How to Invest in 401K
Know your limits., Determine how much you need to save., Think about your age., Take your full employer match.
Step-by-Step Guide
-
Step 1: Know your limits.
The Internal Revenue Service (IRS) establishes the maximum individuals can contribute to their 401K every year.
Your employer might also impose limits on you.
Check the IRS website for limits, which can change from one tax year to the next.
For example, in 2013 investors under 50 were able to save up to $17,500 in pretax dollars through a 401K.
If you were 50 or older, you could save up to $23,000 that year.
Talk to your plan administrator at work about what the company allows you to contribute.
Some employers might use a particular percentage of your salary as a limit to your annual 401K contribution. -
Step 2: Determine how much you need to save.
There are retirement calculators you can access online (CNN Money, Bankrate, Bloomberg, Kiplinger, AARP), or you can work with a financial planner to determine your retirement savings goal.
Save as much as your budget will allow if your 401K is the only way you are saving for retirement.
Financial planners recommend contributing at least 10 percent of your salary to your 401K.
Adjust your contributions if your 401K is only one part of your retirement strategy and you have other investments. , There is a reason the IRS allows older people to "catch up" by contributing extra money to their 401K.
As you near retirement age, you may find that you need to save more (or "catch up") in order to enjoy the retirement lifestyle you're hoping for. , Some employers make matching contributions to their employees' 401Ks.
If you can, you should contribute as much as it takes to maximize your employer's match.
Don't pass up that "free" money.
It's like getting a raise in pay.
Ask about your employer's vesting schedule.
This will tell you how long you need to be with the company before you can access the full amount of those matching funds. -
Step 3: Think about your age.
-
Step 4: Take your full employer match.
Detailed Guide
The Internal Revenue Service (IRS) establishes the maximum individuals can contribute to their 401K every year.
Your employer might also impose limits on you.
Check the IRS website for limits, which can change from one tax year to the next.
For example, in 2013 investors under 50 were able to save up to $17,500 in pretax dollars through a 401K.
If you were 50 or older, you could save up to $23,000 that year.
Talk to your plan administrator at work about what the company allows you to contribute.
Some employers might use a particular percentage of your salary as a limit to your annual 401K contribution.
There are retirement calculators you can access online (CNN Money, Bankrate, Bloomberg, Kiplinger, AARP), or you can work with a financial planner to determine your retirement savings goal.
Save as much as your budget will allow if your 401K is the only way you are saving for retirement.
Financial planners recommend contributing at least 10 percent of your salary to your 401K.
Adjust your contributions if your 401K is only one part of your retirement strategy and you have other investments. , There is a reason the IRS allows older people to "catch up" by contributing extra money to their 401K.
As you near retirement age, you may find that you need to save more (or "catch up") in order to enjoy the retirement lifestyle you're hoping for. , Some employers make matching contributions to their employees' 401Ks.
If you can, you should contribute as much as it takes to maximize your employer's match.
Don't pass up that "free" money.
It's like getting a raise in pay.
Ask about your employer's vesting schedule.
This will tell you how long you need to be with the company before you can access the full amount of those matching funds.
About the Author
Laura King
Experienced content creator specializing in creative arts guides and tutorials.
Rate This Guide
How helpful was this guide? Click to rate: