7. Participate in your company's 401k or 403b

7. Participate in your company's 401k or 403b at least to get the company's match.

A 401k and 403b are virtually the same thing. A 401k is the retirement plan you get at a for profit company. A 403b is the retirement plan you get at a non-profit or not for profit company. 401k/403b are the actual numbers in the IRS tax code allowing retirement plans.

Why should you participate in your 401k/403b?

-Matching funds. Most companies elect to match a certain amount of  the money you put in. This varies from company to company. Some change the amount based on how the year went. Some have a set rate. A typical scenario is you putting in 3% and your company matching that 3%. At least put in the minimum that is required to get a company match. Check with your HR department for the low down.

-It is another tax shelter. You can put up to $17,000 of your money in 2012. This limit does not count any funds your company may match.

Make sure you know what each fund in your 401k/403b charges for annual fees. Your HR department should have this info. Look for index funds charging less than 1% and diversify from there. My employer's plan only offers one index fund. It is indexed to the US stock market. If that was my only account I would be heavily weighted in US Stocks. I diversify in other accounts. This allows me to be in the cheapest fund and still be diversified. Watch for my upcoming post on asset allocation. 

A "Target date" fund may be an option if this is going to be your only retirement account. They self adjust to give you the "right" mix of funds for your age and take the work out of diversification and rebalancing.  I am not a big fan of them. I prefer set asset allocation myself. They also charge more than index funds. Plus there was quite a bit of discussion on how the target date funds didn't really protect the folks near retirement during the Great Recession.


The moment you leave employment with your current employer move your retirement account to your own IRA. With a typical 401k/403b you will pay 0.75% to 2% in annual fees. This is OK because of the matching funds and tax shelter. Once you don't work there anymore get your money out of there and into cheaper funds. At an online brokerage you will pay 0.05% to 1% annually depending on your fund choices. Plus a one time transaction fee per fund purchased (usually $4-$10).