Are you close to retiring? Well, if you have a 401(k) plan, you must know by now that it’s the single best chance for you to maximize your retirement savings. But, contrary to what you might have heard until now, just having a 401(k) plan doesn’t necessarily mean you’ve settled for a sizable nest egg.
If you want to live worry-free during your retirement, you’ll need to do some extra research when it comes to your 401(k) plan. If you don’t know where to start, don’t worry. We made a list of 10 ways to improve your 401(k) plan, to make sure you’re taking advantage of it all.
- You can take advantage of the company match – One of the many reasons why 401(k) is great is thanks to the company match. While not all the companies participate, many will match a percentage of what employees contribute to the plan. Generally, an employer match is 100% of the first 3-6% of the salaries that employees contribute. If you’re earning $100,000 and your contributions are 5% of your salary to your 401(k) plan, you’re saving $5,000/year. If your employer matches 100% of contributions, you will have an additional $5,000 on your behalf.
- Increase your annual contribution level – While many financial advisors are recommending that investors save up at least 15% of their earnings, sometimes that’s just not so realistic. If you want to increase your contributions over time, without feeling the difference, raise your contributions by just 1% or 2% annually.
- Watch out for fees – Fees are the most uncomfortable aspect of any 401(k) plan. If you want to find a solution for that, try talking to your employer about finding another 401(k) provider.
- Choose your investments wisely – By putting money into a 401(k) plan won’t necessarily guarantee you a pot of gold waiting for you when you retire. No matter the amount of money saved, a simple account won’t give you what you need. You have to invest in something, like a form of stocks, bonds and other investments.
- Think about after-tax contributions – After-tax contributions don’t give you as many benefits as traditional pretax 401(k) contributions. If you’ve already maxed out your pretax contributions, you can still make after-tax contributions and benefit from the growth of investing that money.
- Avoid taking early withdrawals – If you’re in desperate need of money, you’d probably be tempted to see that big amount of money from your 401(k) plan. But you should resist the temptation, if possible. You’ll have to qualify for extreme hardship to get any money out of your 401(k) early, and if you succeed, you’ll face income tax and a 10% penalty on your distribution.
- Use free company resources – If your company offered you any kind of support with your 401(k), you should definitely take it. It will help you become a better and successful 401(k) investor.
- Get informed about a Roth 401(k) option – A Roth 401(k) is a new option in the retirement planning area, and not all employers offer Roth 401(k) retirement vehicles. A Roth 401(k) is an upgrade over an after-tax contribution to a 401(k) plan.
- Watch out for 401(k) loans – It’s true, a 401(k) might not be as damaging as an early distribution, but it can still be a minefield. Although you pay your interest on your 401(k) loan back to your own account, you’ll still miss out on the potential appreciation of the assets that are no longer there.
- Take advantage of the retirement savings contributions credit – Here’s something amazing: if you’re a lower-income employee, you can qualify for a gift from the IRS that will help turbo-charge your 401(k) plan. Take advantage of anything that could maximize the amount you can contribute to your 401(k) plan.