A 401(k) is often thought of as a set-it-and-forget-it kind of account—set a contribution amount, bank on a company match, and let the market do its thing. But if you haven’t checked in on your plan lately, you might be missing out on some significant new features.
Thanks in part to the SECURE Act 2.0, a handful of updates are giving retirement savers more flexibility, more control, and more ways to grow their money. Whether you’re just starting out or racing toward retirement, here are some under-the-radar 401(k) features worth knowing about.
Super Catch-Up Contributions
Starting this year, if you’re between the ages of 60 and 63, you can contribute an extra $11,250 to your 401(k) beyond the standard catch-up amount ($7,500 for workers over 50). This is due to a provision in the SECURE Act 2.0, and it gives late-career workers a valuable second wind to boost their savings.
Easier Access to Hardship Withdrawals
Hardship withdrawals have always been part of the 401(k) landscape, but the SECURE Act 2.0 made the process simpler. The updated rules remove some of the documentation hurdles, and many plans now allow participants to self-certify the hardship, thereby bypassing the need for an employer to sign off on the paperwork. While no one wants to dip into their retirement funds early, if life throws you a curveball with a hefty price tag, you’ll have an easier time taking a penalty-free withdrawal.
Access to Financial Advisors
Not every 401(k) offers the same cookie-cutter investment options anymore. Some plans now include a self-directed brokerage account (SDBA), which opens the door to a broader range of investment options that you can manage on your own or with the assistance of a personal financial adviser.
For seasoned investors (or those who simply want more choice and guidance), this is a major step forward. You don’t have to go it alone, and you’re not limited to just a handful of mutual funds. However, be aware that a financial advisor’s guidance will come with a fee.
Automatic Enrollment for New Hires
One issue the SECURE Act 2.0 aims to address is boosting employees’ retirement savings. Starting this year, new 401(k) plans are required to enroll eligible employees automatically. That means if you’re starting a new job with a qualifying employer, you’ll likely be opted into the plan by default. Automatic enrollment typically begins at 3% of your salary and increases by 1% each year, up to a maximum of 10%. It will be up to the employee to opt out if they wish to do so.
This move could make a big difference for younger workers who might otherwise delay saving. Even a modest contribution early on can grow significantly over time, thanks to the power of compound interest.
Smarter Digital Tools
Gone are the days of randomly selecting investment funds. Most 401(k) providers now offer access to online dashboards and planning tools. Although the specific digital tools may vary across providers, they can help you calculate how much to save, project your retirement income, and compare investment choices. These tools are typically free, and they’ve quietly become one of the most useful (yet overlooked) features of a modern retirement plan. Much like a GPS, these digital tools can’t drive the car for you, but they’ll guide you on the most efficient route.
Annuities
In an effort to give savers a way to turn part of their retirement savings into guaranteed lifetime income, the SECURE Act includes a provision that allows 401(k) plans to offer annuities as investment options. Despite the potential benefits, annuities are still relatively uncommon in 401(k) plans. However, interest is on the rise, so watch for them to become a more common part of 401(k) retirement planning.
Take Action
401(k) plans have evolved from an add-on feature of retirement to flexible tools that can adapt to your changing financial goals. If it’s been a while since you reviewed your plan, take a few minutes to log in and see what’s available. That small step could end up making a big difference in your retirement.
