401(k) Strategy To Maximize Your Employers Match

Since many employers started offering 401(k) plans back in the early 80’s, millions of employees have taken advantage of this gold nugget and maximized their retirement plans. However, due to the state of the economy and other retirement-based issues, experts have now discovered ways to further maximize this additional retirement safety net so your 401(k) plans go the way you always dreamed.

Some great strategies for 401(k) plans are discussed on US News money blog, with an article specifically addressing retirement strategies that will further protect you; these include some strategies about 401(k) you may not know about but could really help with retirement plans in the future.

In an associated report from this Inquisitr article, Retirement Crisis Looms for the Unprepared, it further drives home the point that workers aren’t saving nearly enough on 401(k) plans, and since cuts to social security and the ever-decreasing pension funds are occurring at alarming rates, these strategies will be even more critical to your 401(k).

One such 401(k) strategy that is gaining popularity and importance is not accepting the default savings rate. New employees usually net only 3 percent for their 401(k) plans, so if you put in 3 percent, the company will match your investment. For many people, that may not be enough to secure the same lifestyle into retirement. A good strategy for 401(k) is every year you get a raise, take 1 percent and sock it away into your retirement plan. By doing so, you should have 20 percent of your pay devoted to retirement, and if the company continues to match your 401(k), this could result in a future lucrative nest egg.

Implementing this strategy can also help with maximizing your tax break. Usually, 401(k) plans allow you to divert paying income tax on retirement savings since investors can contribute up to $17,000, as of 2012. After age 50, it jumps up to $22,000. For couples, it can reach as high as $57,500 and saving in a 401(k) plan can claim the saver’s tax credit, which can net savings of $1,000 for single people and $2,000 for couples.

Also, you may be tempted to cash out your 401(k) funds if you quit a job, but doing so before the age of 59 and 6 months amounts to a 10 percent early withdrawal penalty and income tax on the withdrawn amount. Withdrawing early can also cause you to lose out on compound interest, crucial for securing that 401(k) nest egg.

Just remember to ask your HR rep all the right questions about your 401(k). Utilizing this important strategy will ensure you get the maximum employer’s 401(k) match.