Managing Your 401k Contributions

There are many reasons to manage your 401k contribution amounts closely. You are entitled to contribute a certain amount of your untaxed income every year. Many times, your employer will offer a percentage match with a 401k. If your employer offers to match a certain amount of your contribution, then your employer is essentially offering to pay you thousands of dollars extra each year simply for saving money. Failing to meet this maximum employer match means you are leaving thousands of dollars in compensation on the table at the end of each year. There are a few things to consider with 401ks:

  • You must pay attention to fully-vested funds:  If you rollover, borrow or otherwise alter your 401k, the amount of funds that is fully-vested will be a key determinant. When you invest money on each paycheck, it must hit your account within 2 weeks. However, your employer's match may only be deposited quarterly or annually. This means you will have less vested than you may think on any given day.
  • Over contributing leads to tax penalties: If you contribute more than the IRS limitation each year to your 401k, then you will be subject to taxes and penalties on any excess funds. It is better to have a 401k and an IRA in order to extend the amount you can contribute without penalty.
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