5, after retirement. Typically, the only circumstances under which the participant or his/her beneficiaries may be granted access to these funds without penalty are participant hardship/disability or death - see your plan’s documents for details.


     
  • What is a hardship withdrawal?

    Last Updated: June 15, 2016 10:38AM EDT
    Typically, you cannot take a distribution from your 401(k) plan without penalty, however, some 401(k) plans offer an exception in the event of an immediate and heavy financial need. In general, a hardship withdrawal can be taken only after exhausting all other external and in-plan options including loans and in-service distributions, and cannot be paid back to the plan.

    The withdrawal itself must be limited to the size of the need (including taxes and 10% penalties), and the IRS has identified qualified expenses for the employee, the employee’s spouse, dependents or beneficiaries:
    • Qualified medical expenses
       
    • Costs related to purchase of principal residence (for employee only, excludes mortgage payments)
       
    • Tuition, education or room and board
       
    • Funeral expenses
       
    • Costs to repair damage to principal house
       
    • To prevent eviction or foreclosure of primary residence

    It is important to note that you will be taxed on the withdrawal, and if you take the distribution before the age of 59 ½, there is a 10% withdrawal penalty.  

    Please contact your plan administrator to see if your 401(k) plan offers hardship withdrawals as well as your employer’s process for administering this distribution. It is important to consult the IRS guidelines and/or a financial professional regarding loans and early distributions.

    The information in this section is provided by Betterment LLC, a registered investment advisor.
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