As we enter in the home stretch of 2018 one important financial tool to explore is your 401(k). Over the years I have been asked so many questions about what to do with a 401(k), how much to put away, what is the best investment allocation, and my all-time favorite – is it too late for me to start saving. If you’ve ever had any of these questions in the past or perhaps they are still lingering, you should know that you are not alone. The majority of employed Americans have the burning desire to know if they are doing the right thing when it comes to preparing for retirement and I would argue that even when you are fully participating in what your employer offers there is still some doubt that looms. But, no matter what stage of planning you are in there are some important considerations for 2019.
Contribution limits going up
Beginning in 2019 the annual contribution limits will increase to $19,000 for workers under the age of 50 and $25,000 for those 50 and over – an overall $500 increase in both categories. This may not seem like a lot off top but the way compounding works it will definitely boost your nest egg and an even greater benefit is that it reduces your tax bill for 2019. Action step: Have the extra $500 deducted from your paycheck if you have been contributing the maximum annually. And if you haven’t – you are practically leaving money on the table. Contributing the maximum of at least up to what your employer matches is definitely a recommendation in order to capitalize on your employer’s contribution.
Required Minimum Distribution
If you have reached the age of 70 ½ then it is time to speak with your financial representative about taking the required distribution from your retirement account. Whether you need the funds or not, the IRS sets a minimum amount that must be distributed from your account by a specific age. Primarily because the money in your retirement has been saved and invested with pre-tax dollars and at some point, Uncle Sam has to collect what is owed to him. The total amount that needs to be withdrawn is based on your account balance and your life expectancy and if it is not taken you can be penalized 50% of the amount that you were supposed to remove. Ain’t nobody got time for that. Action step: Talk to your financial representative about your timeline and options for withdrawal.
Review your investment allocation
I check my retirement account balance and investment allocation quarterly. It’s not necessary to review it that frequently but it has become a habit of mine after one year I forgot to switch to an investment allocation that I intended and it affected my overall return. It is good practice to review your account at least annually to confirm that your investments and contributions are fitting for your goals. You may need to shift some things around based on life events. Action step: Log in to your retirement account and check the performance and fees. Explore the retirement account simulator that most sites offer. These typically provide a good ballpark for what your results will be.
Keepers, the more intentional you are about your retirement account, the better off you will be years down the road. Your future self will thank you, but you must start now – especially since you are more than likely reading this at work and can probably access your retirement system almost instantaneously. I’m just keeping it one hundred.
Let’s keep doing the work.
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