When I walked across the stage to get my diploma, the term 401k meant absolutely nothing to me. I was more concerned about getting a job than how I was going to retire. When I got hired, I was just happy to have a job with a salary. I was fortunate enough to get a great paying job, but also one that came with benefits. One of those benefits was a 401k plan.
If you work with a company who offers a 401k program, you want to make sure you are getting the most out of your retirement plan as you can. You are working hard, and your 401k should be working just as hard. Today, I’m going to show you how to get the most out of your 401k.
Start Contributing
The first step to getting to most out of your 401k is to actually put money into it. This
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DON’T cash out your account, you’ll end up paying for all kinds of taxes and penalties for cashing out your 401k early.
Maximize your tax break
A traditional 401k plan allows you to not pay income tax on the money you save for retirement. Be aware of your contribution limits as these are adjusted each year.
According to the Society for Human Resource Management the defined contribution plan limits for 401k plans are as follows:
Maximum employee elective deferral- 18,000
Employee catch-up contribution (if age 50 or older by year end)- 6,000
Keep Contributing
Don’t just accept the default savings rate. Often this rate can be as low as 3 percent. While 3 percent is better than nothing, for most 3 percent won’t be enough to maintain your current lifestyle when you retire. Fidelity suggests you contribute at least 10%.
Don’t touch your 401k before you retire
You might be tempted to dip into your retirement fund for a major purchase, find the will to resist. You’ll pay extra fees and taxes, and you are robbing your future self. If you leave it alone, your money will continue to grow year after year. Your gains can be reinvested and you’ll earn more than you would have with just a small chunk of
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