You’ll need income in addition to Social Security if you don’t want to have to stress about money matters in retirement. And that’s where your personal savings come in.
If you have access to a 401(k) plan through your employer, you have a solid opportunity to build yourself a nice nest egg. But it’s important to take full advantage of that savings plan. And if you fall victim to certain blunders, you might really miss out.
Now the good news is that the following mistakes are all correctable — but only if you move quickly. You only have until the end of the year to address them.
Mistake #1: Not snagging your full employer match
Many employers who offer 401(k) plans also match worker contributions to some degree. Now those matching programs really do run the gamut — you may be entitled to a dollar-for-dollar match up to, say, $3,000 or $4,000 in annual contributions, or you may be entitled to a 50% match, up to this year’s maximum allowable limit ($20,500 for workers under 50).
No matter what your company’s matching program looks like, it’s imperative that you do your best to claim your match in full. If you don’t, you’ll end up leaving free money on the table. But to snag that full match, you’ll need to finish funding your 401(k) by the end of the year.
Mistake #2: Not maxing out when you can
Given the way inflation has been soaring this year, a lot of people have had to make cutbacks in order to cover their basic needs, like housing and food. And so you may not be in a position to contribute the max to your 401(k) this year — and that’s OK.
But if you’re doing well enough financially to be able to part with $20,500 for your 401(k) plan ($27,000 if you’re 50 or older), then it pays to max out. The more money you put into your 401(k), the more of an immediate tax break you’ll enjoy — assuming you fund a traditional 401(k), of course. But that’s a benefit you shouldn’t give up.
Mistake #3: Misunderstanding catch-up contribution rules
Many people get confused when they learn about 401(k) catch-up contributions. And to be fair, the terminology is kind of misleading. After all, just how far behind on savings do you have to be to take advantage of that catch-up option?
The answer is, your balance doesn’t matter when it comes to catch-up contributions. Once you turn 50, you’re allowed to make catch-ups in your 401(k) — period. It doesn’t matter if your balance at that point is $20,000 or $2 million. If you’ve been tripped up by that rule in the past but can afford to make this year’s catch-up, do so.
Be sure to get moving
Because 401(k) contributions are payroll-based, your employer may need a heads-up if you’re looking to change your savings rate. That means you should really make sure to correct these mistakes as soon as possible. If you wait until late December to ask to ramp up your contributions, it may be too late to have them count for 2022. So the sooner you submit your request to your payroll department, the better.
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