[ad_1]
While your goal should ideally be to save 10 to 15 percent of your income for retirement, don’t be discouraged if you can’t contribute at that level yet, says Kyle McBrien, a certified financial planner at Betterment, a financial services company. . “It’s OK to start small,” he said. Try to gradually increase your contribution each year.
Even if you can contribute the maximum amount, that doesn’t necessarily mean you should, Mr. McBrien said. For example, if you haven’t built up a sufficient rainy day fund for surprise expenses or job loss, that should be a priority before contributing to your 401(k) beyond your employer’s level.
“Build your emergency fund first,” he said.
You may have other goals to save for besides retirement, says Craig Copeland, director of wealth benefit research at the Employee Benefit Research Institute. Maybe you have children and want to save for their education in a 529 college fund, or you want to contribute to a health savings account — a special account that can cover short-term medical needs or be invested for retirement.
“If you have dollars to save,” he said, “think about where they should go.”
Here are some questions and answers about saving in a 401(k):
Should additional 401(k) contributions be treated as Roth contributions if I am a high earner?
Not yet. Under the Secure 2.0 Act, a law passed late last year, savers who earn $145,000 or more and make 401(k) catch-up contributions would have to make them as pre-tax Roth contributions beginning in 2024. But this summer, the IRS postponed that. provision for two years, after employers and plan administrators said they needed more time to prepare. (Not every 401(k) plan offers a Roth option.) So at least for next year and for 2025, additional contributions for people age 50 and older can be made before taxes on a traditional 401(k), even for high incomes.
Can I change the amount of my 401(k) contributions after open enrollment?
In many workplaces, the annual open enrollment period, during which employees choose their benefits for the new year, is underway. But while health insurance choices are typically fixed for the entire year unless you experience a major life change, many employers let you adjust your retirement contributions at any time. (Check with your employer to be sure.) Keep in mind that after you make a change, it may take a few payroll cycles for it to take effect, Betterment’s Mr. McBrien said.
