401(a) Tips to Make the Most of Your Savings
1. This may sound silly, but know that your 401(a) account exists and how to access information on it. What I’ve seen many times is the application is buried toward the back of a teacher’s packet of new hire paperwork, and the information explaining what it is can be vague to non-existent. The teacher will complete and sign the application because it’s required, but not give much thought to it afterward. Combine that with the fact that in many cases only the district makes contributions to the account, and that some providers automatically enroll account holders in paperless statements, and it becomes a recipe for an account that falls through the cracks.
It’s a good habit to make a copy of your completed 401(a) account application prior to turning in the original. That way, in the future you can be certain it’s one of your retirement accounts, know what company it’s with, and how to contact them to obtain information. We also recommend setting up online account access a few weeks after the application has been submitted and the account set up, so if needed you always have a channel to obtain information.
2. Compared to other investment providers on the open market, 401(a) providers are typically subpar. They have above average fees and limit investment options. Many also use the same tricks as warned against for 403(b)s where they utilize an annuity in the plan, even though by design 401(a) accounts are tax-advantaged. Unfortunately, in this case there’s little to nothing you can do if your district runs the plan through one of these providers. Because they control all aspects of the plan, unless you can convince someone in-charge to change things, you’re stuck with the provider your district offers.
If you have a plan where your district is contributing all of the funds, it’s kind of like making the best of a crummy situation. You’re still getting free money going towards your retirement, so you just end up biting the bullet on the provider. If you have a plan where it’s encouraged that you make contributions to the plan too, it’s best to evaluate whether or not you actually want to do that or if it would be better to utilize another retirement account with lower fees and more choices, like a Roth IRA.
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Mychal Eagleson, CFP®, ChSNC®, AAMS® is the President of An Exceptional Life Financial, a firm that specializes in financial planning for teachers and families with special needs. He frequently writes and speaks on personal finance topics relating to these clients. Mychal also serves on the board of the Financial Planning Association of Greater Indiana as the Director of Public Relations & Social Media. To read more of his articles and learn about An Exceptional Life Financial please visit: www.anexceptionallifefinancial.com.