Celebrate National 401(k) Day
September 6th, 2024 marks National 401(k) Day, an annual “celebration” to raise awareness about the importance of saving for retirement through employer-sponsored 401(k) plans. I encourage all working adults to take this opportunity to review their 401(k) accounts and ensure they are on track to reach their retirement goals.
The 401(k) is one of the most powerful retirement savings tools available to Americans. These plans allow employees to contribute a portion of their paycheck into an account that grows tax-deferred until retirement. Many employers also offer matching contributions, essentially giving you free money towards your retirement.
If you’re not contributing at least enough to receive your full employer match, you are potentially leaving money on the table. Employer matches are essentially a 100% return on your investment. If you take nothing else away from this article, I would recommend taking the time to ensure you are maximizing this valuable benefit.
Another important 401(k) consideration is your investment allocation. Many people make the mistake of being too conservative and holding too much of their portfolio in low-yielding cash and fixed income. If you have several decades until retirement, it is crucial to have a growth-oriented component of your portfolio to take advantage of the power of compounding. A diversified portfolio of stocks and bonds can provide strong long-term returns if you are willing to accept the volatility that comes with owning stocks.
Finally, keep in mind that 401(k) plans come with tax considerations. Contributions can be made with pre-tax dollars, which can lower your taxable income in the current year but are taxable to you when withdrawn in retirement. Alternatively, more and more plans offer the ability to contribute on a Roth basis which does not allow a current tax deduction but is not taxable to you when withdrawn in retirement. Consulting with your CPA can help maximize the right tax strategy saving related to your 401(k) account.
While it’s important not to over-contribute to your 401(k) at the expense of other financial goals, maximizing your retirement savings through this powerful tool should be a top priority. Take some time this 401(k) Day to review your account, increase your contribution rate if possible, and ensure your investments are properly allocated. A comfortable retirement is within reach for those who plan ahead and take advantage of the benefits 401(k) plans provide.
Published in the Victoria Advocate
Kyle W. Noack, CPA/CFP® is the Chief Executive Officer for Keller & Associates CPAs, PLLC and Keller Wealth Advisors.
