Most people look at their 401k and examine how much they have contributed during year end. We know this because most people talk about it during November and December when everything is set and done. Some think a little further ahead and try to plan for the next 12 months during year end but unfortunately most don’t. Therefore, I suggestion today that we all log into our 401k account to increase our contribution rate!
The beginning of the year is a great time to increase our contribution rate because the change will be reflected the entire year. Unless you are already at the contribution maximum, I suggest contributing an additional 2% this year. 2% won’t be much off each paycheck, especially since taxes won’t be charged immediately on the 2%. Furthermore, 2% is a lot of money if you keep on contributing your career earnings into it, especially since compound interest will work in our favor through the years.
Speaking of 401k contribution rates, many plans offer a way to automatically increase the contribution rate each year. This is a great feature for those that always put things off as it will automatically increase our savings each year! Remember, automatic savings is always good!
I know that it’s always hard to decide to invest more money into our retirement when the stock market is down. Trust me on this one though, because everyone will thank me years down the road when we are wealthy.
- E*Trade IRA - Official Site
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{ 9 comments… read them below or add one }
I found a couple of years ago after I did my year-end stuff that Quicken had a little trick that was helpful. It re-calculate my W-4 withholdings so I could contribute more to my 401k, and still end up seeing the same amount of take-home. I’d always gotten some back from taxes, so this was a neat change. (no return=no free loan to the govt). I’m sure there are on-line calculators to do the same thing nowadays.
Randall: That is a very good tool for most people! Unfortunately I can’t really take advantage of this since my income is a variable but I will definitely let people know about this feature in Quicken!
When the market is down is precisely the time to invest more
Interesting post, I’ll keep this in mind.
-Mike
I just wrote an article on my blog about “taking control of your 401(k)”. There have been many recent articles lately detailing the excessive fees in these employer-sponsored plans. You may find it interesting that there is a “way out” for participants to take full control of their plan assets into an IRA and seriously minimize their ongoing expenses through index funds or direct holdings.
That is something we should all look at at least once a year.
Best Wishes,
D4L
Great Post. I’ve included as one of my favorites from the Carnival of PF. I like the concept of squeezing the 401k tournip a little at the beginning of the year. Like you say at 2% you’ll hardly notice (especially as it’s often pre-tax contribution). Goes along with my 2008 resolution to max my ESPP to get all of it’s free money out and try and max my 401k (which isn’t an easy task!).
Teaspoon
Arohan: It is something that is hard to do but definitely timeless advice
Teaspoon: This is definitely something we should all do! I’m sure that as long as you keep at working on increase your contributions and saving more money, you will maxing out your employer match in no time! Good luck!
Agree — even making the minimum increase possible will add up over time.