Maximizing Your 401(k) Can Mean Extra Thousands for Retirement
Maximizing your 401(k) retirement fund is a matter of planning and timing. Take a little extra care with both, and you could reap extra thousands of dollars for your retirement and tax benefits today.
Maximizing Your 401(k) Means Maximizing Employer Match
Nearly all companies with a 401(k) plan offer some kind of matching of employee contributions. The average plan will match between 4 and 6 percent of an employee’s pay. However, a recent study found only 54 percent of employees are contributing at the matching rate or greater. By not taking advantage of the highest company match, employees are leaving free money on the table.
Another recent study found another missed 401(k) matching opportunity for couples. According to a recent study, too often married couples split their contributions evenly among their respective plans. But if one company’s plan matches at a significantly higher rate, couples would be better off contributing more to that plan and less to the plan with the lower match.
Another benefit of maximizing your 401(k) contributions? Traditional plans lower your taxable income, which could make the difference in keeping you from getting bumped into a higher tax bracket.
Other Tips for Maximizing Your 401(k)
Don’t Cash Out Early: Withdrawing funds before age 59 1/2 will require you to pay income tax on the withdrawal, plus a 10 percent penalty.
Don’t Take 401(k) Loans: Borrowing from your 401(k) can reduce your retirement balance. If you leave the job, you may have to repay it quickly or face penalties.
Rebalance Your Portfolio: Failing to adjust from aggressive to conservative investments as you approach retirement can expose your savings to excessive risk.
Avoid Improper Rollovers: Failing to use a direct transfer (direct rollover) to a new plan or IRA can lead to mandatory income tax withholding, say Creative Planning article.
Don’t Ignore RMDs: Forgetting to take Required Minimum Distributions (RMDs) at age 73 triggers hefty penalties.
Links
The IRS has an article on how to fix common retirement plan mistakes.
Check out our blog post about finding your old 401(k) funds you may have left with old employers.
Lastly, you can learn more about our services here!
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