Review contributions to the workplace pension plan
Contribute to traditional or Roth accounts – or both
One decision is to put pre-tax money in a traditional 401 (k) plan or workplace or to put after-tax dollars into a Roth account. A rule of thumb to help you make this decision is your age and income, with younger people being more likely to be in a lower tax bracket today than later.
“They may recommend that you put everything in a Roth, especially if you’re in a lower tax bracket and tax savings really aren’t that important to you right now,” said Kamila Elliott, president of Grid 202 Partners and Chairman of the Board of Directors of CFP. . “If you’re in a higher income bracket, maybe having pre-tax savings could help.”
Increase automatic contributions to accounts
Whether you’re investing money in a Roth 401 (traditional k or Roth), experts advise you to review your automatic contributions. Try to increase them by 1% to 2%, or at least enough to get your business matching contribution, even if you can’t fund the account fully.
“For some people, $ 20,500 is overkill,” Elliott said. “It’s a big goal to have, but they can’t achieve it.”
If you can’t reach the maximum contribution limit, she said, “do your best to get the equivalent from the employer, then go slowly.”
Check out target date funds for easy rebalancing
Plus, take the time to rebalance your portfolio so you don’t take on more or less risk than you want or need, financial advisers say. With the S&P 500 Index climbing nearly 27% in 2021, many investors may have a higher percentage of their retirement money in stocks than they expected to help them meet their retirement goals. .
Young recommends investing in a target date fund that gradually shifts assets from stocks to bonds as you approach retirement or when you need cash. “It adjusts for you and ensures that the level of risk is appropriate,” he said, adding that target date funds are a “unique way to invest and not have to worry about so much. things in the future “.
Evaluate options for old 401 (k) money
And for people changing jobs, if you still have 401 (k) money with a former employer, you can leave the funds there, but you might want to consider transferring them to a 401 (k). with a new employer or in an Individual Retirement Account. Don’t cash it or you’ll face a potentially large tax impact and you’ll pay a penalty, depending on your age, Young warns.
Plus, for new contributions to Traditional or Roth IRAs, you can contribute up to $ 6,000 this year, like last year. And, if you are 50 or over, the maximum contribution is $ 7,000. If you haven’t made an IRA contribution in 2021, you have until the April tax filing deadline to do so and it counts for last year.
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