Navigating Your 401(k)

August 21, 2019 by First Federal Bank

Close up of someone's hands punching numbers on a calculator and filling out a formWhether retirement is far off in the future or right around the corner, you need to start planning for it now. Starting with your 401(k), the following tips will help you navigate the complexities of saving money when you’re officially off the clock.

401(k) 101

Although there are a myriad of ways and accounts available to help you plan for retirement, the 401(k) has become the well-known standard, since Congress got the financial ball rolling with the 1978 Revenue Act. Today, the retirement plan is offered by most employers and uses pre-tax deductions from your paycheck, helping you build a savings nest egg over time.

Its pre-tax status is just one of the benefits of a 401(k) plan. You’ll also earn more with employer match programs, a flexible way to invest your money, the opportunity to take it with you when you change jobs and a source for emergency funds, reports The Balance writer Joshua Kennon.

“Millions of workers depend on the money that they have saved in this plan to provide for their retirement years, and many employers use their 401(k) plans as a means of distributing company stock to employees,” according to Investopedia writer Mark P. Cussen. “Few other plans can match the relative flexibility that 401(k)s offer.”

401(k) updates

The more money you put into your 401(k), the better, but there are limits to both your personal and your employer’s contributions. To the betterment of your financial bottom line, 2019 is upping the ante.

“The amount you can contribute to your 401(k) or similar workplace retirement plan goes up from $18,500 in 2018 to $19,000 in 2019. Catch-up contribution limits if you’re 50 or older in 2019 remain unchanged at $6,000 for workplace plans and $1,000 for IRAs,” reports Forbes associate editor Ashlea Ebeling.

To take advantage of the higher limits in 2019, be sure to review how you’ve elected to contribute to your plan. Ebeling notes that you’re not limited to your company’s open enrollment period, but instead can change it up any time during the year.

With the increased contribution amount for 2019, be careful you don’t go over the imposed limits, warns Camilo Maldonado, Forbes contributor and co-founder of the blog The Finance Twins. If you do, you’ll be subject to a fine. If your salary changes, be sure to review your 401(k) contributions, he adds.

401(k) optimization

If your contributions fluctuated throughout the year or you didn’t take advantage of your company’s 401(k) plan until the year was underway, Maldonado recommends finding out if your company’s plan comes with a “true-up” benefit.

“A true-up is done at the end of the year and ensures that you’ll get the maximum matching contributions that you earned and qualify for based on your annual amount contributed,” reports Maldonado.

Even if the 401(k) plan offered by your company seems comparable to other companies’ offerings, it’s important to read the fine print on your specific plan. Your company’s plan may have unique features or contingencies that can yield you a greater investment for your future.

Categories: Retirement, Financial Education

Leave us a comment and join the conversation.