It’s a new year, and we’ve had some adjustments to the amounts that we can put into those 401(k)s and IRAs. Even if you don’t adjust your amount, you need to once a year take a look. Do a review of your retirement plan, because this is a huge part of what you’ll be using in retirement.
Start by considering increasing your contribution. We’re starting to see raises come back into the picture. If you’re lucky enough to get a raise, think about splitting that between your pocket and your 401(k). If you got a 2% raise, increase your 401(k) contribution by 1%. You’ll still feel like you have an extra amount of money in your pocket. If you can’t do that, do it incrementally. Increase your 401(k) contribution by 1% each time. I promise, you won’t even notice the difference in your paycheck. In the meantime, you’re accumulating money in your retirement account. I always tell everyone, especially those young people first starting out, your lowest contribution rate should be 10%. Make that your benchmark. What we have now are new maximum limits. The new maximum limit on a 401(k) is $17,500. Most people can’t get close to that, but aim for it at some point. If you’re over 50, there’s a catchup contribution, so your maximum contribution is now $23,000. That’s a great way to put aside money and not pay tax on it.
Once a year, you need to look at the investments—the funds—that are in your 401(k). Most companies will give you an annual report. You can look at it and compare your choices. You can go to www.morningstar.com and look up your mutual funds. If that still is too much for you, consider hiring a professional just to take a look at your plan. If you don’t want to do that, just go for the one-stop target or life cycle fund. It’s everything based on your age. Again, you have that over 50 maximum bumping up, so take advantage of that.
Even in our IRAs, whether they’re Roth or Traditional, we have a new contribution limit which is $5,500. If you’re over 50, you can add $1,000 to that; you can do $6,500. This is a great way to put aside money for retirement.
Even in those SIMPLE IRAs, which are designed for small businesses, the new contribution limit has been bumped up to $12,000. If you’re over 50, you can do $14,500.
Once a year (don’t obsess too much during the year), take a look at what you’re contributing. Take a look at the investments. Make sure it’s set correctly. Have a plan and then forget it.