Taking the First Steps with Your 401(k)
1. Contributions
Have you ever heard the phrase, "timing is everything"? Here's how it applies to 401(k)s, too. When you hop on board a new company, you might have to wait—a few months or even a year—before you can defer money into your 401(k). It’s best to have a quick chat with HR so you can pencil in your kickoff date.
2. Enrollment
Once you've reached your eligibility date, it's go time. How much of your hard-earned paycheck do you want to set aside? This is completely dependent upon your current financial situation and your goals. If this feels a touch overwhelming, remember to reach out to a financial advisor who is ready to help and guide you through the process.
3. Beneficiaries
In the event of your death, determining how your contributions will be divided up or distributed is important to plan in advance. This might be a partner, your kiddos, or even a lifelong friend. Setting this up ensures your hard-earned money finds its way to the right hands. While you're on this topic, be sure to formalize your estate plan and ensure your affairs are in order with your financial advisor or state planning attorney.
4. Regular Review
A 401(k) isn't like that old CD collection you've forgotten about. It needs a check-in now and then. Working for a new employer? Recently moved? Or recently head of changes in the market? These circumstances are opportunities to peek into your 401(k), tweak your contributions, or adjust your investments to align with life's changes. If you're not sure if or what to change, no worries, we can help you manage your 401(k) and plan for your long-term growth!
Maximizing your Contributions
Now that you're ready to take the first steps, here's how you can navigate your 401(k) growth and maximize your contributions:
Personal Budgeting
Start with what you know best—your spending habits. Create a flexible budget that accommodates daily needs while giving room for 401(k) contributions. Remember, even small, consistent increases in contributions can lead to significant growth over time thanks to compound interest.
Catch-Up Contributions
The IRS recently increased the limit on 401(k) contributions. Check the current limits here. If you’re 50 or older, the IRS allows you to make additional "catch-up" contributions above the annual limit. If and when possible, take the opportunity to further bolster your savings as you approach retirement.
Maximize Your Employer Match
Leaving an employer match on the table is like walking past free money. Understand the terms of your employer's match program. As an example, If your employer matches 50% of your contributions up to 6% of your salary, ensure you're at least contributing that 6%.
Investment Diversification
Tailoring your investments to align with your financial plan is vital. With the help of your advisor, periodically review and adjust your investment allocations stay in line with your financial plan.
Stay Educated
The financial landscape isn't static; it's ever-evolving. Be sure to attend workshops (like the ones offered by CPS Investment Advisors), read reputable financial literature (like these articles), and have periodic chats with your financial advisor (yours truly). The more you know, the better positioned you are to make informed decisions.
Crafting a Future, One Contribution at a Time
Your 401(k) is a living entity, growing and evolving with every phase of your life. Think of it as a financial diary, recording every wise decision and adapting to every twist and turn. As we conclude our exploration into the 401(k) realm, remember this: Your 401(k) is more than numbers—it's an embodiment of your dreams, sacrifices, and the future you're crafting.
If you want to see if you’re on track for retirement, download our free 401K Savings Worksheet! I will personally run your numbers and provide clear, actionable insights. Let me help you navigate the path to your secure and prosperous financial future. Click the image below to download now and let’s start this journey together!
