Since employers are no longer offering traditional pensions to their employees, 401k plans are a popular retirement vehicle. There are a few things that you may not be aware of about your plan.
The term “maxing out” is It’s a misconception that you can max out your 401k if your employer matches your contributions. Contributing 4% of salary to your 401k if your employer matches 4%. You can actually contribute up to $22,500, the IRS maximum for 2023. The IRS sets this limit each year.
Contributions to Catch up for 50+: Once you reach 50, the IRS allows you generously to contribute an extra $7,500 in 2023. If you are over 50, you can only defer a maximum of $30,000 for 2023.
Self-Directed Brokerage: Certain 401k plans provide what is called a “self-directed brokerage” account. It’s a separate account within your 401k plan that lets you invest in other ways than with the mutual funds included in your standard plan. You can invest in securities you wouldn’t normally see in a standard 401k.
Distributions: You are well aware that you can’t withdraw money from your retirement account before age 59.5, or you will be charged a 10% tax on top of all other taxes. Some 401k plans or employers allow you to withdraw the money at age 55, if you leave your job. You should talk to both your HR department as well as your financial advisor about this decision.
Funds with Target Dates: These funds have a lower risk as you age. You can select a fund that is closest to the year you intend to retire, rather than worry about your allocations or rebalancing every year. The fund starts out aggressively and becomes more conservative once you reach retirement.
Always check with your advisor to ensure that your 401k contribution makes the most sense for you.
