How to Max Out Your 401k Contributions

Contrary to popular belief, there’s no need to wait until a new year (or decade) to get things checked off of your to-do list. In fact, there’s no better feeling than knowing you’ve completed some accomplishments, whether big or small – to close out the life chapter of a year with a bang. The demands of the holiday season sometimes allow us to forget to take a look at what can be done financially to better position ourselves prior to the upcoming year. If you’re looking for ways to increase 401k contributions and make your money work for you, you’re in the right place! Keep reading to learn some helpful and very impactful tips to make the most out of your retirement plan.

Check employer-matched benefits

Most employer-based plans offer matching up to a certain percentage of your own personal contributions or salary. For example, if your employer offers up to six percent, make sure you are contributing at least six percent to reap all of the benefits. There’s also what’s called a vesting schedule – essentially meaning you have to remain with that employer for a designated amount of time before the contributions from your employer are 100% yours. This protects the employer from losing funds as well as employees. What happens if you resign before the vesting schedule is in effect? Unfortunately, the contributions go back to the employer and are not yours to keep. Be sure to check with your employers’ Human Resources department or your specific 401k provider for more details.

 Diversify your investments

When it comes to investing, would you consider yourself more conservative or highly aggressive? No matter where you fall on this spectrum, there is a portfolio mix for everyone! The number one goal here is to ensure you are getting the best returns possible on your investments. This isn’t always the case, however, when you’re younger, you can assume more risk than if you are closer to approaching retirement. It’s mainly important to make sure your portfolio has a solid mix of investments. Stocks, bonds, mutual funds, and index funds are just a few examples that are available to you. If one area isn’t performing well, there are other investment types available making sure the amount of money potentially lost is kept to the absolute minimum.

 Increase the contribution amount

This may sound like a no brainer, but if you can – increase your contribution amount! There are many 401k calculators available online that allow you to enter many data points – such as age, total 401k savings amount goal, retirement age and so much more. While this shouldn’t replace seeking out the assistance of a financial advisor, it can help you understand how much you should be contributing over a course of time to reach the amount desired. Many 401k providers offer online simulations that can assist in your decision making as well. According to the IRS, the 401k contribution amount for 2020 is now $19,500, increasing by $500 from 2019.

 Participate in catch up contributions

If you are at least 50 years old, this benefit is specifically for you! Catch up contributions is just what the name implies; you’re able to make additional contributions to your 401k account. For the upcoming 2020 year, the contribution limit is now $6,500, also an increase of $500 from 2019. All employer-based plans are not eligible for this, so please consult with your provider along with the Internal Revenue Services’ website to verify this information.

 Explore other retirement plans

Have you already completely maxed out your 401k contributions? A Roth 401k could be an option for you. Unlike the traditional 401k, the contribution amount is made after-tax. However, this could be a good option for those that may want no hassle upon retirement to withdraw funds. Since you’ve already covered paying the taxes on your contributions upfront, no taxes will be taken out when you decide to use the money in retirement. Also, there is no income limit on a Roth 401k! No matter how much money you earn, you are still able to contribute.

 Discuss your goals with family and friends

If you’re saving more aggressively, this will for sure have an impact on the way your day-to-day spending habits. While most can be minor adjustments such as limiting a coffee run or making your own breakfast in the morning, there may be some instances where you’ll miss out on the monthly meetup with friends or pass up on that weekend trip with extended family. For those members closest to you, feel free to have a conversation discussing your goals. This could be an opportunity for all parties to discuss the various maximization methods they use, while also having an accountability partner in the process. Never feel guilty for making short-term sacrifices to achieve long-term goals. Remember, all sacrifices are temporary! One year of financial focus can change your life. Contributions can always increase or decrease based on personal circumstances. Prepare now to secure your future so you can enjoy all of the benefits in your later years of life.

 Consult with a financial advisor

Is all of this information overload? If so, there’s no harm in seeking professional advice from trusted advisors. Dedicating the time to sit with a professional to discuss your personalized goals will definitely give you the extra boost of confidence you need to not only fully commit with the proper knowledge – but have the internal surety you’re making the right financial decisions for your future.

 As the days are swiftly passing and we bring another year to a close, don’t put off making changes to things today – especially when it comes to your family, finances, and future. Holidays, traveling and so many other factors have the ability to wrongly steer our focus in the last quarter of the year. Don’t forget to secure the things that matter most financially, guaranteeing the gift that keeps on giving – peace of mind you’ve done the work to maximize your investments.