Maximize Contributions. The 401(k) rules allow you to contribute up to $16,500 in 2009, and if you're 50 or older this year, you can go as high as $22,000. So, are you on schedule to maximize your 401(k) contributions?
- Ask your human resources department to give you an estimate of what your total contributions will be for the year. If you're behind, consider increasing your cotributions so that between now and December 31 you take full advantage of the tax savings available.
- Remember, saving in a tax deferred vehicle is the fastest way to build your retirement assets. If you're in the 25 percent tax bracket and save $10,000 in your 401(k), then the full amount goes into the plan. If you don't put it in the plan, after you pay taxes, you're only left with $7,500. The choice is pretty clear.
- If your employer matches say 50 percent of pay up to 6 percent, then make sure you're contributing at least 6 percent, because that takes your contribution from 6 percent to 9 percent. That's a 50 percent increase in your savings rate just by fully utilizing the match.
- If you aren't sure how the match is calculated, contact your human resources department and find out what you need to do to fully participate in any match.
- While you're individual goals will dictate how you proceed, it's a good idea to confirm that your account is balanced between stocks and high quality bonds, and that you are well diversified in your holdings.
- Most people have a hard time figuring this out. So if you're confused, make sure you ask for help. If you don't have your own advisor, you can try the 401(k) provider's resources. They often have individuals available to guide participants through the options in the plan.
- Just look at how quickly the market bounced off its March lows. Those waiting for the right time to get back in probably locked in losses during the decline and will now try to buy back in at higher prices.
- Those who have continued to invest every month through their payroll deferrals have seen some big gains on the money they added to stocks between February and May, and they didn't have to time a thing.
As with all financial matters, consult your individual advisor prior to making any financial decisions.
Photo from Flickr, courtesy of tiarescott, CC 2.0