Friday, February 5, 2016

Tips for Making the Most of Your 401K

In recent years, thanks in large part to pensions becoming less widely available, 401(k) plans have become the option of choice for those planning for their retirement. These plans, while beneficial, can sometimes cause confusion. Most people don’t know how much to put into these accounts or whether they should even have one, but with a little advice from us and your financial advisor, you can make smart decisions about how much to contribute.   


Busting the Match Myth

Most employers are willing to match 401(k) contributions but only up to a certain amount, usually around 6%. Thus, many people who have these plans only contribute up to that 6% mark and then stop.

It’s important to know, however, that it’s usually best to contribute more than that. In most cases, the IRS allows up to $18,000 in elective 401(k) deferrals. Those who are 50 or older can even contribute more if they wish, currently a whopping $6000 more!

Know Your Contribution Limit

While you do want to contribute more than 6% if you can, it’s important that you do know the limits the IRS has put in place for contributions. Do bear in mind, however, that though these limits apply to most people in the respective categories, it’s always best to check with your investment advisor as there may be special considerations in your case:

Elective Deferrals Limit: $18,000
Total Contribution Limit for 50+: $59,000
Total Contribution Limit with employer contributions: $53,000

As mentioned, an investment advisor really is your best bet for making the most of these tips and for making the most of your 401(k) in general.


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