Right Now Is The Time To Max Out Your 401(k)
If you have a 401(k) account through your employer, right now is the time to max out your annual contribution, if possible. Not later today, not tomorrow, not in a few weeks after the kids are home from school. Put whatever you’re doing on pause, fire up whatever method you use to contribute (phone, web, smoke signals, etc) and schedule a contribution.
There’s not a whole lot of time left before the end of the year, and things will only get busier as the holidays get closer.
Why is this so urgent? Study after study has illuminated and bemoaned Americans’ lack of (or limited) retirement savings. If you’re like the majority of people, you need to save aggressively.
Not only will saving now pay off in the years to come, but there are some really great immediate benefits of maxing out your 401(k) contribution before the end of the year.
A Lower Tax Bill
Do you like to pay taxes? If you said yes, you’re lying. Probably.
For those who don’t like paying taxes, the good news is that all contributions to your 401(k) are tax deductible. For 2018, the maximum annual contribution amount is $18,500. If you’re over 50 years old, the amount is $24,000.
If you contribute the full $18,500 and you fall into the 24% tax bracket for 2018 (annual income between $82,501 and $157,500), that’s $4,440 you won’t owe the government next April. If you’re 50 or older and making catch-up contributions, you could save as much as $5,760. It’s hard to say no to savings like that.
Employer Matching (AKA Free Money)
As we’ve written about previously, employer retirement matching is a wonderful benefit to take advantage of as often as possible. It is literally free money.
Now, it’s important to remember that your employer may have a cap on the amount they’re willing to match, which is likely less than the full $18,500 or $24,000 maximum annual contribution. This doesn’t matter. Whatever matching your employer offers, it’s better than nothing and is absolutely worth taking.
No Financial Advice Required
One of the greatest things about employer sponsored retirement accounts is that you don’t need any professional advice or guidance to take advantage of them.
If you have a pile of money in your savings account, max out your 401(k) contribution first, and then consider calling a financial planner to talk about what to do with what’s left over.
Even if you barely understand anything having to do with investing and finance, and you aren’t going to pay for a financial advisor, maxing out your 401(k) is the best choice. Not because it’s necessarily the best way to save, but because it’s better than doing nothing at all.
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