3 Smart 401 (k) moves you can do now – The Fool Motley

Storing money in a 401 (k) regularly already gives you a head start. One in three Americans has less than $ 5,000 in retirement savings, and one in five has nothing at all, according to Northwestern Mutual. But for the best retirement to be comfortable, you need to do more than just pay 401 (k) contributions. Here are three 401 (k) changes you should do right now to maximize your savings.

1. Enjoy any employer match.

401 (k) equivalent employer funds relieve some of the burden of saving for retirement, and you should not leave them when they were available to you. Unless you need all your money to cover your basic living expenses, set aside at least enough money for your employer to be on a par. Ask your employer what it is if you are not sure.

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This alone may not give you enough savings to help you reach your target retirement goal. Calculate how much you should save each month by estimating your annual living expenses at retirement. Multiply this number by the number of years of your planned retirement and add 3% per year to inflation. A retirement calculator can do this for you, and it should also ask about the rate of return on investments. The use of 5% to 6% is a conservative method of estimating, even though your investments may grow faster than that. Your calculator should tell you how much you need to save overall and per month to reach your goal. Subtract all the funds paid by the employer to determine what you need to save on your own.

Try to increase your contributions to 401 (k) at this level if possible. If this is not the case, contribute as much as possible and try to increase your contributions by 1% of your salary per year until you reach your goal.

2. Understand the acquisition schedule of your 401 (k).

If your employer offers a 401 (k) match, it probably also has an acquisition schedule. This determines when you keep equivalent funds. If you leave the company before the plan is fully vested, you may lose some or all of your employer counterparty.

Companies are taking different approaches with regard to acquisition schedules. Some offer immediate acquisition. Others require that you work for the company for a number of months or years before your rights are acquired. And still others have phased acquisition schedules where, for example, you keep 25% of your equivalent funds after one year, 50% after two years, and so on.

Talk with your company's Human Resources department if you do not know how the acquisition schedule works in your company. This will probably not be a problem if you are planning to work for the company in the foreseeable future, but if you are planning to change employers, you may want to extend it a bit until you reach the end of the business. that you are completely so that you can take all your employer-matched funds with you.

3. Take steps to reduce your costs by 401 (k).

Yes, your 401 (k) charges a fee, whether you know it or not. They are often charged directly to your account as a percentage of your 401 (k) holdings each year and, over time, they weigh on your investment earnings. Some of these fees cover administrative tasks, such as record keeping, while others may be directly related to the investments you choose. Small businesses are generally 401 (k) more expensive than larger firms, partly because they have fewer employees and partly because they are less able to support administrative costs.

Check your investment prospectus and plan summary 401 (k) for the fees you pay. You can also ask your plan administrator or the human resources department of your company if you do not know where to find this information.

Ideally, you do not want to pay more than 1% of your assets a year. This may seem like little, but it costs $ 10,000 on a $ 1 million wallet. Discuss with your employer the possibility of offering more low-cost investment options, such as index funds – mutual funds that passively follow a market index – if you pay more than 1% of your assets in fees each year. If the company refuses, consider transferring your money from your 401 (k) to an IRA. You will have more choice of investments and the costs are generally lower.

Remember to stay if your 401 (k) employer match covers your expenses, however. You are allowed to contribute up to $ 19,000 to a 401 (k) in 2019 or $ 25,000 if you are 50 or older, while you can only contribute $ 6,000 or $ 7,000 to a IRA. These higher contribution limits are a bonus if you plan to put a lot of money into retirement this year or if you start saving for retirement late and need to catch up.

If you have not followed any of the three steps mentioned above, now is the time to do it. They will not take long, but they can make a significant difference in your 401 (k) balance when you are ready to retire.