For Mark Roberts’ Use: You already know that participating in your company’s 401(k) savings program is a great way to save for retirement while reducing your income tax liability. But to make the most of your 401(k) savings plan, remember these five rules:
Know your default savings rate. When you first started working for your company, you probably decided upon a savings rate. This is the amount of your check withheld and deposited into your 401(k) each pay period. Unless you’ve updated it, your savings rate may have remained the same all these years. It’s important to regularly review this amount, and ask yourself whether you’re saving enough for retirement. Perhaps in your twenties you signed on for a minimum savings rate of 3 percent, because you were saving for a home or other large purchase. Now that you’re earning more, you might need to increase that savings rate.
Sign up for automatic savings rate increases. If your plan offers this feature, take advantage of it. Each year your contribution will automatically increase by certain increment, such as 1 percent. If you expect regular annual raises, this is a great way to set aside extra money without even missing it.
Know your employer match amount. Many companies offer an employer match up to a certain amount, meaning they match whatever you deposit into your 401(k) account up to this limit. This is basically free money, so you might as well take all of it that you can. Review your contribution and make sure you’re contributing enough to take advantage of the full employer match offered.
Read those account statements. Many of us tend to overlook the statements which arrive regularly in the mail. However, it’s very important to open them, read them, and talk to your financial advisor if you have any questions. Regular involvement puts you in a position of better control over your money.
Never opt out. Don’t opt out of your company’s retirement plan, because you could lose important benefits. There may be a waiting period before you’re allowed to rejoin the program.