5 Ways to Get the Most Out of Your Retirement Savings

5 Ways to Get the Most Out of Your 401(k)

Planning for retirement has become increasingly essential as companies move from pensions to retirement plans like 401(k)s and IRAs. Read on to learn how to maximize your retirement savings and pave the path for a solid financial future.

#1: Maximize Contributions

Many employers offer 401(k) plans for retirement savings, and some may even automatically enroll their employees. However, while there may be a suggested or automatic enrollment amount set by your employer, such as 3% of your salary, you should always plan on maximizing your contributions as your budget allows. The more money you are able to contribute, the better off your savings will be at retirement age.

Every year, the Internal Revenue Service (IRS) determines contribution limits for 401(k) plans and IRAs. In 2022, the contribution limit for a 401(k) was $20,500 per person compared to the $19,500 per person limit that was set in 2021.

Because the limits change each year, it’s important to review the IRS website to ensure that you are maximizing your funds and adjusting your contributions to continue to grow as you wages do over time. You can work with your company’s benefits specialist to increase your payroll deducted contributions. Most 401(k) providers, including Slavic401k, make it easy to change your deferral amount online.

#2: Utilize 401(k) Match Programs – AKA Free Money

Many employers today offer 401(k) match programs that help employees enhance their retirement savings efforts. Matching programs are structured so that an employer matches the same percentage their employees are contributing to their retirement accounts each year.

For example, if your employer offers a 4% match program, then they will match contributions up to 4%, as long as you are also contributing that amount. You should always contribute the maximum match amount or more if your budget will allow it. For example, if you only contribute 2%, then your employer will also contribute 2%. However, you’d be leaving behind 2% of the matching contributions available from your employer.

To learn more about employer match programs, read:  Are You Turning Down Free Money? Everything You Need to Know About Employer Match 401(k) Plans.

#3: Understand Your Employer’s Vesting Schedule

If your employer offers a 401(k) program, there is likely a vesting schedule baked into the terms and conditions agreement. Vesting schedules are utilized to reduce turnover and encourage employee retention.

Vesting schedules work by associating retirement funds with a timeline to fully own the funds. For example, you get to keep a larger percentage of the employer match the longer you stay at the company. If they match 4% of your contributions, then you may be eligible for 50% of the funds after two years of service, and 100% of the funds after three years of service.

In addition to a vesting schedule, there are different types of vesting that a company may utilize, including:

  • Cliff vesting
  • Graded vesting
  • Immediate vesting

The details vary with different employers, so it’s important to read through your plan and understand what the terms are before you make a career change. Learn more about vesting schedules and the different types of vesting here.

#4: Roth 401K

Another way to maximize your retirement savings, according to Investopedia, is to utilize Roth 401(k) contributions. Roth contributions are made after they’ve been taxed. They follow the same contribution limit structure determined by the IRS, and are tax-free once you are eligible to  withdrawal funds.

Having a Roth 401(k) provides benefits to employees who are in lower tax brackets and plan to move into higher brackets as they near retirement. The prominent benefits of the plan include:

  • Tax-advantaged
  • Utilizes company match programs
  • Tax-free distributions
  • Low-effort investment options
  • Easily transferrable

While this plan is a solid option, you should learn more about it before you enroll and start contributing funds. Read our blog about choosing a Roth 401(k) to learn if it’s the right option for you.

#5 Diversify Investments

When utilizing a 401(k) plan, it’s important to diversify investments to mitigate risk. Make sure you have a healthy mix of investments, including stocks, bonds, commodities, and others that can help you amplify your retirement without considerable risk.

While many companies offer a mixed investment portfolio for their employees, you always have the option to manage your investments yourself. Make sure you understand the guidelines of your plan so you can make the appropriate decisions that align with your retirement needs in the future.

Before making changes to your 401(k)-retirement strategy, it’s good to discuss your needs and budget with a financial advisor to ensure you stay on track. Maximizing your contributions is important, but so is maintaining an everyday budget. Make sure you’re able to balance your changes so you can have a solid financial foundation in the present and future.

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