401(k) waiting periods take a toll

Employer-sponsored retirement plans are getting better, but they've still got plenty of weak spots.

Money looked at six holes you might see in your 401(k) plan, and some fixes you can make to address them. Below, see another way your retirement plan might be letting you down: waiting periods to contribute or get an employer match.

Leak No. 5: Which is it: 'Hurry up and save' or 'Wait'?

Plan providers talk up the importance of contributing now, but they don't always make it easy. Roughly two out of five 401(k)s make new hires wait at least three months before joining, according to the PSCA. More than 10% make them sit out a full year.

The same problem exists with employer matches, as almost a third of plans require nearly a year of service before they start kicking in. One influential provider has taken this delay a step further. IBM recently announced it would stop matching with every paycheck deferral and instead issue a lump sum in December. Leave before that date and you'll forfeit an entire year's worth of matches.

Why should you worry? Because you know you're not going to be at your company throughout your career -- workers spend less than five years per job. Say you're in your late forties, are near your peak salary, and are contributing the $17,500 annual pretax max. If you had to sit out of your 401(k) for a year because you changed jobs, there's no way you could make up that much pretax saving just through an IRA.

WHAT TO DO

Save based on your life stage. If you're in a waiting period, max out your IRA, then weigh your other savings goals. Let's say you're that late-40s high earner and you have kids. Take the difference between what you would have put into your 401(k) and what you're saving in your IRA, and redirect that sum into your children's 529 college savings accounts.

This may be more than you planned to sock away for college this year. But front-loading your 529 now may make it easier to afford boosting your retirement savings when you turn 50 and are eligible to save more in retirement plans. Starting at that age, Uncle Sam lets you stuff an additional $5,500 a year in "catch-up contributions" to your 401(k) and $1,000 in your IRAs.

Is your 401(k) plan letting you down?

Send a letter to the editor to money_letters@moneymail.com.