Having a 401(k) plan can be terrific, but that does not mean it’s a self-maintenance (or no maintenance) benefit that magically takes care of itself and provides the key to an enjoyable retirement merely by virtue of its existence – a 401(k) has to be maintained wisely to produce the best possible savings outcome when you reach the end of your working years.
There are basically two phases during the time you have a 401(k) when you have to take particular care that you are doing the right things with it: while you are still with your employer, and after you leave to move on to another position. If you’re not careful, it’s easy to make key mistakes during both of these periods which can significantly impact how much money you ultimately have for retirement. In this article, we want to discuss some of the ways to manage your 401(k) while you are at your present employer to be sure you’re getting the most that you can out of your retirement plan.
Contribute as much as you can. It’s not enough to simply “have” a 401(k) – you have to contribute as much as you reasonably can to it. If you’re under 50, that means you can put up to $16,500 during a single year into the plan, and if you’re over 50, that maximum annual limit jumps to $22,000. Many people may not be able to approach these limits with their own contributions, but it’s important to contribute as much as possible.
If your company’s 401(k) offers matching contributions, be mindful of what those limits and/or rules are, and take maximum advantage of them. For example, if your company will match half of your contributions up to 5 percent of your earnings, then do what you can to be sure you’re contributing at least that 5 percent – a company’s match on that basis translates into a 50% return on your contributions right off the bat! If your company offers preferred matching based on the purchase of the company’s stock, take advantage of that through your allocation set-up, as well (one cautionary note on that is that you want to be careful not to have an inordinate amount of your plan assets, overall, in the stock of any one company, including your own).
Don’t TOUCH it! Try to remain mindful of why you have a 401(k) in the first place: it’s there to help you save as much as you can toward true retirement…that point in your life when you simply cannot work any longer. Accordingly, do not tap your plan for loans or other withdrawals that will have serious, long-term consequences to the earning potential of your retirement plan.
In the end, a 401(k) is a great tool, but that’s exactly what it is; much like a hammer, a 401(k) has the option of remaining entirely unused, used in an unproductive or otherwise destructive fashion…or wielded properly to build something great and lasting. How will you use yours?
James L. Paris and Robert G. Yetman, Jr.
Christian Financial Planner
None of the information contained in the above article is intended to be, nor should be construed as, a solicitation or recommendation to buy or sell any security, or engage in any financial transaction whatsoever. It should be noted that, at any given time, the author(s) may or may not own any of the securities or other financial products mentioned in this column. Furthermore, it is strongly suggested that you seek the advice of an appropriate financial professional before making any changes or implementing any decisions with regard to your personal financial profile.
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