Now that 2019 is on its way out, it's time to start thinking ahead to 2020. But before you get too busy ringing in the new year, take time to give some attention to your retirement savings. If you make these key 401(k) moves before the end of the year, you'll be thankful for it after the fact.
1. Ramp up your contributions
Maxing out a 401(k) is hard, given that the annual contribution limits are currently set at $19,000 for workers under 50 and $25,000 for those 50 and over (and they're going up in 2020). But even if maxing out for the year isn't an option, it still pays to put a little bit extra into that account before the year is up. If you're saving in a traditional 401(k) as opposed to a Roth, any additional money you put in will serve the very important purpose of lowering your tax burden for the current year.
Furthermore, if you haven't yet contributed enough money to your 401(k) to snag your full employer match, then aim to do so before 2019 wraps up. If you don't, you'll effectively be giving up free money.
2. Review your investments
The point of investing inside your 401(k) is to generate growth in your account so you can turn your savings into a larger sum over time. But it's smart to check up on your investments periodically, and the end of the year is a great time to do it.
When looking at your investments, you'll want to check for a couple of things: first, that you're investing aggressively or safely enough, given your age, and second, that you're not losing too much money to fees.
The younger you are, the more comfortable you should feel loading up on stocks in your 401(k), since you have plenty of time to ride out market downturns. And if you're looking for maximum growth (which you should be), you should know that stocks have historically outperformed bonds. On the other hand, if you're close to retirement, it generally pays to shift toward bonds because they're less volatile. That way, if the market has a rough year or two, you won't risk such extreme losses.
Now let's talk fees. Choosing index funds over actively managed mutual funds could save you quite a bit of money on fees in the long run, and you can buy index funds of the stock and bond variety. That said, there's sometimes a value to paying up for a professional fund manager, so review the investment choices available in your 401(k) and take a look at their past performance. It could, in some cases, make sense to retain some actively managed mutual funds in your account, even if they do cost a bit more.
3. Take your required minimum distribution
If you're still working or are retired and below the age of 70 1/2, you don't have to worry about required minimum distributions, or RMDs. But once you turn 70 1/2, you must remove a certain sum of money from your 401(k) annually (the exact amount is contingent on your account balance and life expectancy). If you fail to take your RMD by the end of the year, you'll risk a 50% penalty on whatever sum you don't remove from your account. That's essentially thrown-out money, so don't neglect that year-end deadline.
Before you get ready to say goodbye to 2019, take the time to focus on your 401(k). The moves you make in the coming weeks could prove instrumental in helping you grow your wealth and avoid losing money needlessly.