Your New Year’s resolution is to get serious about saving for retirement in my 401(k).
Here’s some advice.
Review your 401(k) elections to make sure you’re making the most of your plan.
For example, contribution limits for 401(k)s increased by $500 this year. So if you’ve set up your contributions for a fixed-dollar sum, don’t keep the amount on autopilot if you want to salt away the maximum.
The maximum annual 401(k) contribution limit is now $19,000 for younger workers. If you’re 50 or older anytime in 2019, you’ll be able to contribute an extra $6,000 to your 401(k), bringing the total to $25,000. You can start making your catch-up contributions anytime in 2019, even if your 50th birthday isn’t until later in the year.
And if you can’t afford to put away that much, consider increasing your contributions at least a little this year, especially if you receive a raise. Even small increases can make a big difference over time.
Most employers also give you a choice between making traditional 401(k) contributions, which are pretax and grow tax-deferred until retirement, or Roth 401(k) contributions, which don’t get you a tax break upfront but can be withdrawn tax-free in retirement. Unlike with a Roth IRA, there’s no income limit to making Roth 401(k) contributions.
If most of your retirement savings is already in tax-deferred accounts, consider making some or all of your new contributions to a Roth 401(k). This can diversify the tax treatment of your retirement savings.
If your employer offers both types of plans, you can direct new contributions to the Roth 401(k) rather than the pretax 401(k) at any time, says Marina Edwards, senior director for retirement for benefits consultant Willis Towers Watson.
Also check your portfolio at least once a year to see if your investment mix still matches your desired allocation.
If your stock funds have performed better than your bond funds, for example, your portfolio may be more heavily weighted in stocks — and riskier — than you originally intended.
By rebalancing, you would sell shares in your stock funds and add money to the bond funds to get back to your original allocation.
Or your 401(k) may have an automatic rebalancing feature that makes the changes automatically if your allocation strays from your original plan by a certain percentage.
If you don’t want to worry about monitoring the investments yourself, consider investing in a target-date fund.
With this type of fund, investment professionals create a diversified portfolio based on your investing time frame, rebalance when necessary, and gradually shift to more conservative investments as your target retirement date gets closer.
