Election time is here. We're not talking about casting your vote for public office, but making your annual elections related to benefits your company might offer. 'Tis the season for open enrollment.
Open enrollment is an employee's annual opportunity to choose a medical, dental, or vision plan; change or start flexible spending accounts; enroll in, or add or drop dependents to, insurance coverage. It's also a time to take stock of retirement savings plans. There are actions you can take this open enrollment season to put yourself on sound retirement savings footing, whether your employer offers access to retirement savings benefits at work or not.
Take control of your retirement savings plan
Here are five actions you can take this open enrollment season to get or keep your retirement savings on track:
Enroll now. If you haven't enrolled in your company's 401(k) or other retirement savings plan, open enrollment is the time to do so. While a growing number of companies now automatically enroll their employees, in many cases you have to take the initiative. Maybe you've resisted the move to save because your plan has many options to choose from, or simply because you've never saved before. Your human resources department or plan administrator are helpful places to start. Ask what your employer's default investment choice is -- it's often a life cycle or target-date fund, which has as its target the year that is closest to the year you anticipate retiring, say a "2050 Fund." As you move toward your retirement "target date," the fund gradually reduces risk by changing the investments within the fund. (That said, target-date funds are not risk free, even when the target date has been reached.) The main goal, though, is to simply start saving.
Take advantage of an employer match. If your company offers a match on contributions, take full advantage of it. You'll want to try to contribute at least as much as you need to earn the full match, or else you will be leaving free money on the table.
Escalate your savings. Annual increases are a great and often painless way to increase your savings -- and annual enrollment is an excellent time to do so. Remember that if you're not saving at least 10% of your salary, chances are you're apt to come up short when retirement rolls around. If your employer allows you to automatically escalate your savings rate each year, consider saying "yes" to automatic increases.
Evaluate Roth and traditional options. Use open enrollment to evaluate your savings options. An increasing number of employers are offering employees a Roth 401(k) choice. If you participate in a Roth 401(k), the amount you defer doesn't reduce your taxable income or your current income taxes. But when you withdraw after you retire, the amounts you take out are tax-free, provided you're at least 59-1/2 and your account has been open at least five years. Both the traditional 401(k) and Roth 401(k) offer tax advantages when you defer a portion of your salary into an account in your employer's retirement savings plan. Both feature tax-deferred compounding of contributions that are made to the account. Contact your plan administrator or HR department for additional information.
See if you can save more this year. You might find that you are in the position to make year-end increases in the amount you're putting toward your retirement savings at the workplace. You might even be able to save up to the annual contribution limit. Use FINRA's "Save to the Max" calculator to see if you're on track to saving the most you can.
No plan at work? You can still save
The Bureau for Labor Statistics notes that one out of every three private industry workers lacks access to retirement benefits at work. When it comes to retirement benefits, certain workers have even lower access rates -- 59% of service industry workers and 63% of part-time workers don't have access to employer-sponsored retirement benefits.
What can you do if you're one of them? One option -- rolled out in time for this year's open enrollment season -- is the myRA. It's a type of Roth IRA developed by the United States Department of the Treasury that invests in U.S. Treasury retirement savings bonds, which do not lose money. myRA accounts cost nothing to open, have no fees, and don't require a minimum amount of savings. The same income limits apply to contributing to a myRA as apply to a Roth IRA. While you're allowed to contribute to a myRA even if you have access to an employer-sponsored plan, be aware that myRA was designed for people who don't have access to such plans and haven't yet started saving for retirement.
By contributing to a retirement savings account like myRA, you may qualify for the Retirement Savings Contribution Credit (commonly known as the Saver's Credit), a special tax break for low- and moderate- income taxpayers who are saving for retirement. Depending on your adjusted gross income, tax filing status, and other factors, you may be able to claim a tax credit for a portion of the first $2,000 you contribute to a retirement account during the year.
The bottom line? Open enrollment isn't just a time to make healthcare and beneficiary decisions. It's also the season to take advantage of opportunities to save more for retirement.
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