401(k) Open Enrollment: How to Open or Change a Retirement Account

Couple at table planning open enrollment
Photo Courtesy: Tinpixels/iStock

Every autumn, November 1 doesn’t just begin the countdown to the major winter holidays. It also signals the start of a critical financial time of year: open enrollment season. During open enrollment, employees can make specific changes to their employer-provided benefits, including their 401(k) retirement plans.

In most cases, eligible employees receive notifications announcing the start of the enrollment period. Often, that notice also outlines the types of changes a person can make to their 401(k), including how to open a retirement account if they don’t currently have one. If you want to make sure you’re ready for open enrollment, here’s what you need to know.

What Is Open Enrollment?

To put it simply, open enrollment is a set period of time — usually lasting between two and six weeks — when employees of a company can make changes to certain employer-provided benefits. Before open enrollment begins, employees are typically notified about when the timeframe starts, the nature of the changes they can make, how they can handle the updates and how long they have to complete the changes.

In most people’s minds, open enrollment is associated with healthcare. The primary reason is that employer-sponsored health insurance plans aren’t the only healthcare plans subject to open enrollment. If you purchase healthcare coverage through a marketplace or exchange, open enrollment applies then, too. As a result, government agencies often advertise the health insurance enrollment period before and during the event, which draws attention to the timeframe.

In reality, open enrollment isn’t limited to medical coverage. Instead, any employer-sponsored benefit that allows employees to choose between options can be subject to open enrollment. This includes 401(k)s.

In most cases, the only other time a person can make changes to specific employer-provided benefits is during special enrollment periods. Typically, special enrollment periods are triggered by qualifying major life events. A marriage or divorce may initial a special enrollment period. The same goes for the birth of a child or a change in jobs.

While special enrollment periods are also most commonly associated with medical coverage, they can apply to other benefits as well. Once a special enrollment period begins, an employee usually has a few weeks — usually around 30 days — to make any changes. Once that window closes, they’ll either have to wait for another qualifying major life event or for the next open enrollment period if the want to make changes to their benefits.

Planning for open enrollment
Photo Courtesy: katleho Seisa/iStock

What Types of Retirement Accounts Use Open Enrollment?

In general, any employer-sponsored retirement account may use enrollment periods to give employees opportunities to make certain changes. This can include 401(k)s, 403(b)s, 457(b)s and other plans.

Usually, privately acquired retirement plans are less restrictive when it comes to opening accounts and making specific changes. For example, you don’t have to wait for a qualifying event or the start of enrollment to open an IRA with a bank or brokerage. You might also be able to increase or decrease your monthly contribution at any time.

However, that doesn’t mean there aren’t any restrictions with private retirement plans. Every financial institution that offers one can have unique rules and requirements regarding changes. This means you need to review the terms and conditions carefully to ensure you know when you can make specific plan adjustments.

The Purpose of Open Enrollment

Overall, there are two main reasons why companies use enrollment periods. First, open enrollment creates an opportunity for any employee to update specific benefits, regardless of whether they’ve experienced a major life event recently. As a result, it ensures its workforce can plan for retirement — and current financial needs — more effectively by adjusting contribution levels or making other updates.

Second, open enrollment makes benefits administration easier for companies. If every employee could make changes to their 401(k) at any time, processing the update requests would be cumbersome for both the employer and the financial institution supporting the 401(k) plans. By limiting those activities to open enrollment and qualifying major life events, management is easier. Along with saving time, that helps keep plan costs down. This benefits employers and employees alike.

Do All 401(k) Changes Have to Wait Until Open Enrollment?

While certain 401(k) changes can only take place during open enrollment or special enrollment periods, other adjustments can happen during different timeframes. Precisely what falls in this category and when the changes can occur may vary by employer. However, some options are more common than others.

For example, many employers allow employees to update their 401(k) investment selections quarterly. This helps them shift their allocations in a timelier manner to maintain portfolios that meet their needs. However, this isn’t universally available, so keep that in mind for your plan. Changes outside of that are often restricted until open enrollment.

Couple planning open enrollment
Photo Courtesy: Fly View Productions/iStock

How to Open or Change Your Retirement Account

Generally speaking, opening a retirement account or changing details on your existing 401(k) is reasonably straightforward during the enrollment period. However, the process may vary from one company to the next.

Some companies may rely on an online benefits portal. This tool can simplify the process of gathering details about desired changes while lowering the administrative burden. Others may have physical paperwork that employees need to complete. In some cases, adjustments may require calling a toll-free number.

If you want to open a new 401(k) or make changes to a current one, you’ll need to review the guidance your employer provides. These outline the required process for choosing and formally submitting changes or creating a new account.

What to Do If You Don’t Need to Make Changes to Your 401(k)

If you don’t need to update your 401(k) during the enrollment period, you might not need to take any action. Some plans are essentially self-renewing, so they’ll continue with the same parameters next year if you don’t take action during open enrollment.

However, some companies require employees to confirm they want their 401(k)s to continue forward as-is. It’s essential to review all guidance from your employer during enrollment season so you can follow any required steps to maintain your plan.

Ultimately, open enrollment is always an opportunity. Take a moment to explore your available options. You can get the most out of your benefits while ensuring they’re set up to meet your unique financial needs.