Retirement might feel like a lifetime away, but making smart moves now can set you up for financial freedom later.
When it comes to saving for retirement, a 401(k) is one of the best tools available—especially if your employer offers matching contributions. But maximizing your 401(k) isn’t always straightforward, and it’s easy to miss opportunities if you’re not familiar with how employer-sponsored retirement plans work.
At B.I.G. Investment Services, we believe in helping our clients get the most out of their retirement plans by offering sound financial advice tailored to their unique goals. Today, we’re diving into everything you need to know, so you can make informed decisions and watch your savings grow!
What is an Employer-Sponsored Retirement Plan?
So, an employer-sponsored retirement plan, like a 401(k), is a retirement savings account your employer sets up for you. It lets you invest a chunk of your paycheck before taxes (or after taxes if you’re going for a Roth 401(k)). A great way to build your wealth over time is through your contributions, any investment growth, and sometimes even matching funds from your employer.
The great thing about these plans is the tax benefits! You get more bang for your buck compared to a regular savings account. Your contributions—and often your employer’s match—also grow tax-deferred until you withdraw them in retirement, which could lead to bigger returns for you down the road!
Employer Matching: Why It’s “Free Money”
If your employer offers a matching program, this is the closest thing to “free money” you’ll find in the investment world. They’ll match a percentage of what you contribute, up to a certain limit, which means you get extra funds just for saving for retirement.
For example:
50% Match: Your employer chips in 50 cents for every dollar you put in, up to 6% of your salary.
100% Match: Some companies go all out and match your contributions dollar-for-dollar, doubling what you save up to a certain percentage of your salary.
Skipping employer matching? That’s like leaving money on the table! Make it a goal to contribute enough to snag that full match—it’s an easy way to give your retirement savings a boost!
How to Maximize 401k: Investment Choices Within a 401(k)
A 401(k) isn’t just a savings account--it’s a smart way to grow your money over time! Most employer-sponsored retirement plans come with a variety of investment options.
Stocks/Equity Funds
If you’re on the hunt for higher growth potential, stocks and equity funds might just be your best buddies. They can offer fantastic returns, but remember, they come with a bit more risk. So, if you’re ready to embrace the thrill of the market, these could be a great fit for you.
Bond Funds
Looking for something a bit more stable? Well, bond funds could be your safe haven. Typically lower in risk, these funds can provide a steady income while still allowing your money to grow. Just keep in mind that while they might not soar as high as stocks, they can help balance out your overall investment strategy and keep some peace of mind.
Target-Date Funds
Ever wish someone could just handle your investments for you? Say hello to target-date funds! These clever options automatically adjust your investments as you approach retirement. They also gradually shift your money towards safer, more conservative investments over time, so you can focus on enjoying life while knowing your future is being taken care of.
Stable Value or Money Market Funds
Now if you prefer to keep things as safe as possible, stable value or money market funds are probably more your speed. These options are usually the least volatile, making them a comfy choice for those who want to avoid the ups and downs of the market. Just keep in mind that while they’re low-risk, they also tend to offer the lowest returns.
Finding the right mix for your 401(k) comes down to your goals, your comfort with risk, and your timeline. If you're younger, you might want to take a more aggressive approach, but if you're getting close to retirement, it’s probably better to focus on stability.
Employer-Sponsored Retirement Plans:
Contribution Limits and Withdrawal Rules
Contribution Limits
So, in 2024, if you’re under 50, you can put in up to $23,000 for the year.. And if you're 50 or older, you get to add an extra $7,500 as a “catch-up” contribution. Maximizing what you contribute not only boosts your retirement savings but also lowers your taxable income—talk about a win-win!
Withdrawal Rules
Now, if you think about withdrawing from your 401(k) before you hit 59½, be careful! You’ll face a 10% penalty plus taxes on what you take out. There are also some exceptions for hardship cases, but in general, it’s best to steer clear of early withdrawals.
Required Minimum Distributions (RMDs)
Once you hit 73, you’ll need to start taking minimum distributions from your 401(k). And if you don’t? The penalties can get pretty steep, so make sure to plan for those RMDs as part of your retirement strategy.
Options for Your 401(k) When Leaving a Job
So, you’re changing jobs? First off, congrats on the new opportunity! Now, let’s talk about your 401(k). You’ve got a few options to consider, and we’re here to help you navigate them.
Leave It with Your Old Employer
This might sound like an easy route, and it is! Most plans let you keep your 401(k) where it is, but keep in mind that this could limit your control over your investment choices. And if you’re okay with that, it’s a hassle-free option!
Roll It Over to Your New Employer’s Plan
If your new workplace offers a 401(k) and is open to rollovers, this could be a smart move. It helps you keep all your savings in one place, making it easier to manage. Plus, you also get to continue building your retirement nest egg without missing a beat!
Roll It Over to an IRA
An Individual Retirement Account (IRA) could be your ticket to more investment options and potentially lower fees. It’s a great way to take charge of your retirement savings while enjoying a bit more flexibility.
Cash It Out
While it might be tempting to take the cash now, be cautious! This option comes with taxes and a possible 10% penalty if you’re under 59½. Plus, dipping into your retirement savings can set you back in the long run.
Now, rolling over your 401(k) is often the best way to go when switching jobs. It keeps your savings intact and allows them to grow tax-deferred, giving you a leg up on your retirement goals.
Tips to Maximize Your 401(k) Contributions
Start Early
First things first—time is your best friend when it comes to investing. The earlier you start contributing, the more time your money has to grow. Imagine the difference a few extra years can make!
So, if you haven’t started yet, now’s the perfect time to jump in!
Increase Contributions Gradually
Feeling like you can’t contribute a lot right away? No problem! Aim to boost your contributions a little each year—even if it’s just by 1%. It’s a small step that can lead to significant growth over time.
Plus, you won’t even miss that extra bit!
Contribute Enough to Get the Full Match
Here’s a golden nugget: your company might match your contributions up to a certain amount. This is free money, so make sure you’re contributing enough to snag that match! It’s like leaving cash on the table if you don’t take full advantage of it.
Reevaluate Your Investment Mix Regularly
As life happens, your goals may change—and that’s totally okay! Take some time to review your investment strategy regularly. Adjust your mix based on your current needs and future aspirations. It’s all about keeping things aligned with where you want to go!
Consider Catch-Up Contributions
Are you 50 or older? You’ve earned the right to boost your savings with catch-up contributions! This is a fantastic opportunity to supercharge your retirement savings as you get closer to that finish line. Don’t let it slip by!
When to Seek Professional Advice on Your 401(k)
While 401(k)s are meant to be straightforward, they come with a bunch of details that can really impact your retirement plan savings. Chatting with a financial pro can be super helpful, especially if:
You’re close to retirement and need some advice on how to withdraw funds and keep your taxes low.
You’d like help picking the right investments that match your personal goals.
You’re switching jobs and aren’t sure what to do with your 401(k).
You want to make sure you’re maximizing your contributions and getting the most out of your employer’s matching.
So if you're ready to maximize your 401(k),
Contact B.I.G. Investment Services Today!
We’re here to help you navigate these choices and craft a plan that fits your financial goals. Our experienced financial advisors are ready to answer your questions, optimize your investments, and give you the peace of mind that you’re on the right path.