3 Smart 401(k) Moves to Make in the New Year

Saving for retirement independently could spare you a world of financial stress once your career comes to an end. That’s because Social Security most likely won’t pay you enough money to live on, so you’ll need income outside of those benefits to keep up with your bills as a senior.

If you have access to a 401(k) plan, you have a prime opportunity to build yourself a nice nest egg. And here are three essential moves to make in your 401(k) at the start of the new year.

Image source: Getty Images.

1. Ramp up your contribution rate

In 2022, 401(k) savers get a little more leeway with contributions. That’s because the contribution limit is rising by $1,000 over 2021’s levels.

Next year, you’ll have the option to sock away up to $20,500 in your 401(k) if you’re under the age of 50. If you’re 50 or older, your catch-up contribution will hold steady at $6,500. But with that $1,000 boost, it’ll bring your total allowable contribution up to $27,000.

If you’ve been maxing out your 401(k) in recent years, you may need to change your contribution level to account for this change. And if you don’t normally max out your 401(k), which is totally understandable, you may want to at least do your best to increase your savings rate a tiny bit — even if that means sneaking an extra $30 or $40 into your plan every month.

2. Find out what your employer match entails

Many companies that sponsor 401(k) plans also match worker contributions to different degrees. Your employer’s matching program can change from year to year, though, so spend a few minutes digging around and finding out what it looks like for 2022.

It may be that your company used to offer a dollar-for-dollar match on up to $2,500 in contributions. If that offer has now increased to a dollar-for-dollar match on $3,000 in contributions, that could prompt you to sneak extra money into your 401(k) to avoid leaving free cash on the table.

3. Review your investments

Investing your 401(k) too conservatively could cause you to fall short on meeting your retirement goals. Take a look at how your savings are invested. If you’re many years away from retirement, you should be putting the bulk of your savings into the stock market to generate more robust returns.

You should also check your investments to make sure they’re not resulting in overly high fees that eat away at your returns over time. Generally, you’ll do better fee-wise with index funds, which are passively managed, than with actively managed mutual funds. That’s because actively managed mutual funds employ people to handpick investments, and your fees help pay their salaries.

It’s also common to invest a 401(k) in a target date fund. But these funds can be fee-heavy, as well, so be careful about keeping your money there.

Saving in a 401(k) is a good way to secure your financial future. Make these key moves at the start of the new year to set yourself on a solid path.

The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

The Motley Fool has a disclosure policy.

Leave a Reply

Your email address will not be published.