Money Rule #3 - Max out your 401(k) (or equivalent employer-sponsored retirement plan) Employee Contribution.
Not able to max out? Don't let that stop you from contributing what you can toward your retirement. If possible, at least contribute up to the percentage your employer will match. There may be a waiting period from your time of hire until you are allowed to participate in the plan, but put that date on your calendar! You can also contribute to your own, individually owned IRA until you are eligible. And if you’ve delayed beginning your contributions, contact your HR department – you may be able to start contributing before the normal annual “open enrollment” period when you choose your benefit options for the coming year.
What Else Is Important To Know?
- Most employers will match a certain percentage of what you put in; in essence you are saving double of what you could save on your own, so take advantage of the savings up to the maximum they will match. Don’t pass up free money!
- If meeting the maximum match percent is a stretch, contribute as much as you can. Some plans will allow contributions as low as 1 or 2%. The important thing is to just get started.
- Increase your contribution percentage over time. When you get that 2% raise, increase your contribution amount by 1 – 2%. Some plans offer automatic yearly increases.
- The IRS has established annual limits on amounts that can be contributed to these types of plans. For 2018, the maximum amount that you can contribute to a 401(k) is $18,500 or 100% of compensation, whichever is less. Reference IRS Publication 590-A for details on other retirement plan contribution limits.*
- Employees age 50+ are allowed to make up to an additional $6,000 above the limit to 401(k) plans (known as “catch up” contributions) each year. IRS Publication 590-A has additional details for “catch up” contributions to other types of employer-sponsored retirement plans.
- It’s never too late or too early to start saving for retirement.
Make the most of your match today, your future self will thank you!
*Tax deductibility for retirement plan contributions may vary. Please consult your tax advisor.
(Inspired by: “The Index Card: Why Personal Finanance Doesn’t Have To Be Complicated” by Helaine Olen and Harold Pollack; Random House, 2016)