Key Takeaways

• • • Saving in your 401(k) when you’re young has advantages, but if you start later, you can adjust your investments to maximize your savings potential.
    • Take advantage of your company’s match.
    • Increase your 401(k) contributions as your salary grows.
    • Keep an eye on investment performance.

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    Whether retirement is a distant spot on the horizon or approaching quickly, it’s never too late to make the most of your 401(k) plan.

    What’s a 401(k)?

    A 401(k) is an employer-sponsored retirement savings plan. 401(k) plans are usually part of job benefits packages, allowing employees to save a portion of their salary in an account. Many employers match a portion of their employees’ contributions.

    There are two main types of 401(k) plans:

    • Traditional 401(k): You put money in before taxes and pay taxes when you take the money out during retirement.
    • Roth 401(k): You pay taxes on the money before you put it in, so you don’t pay taxes when you take it out during retirement.

    These plans come with many rules you need to follow to avoid penalties for early withdrawals as well as stipulations for required minimum distributions once you reach a certain age. Before making a withdrawal, it is best to seek advice from a trusted financial advisor or tax specialist.

    Consider these tips to make the most of your 401(k) plan:

    Start Saving Early

    The sooner you start saving, the more time your money has to potentially grow. You’ll also benefit from more employer contributions if they’re a part of your plan. You can use a savings calculator to see how much your money could grow over time. You can try Nerdwallet’s calculator here.

    If you’re starting late, it’s okay! You can still add more money to your 401(k) up to the yearly limit or what you can afford. After age 50, you can make additional catch-up contributions as well.

    Don’t Leave Money on the Table

    Many employers match employee 401(k) contributions. If possible for your budget, be sure you’re contributing enough to take advantage of this benefit.  For example, if your plan includes a 6% matching contribution, the company contributes 6% of your salary to your account after you save 6%.

    Grow Your Contributions

    It’s smart to “pay yourself first.” Most employers make it possible to automatically contribute to your 401(k) from your paycheck. When you get a raise, increase your 401(k) contribution accordingly as your budget allows.

    Watch Your Investments

    Choose investments based on your risk tolerance and how long you have until retirement to stay on track to meet your goals.

    • Some plans include life-cycle funds that invest in a mix of stocks and bonds, usually adjusting to more conservative investments as you approach retirement age.
    • Diversification across types of assets helps minimize risk and maximize potential returns in your account.
    • Remember that your 401(k) is a long-term plan. A diversified portfolio is designed to ride out ups and downs in the financial markets over time.
    • When making investment choices, consider fees, which can vary based on investment type and will reduce your earnings.
    • Investment choices can be confusing. You may want to consult a professional for advice. Some plans include access to advisory help, or you can use an outside advisor you trust.

    To Borrow or Not to Borrow?

    Some plans let you borrow money from your 401(k) for specific purposes. You pay yourself back, so there’s no bank interest. But remember, while you’re borrowing, your money is not invested and you have reduced your earning potential.

    The Future is Now

    Enrolling in your company’s 401(k) is an investment in your future and may provide tax advantages now. It’s never too late to get started and build your retirement savings.

     

    Investment products are not deposits or obligations of, or guaranteed by Lake City Bank or any other bank, are not insured or guaranteed by the FDIC or any governmental agency and are subject to investment risks, including possible loss of principal invested.