Here’s how to maximize your 401k retirement savings

401k retirement plans are considered the best and most hassle-free way to save for your later days. However, only 41% of US workers contribute to one and are aware of the financial strategies they can implement to make the most of it.

In this article, we will discuss how to take full advantage of your 401k retirement plan from beginning to end.

However, before we get into the nitty-gritty details of retirement savings and how to maximize a 401k, let’s learn a little bit about the basics.

What is a 401k plan, and why should you maximize it?

A 401k is a retirement savings plan offered by your employer, where you can benefit from tax-free investments until retirement. On signing up for 401k, pre-tax or post-tax dollars are directly contributed to the retirement account. Some employers even provide a 401k match to encourage you to save for retirement.

Shrewd it may sound, your fiduciary financial advisor will surely ask you to take the advantage of a 401k match.

However, you might want to question, why should you maximize your 401k retirement plan. There’s a simple answer to this: maxing out your 401k by the year will make a noticeable difference to your savings. The compounding of the contributions will help your wealth grow significantly.

5- Strategies to maximize your 401k account

Now that you know why you should maximize your 401k, let’s take you to the ‘hows’ of it. To be able to thrive with your 401k, these small changes and strategies are a thumb rule and are advised by top financial advisors.

1. Start contributing to the retirement account immediately

Most companies in the US offer a 401k program to their employees and encourage early retirement savings. If you haven’t been offered such, the best advice is to act now.

No matter how mediocre your contribution, set up a 401k account as early as possible to start investing. The more time your money gets to compound, the greater the return on investment.

2. Take advantage of your companies match

As already mentioned, several companies offer a company match for a 401k to encourage retirement savings. Taking advantage of the company match is the best decision to fruition; so is suggested by Los Angeles Financial Advisor, Samuel Rad.

To begin investing at a substantial level take a look at the options you are offered. Whatever match you get offered, you can add it to the retirement account.

3. Increase the 401k contribution by 1% every year

For 2022, IRS has finalized the 401k max contribution limit up to $20500. And an extra catch-up contribution of $6500 if you are 50 or older.

Whatever percentage you choose to invest, increase it by another percent every year. This gradual increase in investment will not impact your overall income, but will surely benefit the retirement nest egg.

4. Learn about the 401k vesting period of your company

How much of your 401k contributions do you own lest you leave the company? Sounds a bit tricky, right? Well, this is where 401k vesting comes into play.

A 401k vested balance refers to the contribution amount you can keep that the employer may have contributed. The vesting period varies from company to company, and the employee needs to stay with the company for that certain period before they are fully vested.

5. Roll over your 401k when switching a job

If the existing 401k plan with your previous employer no longer serves the retirement goal, rolling it over into your new employer’s plan is a good option. Rolling it over helps you keep a track of the retirement account, and also may give you access to lower fees or better investment options.

Maximizing 401k: the takeaway

For people with an extra budget, maximizing their retirement savings is having a quick-footed journey to financial freedom. And once done with maximizing a 401k, there are other smart options to diversify the investment portfolio.

When not to maximize your 401k plan?

Most people are advised to max out their 401k plan just for the perks of it. However, there are other finance foundations that need to be taken care of. So, before you go out and max out your 401k plan, there are some important questions you must answer for yourself.

• Are all your debts, loans, and bills paid?
• Do you possess an emergency fund?
• Is there a major financial milestone ahead? Like planning for a new home or welcoming a baby?
• Is your health insurance for yourself and for your loved ones covered?

If someone is struggling with their finances, and finding it difficult to make ends meet, maxing out 401k may not serve the best interest. There are other financial goals to prioritize than a 401k plan, as mentioned above.

Investments, retirement planning, and finances do not have to be difficult or incomprehensible. The financial journey can be made easier than ever by consulting a fiduciary financial advisor.

Why a fiduciary if you may ask? Fiduciaries are obligated to act in the best interest of their clients or customers and act on their behalf with trust and integrity.

Useful Resources:

Why would you choose a 401(k) plan?

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