3 Reasons To Hike Your 401(k) Contributions

You have a 401(k) at work.

Maybe you’ve only contributed a little bit. Maybe you haven’t even contributed at all. So that nagging feeling about not being able to retire keeps coming back.

Am I going to have enough? Will I be able to retire before I die? (I’m not kidding about this one, it’s what I worry about)

Aside from the obvious reason that retirement is going to be your responsibility, I want to cover some benefits to saving in a 401(k).

Here are 3 reasons to hike your 401(k) contributions:

Reason 1: The match. Free money! Yep it’s free money. Why does anyone pass on free money? Employers can match at any amount from nothing to as much as 8-10%.  For example, if you contribute 6% then your employer matches 50 cents on the dollar or 3%. Check to see if you are currently contributing enough to receive the match. If you feel like you are strapped, at least you are getting the maximum free money out of your retirement plan. Check with your plan administrator or human resources contact to find out for sure.

Reason 2: The tax benefits. Where else can you get tax-deferral on contributions this high? You will not pay a nickel in taxes as long as you are still employed. This money will grow tax-deferred until taken out. Plus, you reduce your taxable income because the money comes out of your check prior to you being paid. If you contribute enough, it might just bump you down to a lower bracket. That could result in significant tax savings.

Reason 3: Catch up on retirement savings. A large percentage of us are behind on retirement savings. Your 401(k) is a terrific way to play catch up with your retirement. In 2014, you can defer $17,500. If you are over 50, you can chuck another $5,500 at your stash. You cannot get those deferrals with an IRA or a Roth IRA. If you think you are behind, make a decision that this year will be the year you start to play catch up. It’s your responsibility to save, not anyone else.

I have this little saying. Save your money, and one day it will return the favor. It’s never too late to start. You probably won’t miss the money too much. A good portion of it is going to Uncle Sam anyway.

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