Preparing for retirement involves financial planning and commitment. It’s advisable to save 10 to 15 percent of your income for retirement, although starting small is acceptable according to Kyle McBrien, a certified financial planner with Betterment. He recommends gradually increasing the contribution each year, assuring that even small adjustments can make a substantial difference in the long run.
Additionally, contributing the maximum amount to your 401(k) may not always be the best decision. McBrien advises individuals to prioritize building an emergency fund for unexpected expenses or job loss before increasing 401(k) contributions beyond the employer’s match. Addressing short-term financial needs or other savings goals, such as education funds for children or health savings accounts, should also be considered before allocating additional funds to a 401(k) plan.
Considering these factors is crucial when making decisions about financial planning for the future.
Insights on 401(k) Saving
Here are some common queries related to saving in a 401(k) plan:
1. Roth Contributions for High Earners?
The Secure 2.0 Act initially introduced a provision where high earners making 401(k) catch-up contributions above $145,000 would have to treat them as pretax Roth contributions starting in 2024. However, in response to feedback from employers and plan administrators, the IRS has announced a two-year delay for this provision, providing some relief for high earners making extra contributions to a traditional 401(k) for the next two years.
2. Flexibility in 401(k) Contributions
Unlike health insurance choices, which are typically fixed for the year, many employers allow employees to adjust their retirement contributions at any time, subject to the employer’s policy. It’s important to note that changes in contributions may take a paycheck cycle or two to come into effect, emphasizing the need for careful consideration before making adjustments.
