3 end-of-year 401 (k) movements to do

Ssaving in a 401 (k) plan is an essential step toward a financially stable retirement, as Social Security likely won’t pay you enough to handle all of your bills. Retiring without a nest egg could pave the way for a world of financial stress.

But as the end of the year approaches, it’s important to pay a little more attention to your 401 (k). Here are three essential steps to take before the start of 2022.

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1. Get as close as possible to the maximum

Currently, the 401 (k) is a maximum of $ 19,500 for savers under 50 and $ 26,000 for those 50 and over. (Next year, those limits will increase by $ 1,000.) If you haven’t yet reached your maximum 401 (k) for the year, but that’s your goal, now is the time to to act.

When you save in an IRA, you can write a check and fund your account quickly. But 401 (k) contributions are deducted from your income, so if you want to increase your savings rate before the end of the year, that’s a change that will usually have to go through your payroll department.

In some cases, however, it may take a pay period or two for changes to your 401 (k) choice to take effect. If you want to start having more money on your paychecks, now is the time to let your employer know now.

2. Make sure you have contributed enough to claim your full employer

Since 401 (k) plans have such high contribution limits, you may not be able to maximize yours for the year. This is especially true if you are an average employee. It’s one thing to set aside $ 19,500 or $ 26,000 a year on a salary of $ 120,000, but if you earn a salary of $ 60,000, it is a much more difficult request.

Still, it certainly pays off to contribute enough money to your 401 (k) that you can claim your full employer, whoever it is. If you need to increase your savings rate to achieve this, the time to act is, again, now. If you give up some or all of your 401 (k) match, you’ll end up leaving free money on the table.

3. Evaluate your investment mix

Your 401 (k) shouldn’t stay in cash. Ideally, your retirement plan will be invested in different funds. And now is a good time to take a review of your investments and make sure they are working for you.

One thing that you will really want to watch out for in your 401 (k) is the fees – namely, to make sure that you are not wasting too much money on them. And if so, you might want to shift more of your investments to index funds. Since index funds are passively managed, their fees, called expense ratios, tend to be significantly lower than what you will pay to invest in an actively managed mutual fund.

To be clear, there is technically no rush when it comes to doing a review of your investments. But if you haven’t checked them for a while, it’s best to do so as soon as possible.

The past year has been an interesting one, to say the least. Whether you’re sorry to see it come to an end or not, it’s definitely worth focusing on these 401 (k) moves before the start of 2022.

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Julio V. Miller