Get the Free Money: Make the Most of Your Work Retirement Plan
One of the first topics I discuss with every financial planning client is their work retirement plan, usually a 401k. Do you have a 401k? Are you getting all the free money to which you are entitled? These are basic questions. If you have trouble answering them, contact your human resources department for information. Then, if you still have questions, reach out to me. I love meeting new people, and I’m happy to make sure that you get the most out of your work retirement plan. Just follow this LINK to find a time that works for you.
Here are a few things to know when you contact your HR department:
- Most companies offer free money. Commonly, a 401k plan will match some of the money you save into your account.
- Tax law offers incentives to companies to match a total of 4% of compensation.
- The formula for the match varies, but a common approach is this:
- 100% match on all savings you make up to 3% of your annual earnings.
- Then 50% match on the next 2% of earnings you save.
- This yields a total of 4% of your earnings added to the account. Free.
- Typically, this matching money is yours to keep no matter what. But sometimes, a plan will have “vesting” that requires you to stay with the company for several years to get all the money when you leave. Check your plan documents to confirm.
- Many workers do not get the free money because they don’t save enough. So, check your plan and be sure to save enough to get all the free money. For a worker making $100,000 a year, here is how the salary deferral works:
- Save 5% of your money to get 4% of the free company money.
- 5% of $100,000 is $5,000 per year.
- If you are paid monthly, that's $417/month you need to save.
- If you are paid every 2 weeks, it’s $192/paycheck.
- Most plans offer the option to save your contributions into a Roth 401k. This creates a pool of retirement money that is TAX FREE when you need to spend it.
- Contributions are made as part of payroll. Taxes are paid automatically as income received in the current year. Deposits grow tax-free and come out tax-free.
- The maximum you can add to your 401k deferral bucket is $23,000.
- If you are over the age of 50, you can save more, up to $30,500 per worker per year.
- Many plans offer more ways to add to your 401k account. It’s worth checking.
- The maximum amount of additions to your account in 2024, from all sources, is $69,000 per year.
- If you are over 50 years of age, the maximum amount of additions to your account in 2024, from all sources, is $76,500 per year.
If you are like most folks, you have a couple of questions. A great place to start is with the HR department. Today, many companies will direct you to a website. Look for a Summary Plan Description. This document describes all the features of YOUR plan so you can decide what options are right for you.
If you still have questions, maybe a visit with an experienced, highly-trained, , CERTIFIED FINANCIAL PLANNER™professional and Behavioral Financial Advisor in West Saint Paul, Minnesota, could help. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.
I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients, and I am thrilled to work this way all the time.
And yes, I’m still taking on a few great families to be part of my financial planning practice in West Saint Paul, Minnesota, and, thanks to Zoom, across the country.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.