Contributing to a 401(k) plan is a way to help you build savings for your future self and financial security later on in life. One of its benefits is its automation (often deducted straight from your paycheck), and it can make investing easier. It also comes with different tax benefits, depending on the type of plan you elect.<\/p>\n
A good rule of thumb is to opt for the traditional plan if you expect to be in a lower marginal tax bracket during retirement. That way you can take advantage of the immediate tax break. Another consideration is if your budget is extremely tight, the traditional 401(k) doesn\u2019t reduce your immediate spending as much as a Roth will.<\/p>\n
If you think you may be in a higher bracket come retirement, the Roth option can help you maximize your savings and avoid higher taxes later on (especially since the Roth can grow over the years and that earned money will be tax-free).<\/p>\n
There\u2019s also the option to contribute to both plan types and hedge your bets \u2014 just don\u2019t exceed the contribution limits!<\/p>\n
The contribution limits for a 401(k) periodically rise year-over-year due to rising inflation. For 2024, individuals can contribute up to $23,000<\/strong> to their 401(k) plans, which is a $500 increase from the 2023 limit. <\/p>\n The catch-up contribution limit for employees (aged 50+ years) remains at $7,500, for a total of $30,500. The catch-up contribution helps accelerate the progress for those closer to retirement.<\/p>\n Industry standards suggest saving 12-15% of your income, but it\u2019s important to look at your own financial situation and needs. You don\u2019t want to reduce your take-home pay so much that you end up in a bind and need to withdraw early (before age 59 \u00bd) from your 401(k) \u2014 something that comes with a penalty from the IRS<\/a>.<\/p>\n If your employer offers a company match, make sure you contribute up to the match amount so you\u2019re not leaving free money behind. For example, if your company offers a 3% match, be sure to contribute 3% of your income (which will result in a 6% contribution total).<\/p>\n Another important consideration if you\u2019re participating in your company-sponsored 401(k) is vesting. It\u2019s necessary to understand your company\u2019s vesting schedule so you know what money is yours to keep should you leave your employer. The money you contribute will be 100% yours to keep (or rollover into another employer\u2019s plan), but the contributions made from the employer may take some years before they\u2019re your dollars to keep. <\/p>\n \nhttps:\/\/www.nerdwallet.com\/article\/investing\/what-is-a-401k <\/a> Contributing to a 401(k) plan is a way to help you build savings for your future self and financial security later on in life. One of its benefits is its automation (often deducted straight from your paycheck), and it can make investing easier. It also comes with different tax benefits, depending on the type of […]<\/p>\n","protected":false},"author":1,"featured_media":27547,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[295,248],"tags":[],"class_list":["post-27532","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-2024-january","category-benefit-spotlight"],"_links":{"self":[{"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/posts\/27532","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/comments?post=27532"}],"version-history":[{"count":5,"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/posts\/27532\/revisions"}],"predecessor-version":[{"id":27570,"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/posts\/27532\/revisions\/27570"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/media\/27547"}],"wp:attachment":[{"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/media?parent=27532"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/categories?post=27532"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ldblifestylebenefits.com\/index.php\/wp-json\/wp\/v2\/tags?post=27532"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Contributing to a 401(k)<\/h3>\n
\nhttps:\/\/www.nerdwallet.com\/article\/investing\/what-is-a-401k <\/a>
\nhttps:\/\/www.nerdwallet.com\/article\/investing\/what-is-a-401k <\/a>
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\nhttps:\/\/www.nerdwallet.com\/article\/investing\/what-is-a-401k <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"