6 Tips to Make the Best Use of 401k in Your 40s
Your 40s is an exciting crossroads between youth and middle age. While you’re planning for the future, this is certainly a period in which it's wise to make sure your retirement plan is in place and earning value. Here are six essential tips on how to protect and grow a 401k so that you won't have to stress about money when you retire.
Special Issues and Considerations Now that pensions have fallen by the wayside following the market meltdown within the last decade, 401k plans have become the more common focus for many employers and individuals. Another reason for this shift is because in the new century's accelerated paradigm, most employment no longer spans four decades. People move from job to job more often, making a 401k the more stable retirement plan.
Common Mistakes You should avoid these common mistakes:
- Early withdrawals may lead to major taxes and penalties
- Forgetting about a 401k from a previous employer
- Stashing retirement savings instead of proactive management
- Too much moving from job to job too frequently
- Overlooking retirement tax bombs, letting taxes accumulate
- Withdrawing too much money when you retire
Best Tactics In the best scenario, it's advantageous to match your employer's contribution, so that you can collect free money. Once you reach 50 you can use the "catch-up" provision, which allows you to make annual contributions of $5,500 plus the maximum $17,500 to your plan.
Combine with Savings Increasing your contribution by 1% every year is the icing on the cake that leads to a solid retirement. A 401k combined with a savings account adds even more strength to your financial position.
Bonus Strategies When you get bonuses, you can put a small percentage in savings while living off your salary - or even better, withhold 100% and place it in your 401k while living off the bonus for the month.
Create an Emergency Fund In addition to retirement and savings, your ultimate financial safety net should include an emergency fund for unexpected visits to the hospital, auto repair or any other type of sudden bills. That way you won't have to dip into savings.
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