401(k) Planning: What Do You Need To Know?

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Published by Ryan Cooley, Associate Wealth Advisor

 

Rather than working longer hours over a longer time, making your money work harder for you is key to building your wealth. Whether retirement is a long way off or just around the corner, preparing a strategy to build and preserve your wealth must be a top priority. In addition to helpful tips such as sticking to a budget, paying off debt, and creating passive income streams, investing in your employer’s 401(k) is an incredible way to bulk up your retirement savings. Nowadays, many employers offer 401(k)s, and sometimes they’ll even match your contributions!

While it may seem easy to sign up for a retirement plan through your employer, it’s not as simple as filling out a form, checking a few boxes, and picking an investment. Consider the following factors to help make your 401(k) work harder for you.

 

Investment Choices

Picking your investments in your 401(k) should be a thoughtful process. While target-date funds are quite popular, they may be duplicating your efforts.

If you decide to split your allocations between a target-date fund and an index fund, for example, you may double your allocation and not know it. You may leave yourself open to overweights in certain industries and sectors and have a completely skewed mix of assets.

Do some research or have your financial advisor aggregate all the underlying holdings in your 401(k) plans and see where you stand. The results may surprise you.

 

Roth 401(k)s

While Roth IRAs put income limits on who can contribute, Roth 401(k)s do not have this limit. The question is do you want to pay taxes now or in the future? If you expect to be in a lower tax bracket at retirement (which isn’t always the case), then the regular 401(k) is the option for you. It’s hard to predict the future, but all your pensions, 401(k)s, and IRAs could add up and put you in a higher tax bracket. And think about your spouse; if you should pass away, they would have to file as a single person, increasing their tax burden.

If you are just starting out, then presumably you are already in a lower tax bracket, so it may be appropriate for you to contribute to a Roth 401(k)—if your employer offers one.

 

Contribution Limits

It’s important to know your limits. In 2021, you can contribute as much as $19,500 and an additional $6,500 for those over 50. The total limit for employee and employer contributions is $58,000.[1]

Valued Advice From A Trusted Advisor

You already work hard enough, so you don’t want saving for retirement to feel like an added chore. But a little extra thought and consideration when signing up for your company’s 401(k) plan can make a big difference in your financial future. There are no do-overs when it comes to retirement, so it’s wise to enlist the help of a trusted professional on your financial journey.

We at Jacob William Advisory are here to help you review your options and provide personalized wealth management strategies to make the most of your 401(k). To get started, contact our office by calling 410-821-6724 or emailing info@jacobwilliam.com or schedule an appointment at https://www.jacobwilliam.com/insights/#contact.

 

About Ryan

Ryan Cooley is an Associate Wealth Advisor at Jacob William Advisory, a wealth management firm whose sole mission is to serve their clients’ needs beyond their expectations. Ryan has a military background as a U.S. Army Infantryman, and he applies the values and character traits he learned through his experience to his role as a financial advisor. To this day, Ryan is passionate about veterans’ issues and holds a seat on the Advisory Board for Operation Second Chance and is a lifetime member of the Disabled American Veterans organization. Ryan obtained his bachelor’s degree in economics and his MBA from the University of Maryland. Outside of the office, Ryan enjoys spending time with his wife, Germaine, and their two wonderful children. He currently resides in Urbana, Maryland, and loves to fish, hunt, cook, watch Maryland Terrapin sports, and cheer his son and daughter on in all of their activities. To learn more about Ryan, connect with him on LinkedIn.

 

 

Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.

[1]https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

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