Getting the Most from Your 401k

Getting The Most From Your 401k

I have a 401k, but how much should I really be contributing?

Retirement? That’s a while off, no need to worry now, right? Wrong. The percentage you save from each paycheck is an important number and should steadily increase over the course of your career. Here are some more tips on how to make sure your 401k doesn’t come up short when you’re ready to retire.

1. Sign up today.

To take full advantage of your 401k, you need to have a 401k. And why not today? You may have the urge to wait until your car is paid off or you’ve tackled your student loan debt, but the sooner you start the more time you have to let the interest compound. Even a year or two can make a substantial difference.

2. Keep your 401k account off limits for those extra needs.

It’s tempting to dip into the growing money pool that is your 401k, but it’s smart to take a hands-off approach. Taking money out early means you get to pay a substantial amount ni taxes for it.

Plus when you take money out, you have to repay the loan relatively quickly, usually within five years, or if you lost your job, within 60 days. Otherwise, you may incur early-withdrawal fees. You also won’t be allowed to contribute anything to your 401k when you’re repaying your loan, meaning your savings account is on hold until the loan is paid.

3. Receive employer-matching contributions if offered.

The sooner you have an account the sooner you can receive this contribution if offered by your employer. If offered, generally your employer will match a percentage of your 401k contributions — which is exactly what is sounds like: free money!

4. Take advantage of rollovers.

Career change ahead? When you leave one job and enter another, you’ll have the option to:

  • take the money out of the 401k account (which will be heavily taxed),
  • leave the 401k to sit there (doesn’t make much sense), or
  • roll it over to your new job.

Why wouldn’t you roll it over, if your new job offers a 401k savings option. Just make sure you do the right paperwork and tada, you can roll over your account and start contributing after the allotted time your new employer sets. Just be sure to ask questions and follow all directions to avoid any hidden fees or penalties.

5. Watch out for fees.

Using an investment option with high fees attached to it means your 401k balance may be significantly lowered over the course of your career.

“Some 401k investments have very high costs, and you should pick the lowest-cost investment in your 401k plan that also matches [your] risk tolerance,” says Carolyn McClanahan, a certified financial planner for Life Planning Partners in Jacksonville, Florida. “If it’s a high-cost 401k plan, then maybe consider saving in an IRA instead of the 401k after you get the match.”

If you have any questions about your 401k plan, or with any of your retirement needs, call or stop by any one of our Banking Centers for more information.

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