401(k) plans offer a number of benefits and can help you build up that all-important savings cushion you need for retirement. If your employer is contributing to your 401(k) and you are being consistent with your own contributions, you can build up a healthy savings account and look forward to a comfortable, stress-free retirement.
However, there are several things you need to do to make sure your 401(k) account stays healthy. Here are just five steps to a healthy 401(k) plan:
1. Be aware of your rights. You can start contributing to your 401(k) plan after one year of being with your employer. Take some time to learn about your rights as an employee and the benefits you are eligible to receive after one year of employment.
2. Automate your 401(k). Set up an automatic transfer of your contribution after each paycheck so that you don’t have to take the extra steps to make an actual deposit into the account. Automating your contributions can make it much easier to just “set it and forget it”. You’ll be able to build up that 401(k) account without having to think about it each time you receive your paycheck.
3. Take advantage of employer-matching. Check with your employer’s HR department to learn about your benefits and find out if you are eligible to receive an employer match for all contributions. Many corporations and some small business owners do match employee contributions, and this can be a great benefit for you in the long-run. Remember that these contributions are completely tax free, so you are essentially getting a “tax free raise”.
4. Don’t borrow from your 401(k) when you’re strapped for cash. If you’re running low on funds and need cash fast, don’t borrow from your 401(k) account. You will be paying a price for taking out this loan and will have to pay a penalty for withdrawing from the account. If you do end up leaving your job that is paying for some of your 401(k), you will have to pay the penalty and taxes on the withdrawal, unless you repay the entire amount in full.
5. Contribute up to the maximum amount whenever possible. You are permitted to contribute a certain amount each year and the IRS adjusts this limit on a regular basis. Make sure you know what this amount is so that you are contributing up to this amount year after year. Remember that none of those dollars will be taxed, so it is in your best interest to contribute as much as possible up to the contribution limit.
