Maximizing Your 401k Contribution in 2013

Written by: Mike Valles

Having your money going into a 401k is a great way to save for retirement. It should only be considered as a starting point, however, because a number of steps are required to enable you to maximize your 401k contribution in 2013. Here are some steps to help you get started.

Increase the Percentage of Your 401k Contribution

You may be one of those people who decided in a hurry to put the minimum amount into your account when you became employed. If that is true, then you need to realize that the standard three percent, says Emily Brandon at USNews.com, is probably not going to give you enough for a very comfortable retirement. In the same article, Emily quotes Michele Clark, a certified financial planner, as advising that you should try to raise your annual 401k contribution one percent every time you get a raise, up to about 20 percent of your income.

Take Full Advantage of Matching 401(k) Contributions from Your Employer

If your employer offers matching contributions, then they also have a maximum amount that they will contribute. Since this really is free money for you, you want get as much free money as you can by making sure your 401k contribution is at least equal to that amount. All of that free money will build your retirement savings faster, and you will be building interest on all of it. Kate Stalter, in an article at Forbes, suggests you look at it this way. For every $100 you put into it, you really only need $70. Your employer then matches it with another $70, and you will save at least $30 on taxes. The total benefit is a savings of $150.

Manage Your Own Portfolio

Managing your own portfolio will take some time to learn more about your 401k, but you will certainly be the one to benefit from it. After you establish your retirement goals, you can choose the right balance of asset allocations. Doing what everyone else does, though, may mean that your retirement fund is not earning its potential. You do need to realize that a strategy that earns more money also means a greater risk, because only riskier investments earn the most money, says Bankrate.com. In some cases, you may also be able to save on investment advice, which you may be paying for with a percentage of your portfolio. If you are just starting out, you can use free tools and financial advice to get started, says the Wall Street Journal.

Make the Maximum Allowable 401k Contribution

Assuming that your company does offer matching contributions, you certainly want to add as much money as needed to get the maximum matching funds. Possibly just as important, though, is that you do not want to forget that all contributions to a 401k are tax deferred. This means that your income for that year is lowered by the amount of your contribution and you save on income taxes. The maximum allowable 401k contribution you can make in 2013 is $17,500, but if you are 50 or older, you can also add another $5,500 as a catch-up contribution, says Jane Bennett Clark in an article at Money.MSN.com.


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Maximizing Your 401k Contribution in 2013

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