Experts: How 401(k) Participants Can Increase Contributions in 2023
Most participants are contributing small amounts of money to their 401(k) plans. Data in the Bank of America 2023 Financial Life Benefits Impact Report shows 66% of participants contributed less than $5,000 in 2022 to their workplace retirement plan. Only 12% of participants surveyed contributed more than $15,000 in 2022.
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Considering we’re now in Q3 of 2023, what can participants do to increase their contributions and max out these retirement plans? Here’s how 401(k) participants can increase their contributions in 2023.
Do a Deep Dive Into Your Finances
One of the most overlooked first steps for getting the most out of your 401(k) is to conduct a financial deep dive. Alissa Krasner Maizes, founder of Amplify My Wealth, said this will help you determine if you have enough money to maximize 401(k) contributions and meet your goal.
Regardless of how much money you find out you have, Maizes recommends celebrating this win. Most people are likely to find some money to contribute after they review the last three months of credit card and bank statements and determine which expenses can be negotiated or eliminated to ensure you can increase your contributions.
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Contact the Plan Custodian
Every year, Matt Calme, CFP and wealth advisor at HCM Wealth Advisors, recommends 401(k) participants contact the plan custodian.
Participants should double check that they have the appropriate percentage or dollar amount taken out of their paycheck to maximize their contribution to the company plan. Calme said participants can find this number on their monthly statement and it only takes five minutes to call and speak with a plan representative.
Increase 401(k) Contributions by 1%
If you recently received a raise, put it to work increasing your 401(k) contributions.
“By increasing their contribution by 1%, participants can reduce their taxable wages and increase their take-home pay,” said Annette Harris, AFC and owner at Harris Financial Coaching.
Make Catch-Up Contributions
If you’re an eligible employee who is age 50 or older, you can make catch-up contributions to your 401(k).
“Catch-up contributions are available for employees who are 50 years old or older and are limited to a specific dollar amount,” said Harris. “Once your employer informs you that you are eligible, take advantage of the opportunity to increase your 401(k) balance with additional contributions.”
Consider Using an Annual Savings Increase Feature
Does your 401(k) plan offer an annual savings increase feature? Calme recommends using it to help maximize your yearly contributions. The way this works is the feature will increase a participant’s contributions to their 401(k) each year. Usually, this is by 1% — the same recommended percentage for someone who received a raise.
Calme said these small, incremental savings are hardly noticeable in a participant’s monthly check, but over time the increased savings will quickly add up and help a participant reach their maximum contribution status in no time.
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This article originally appeared on GOBankingRates.com: Experts: How 401(k) Participants Can Increase Contributions in 2023
