If you're looking to ramp up your retirement savings in 2024, an employer-sponsored retirement plan like a 401(k) might be your golden ticket.
Essentially, a 401(k) is a retirement savings plan that lets you funnel part of your paycheck into the account before taxes are taken out. For 2024, you can stash away up to $23,000 in your employer's 401(k) plan. If you are 50 or over, you can throw in an extra $7,500, bringing your total contribution limit to $30,500 for 2024. With these contribution limits, you could be on your way to a six-figure retirement account in a few years.
But if you're wondering how to supercharge your 401(k) this year to crush your long-term goals, we've jotted down a few steps you can take to make the process easier.
Image source: Getty Images.
Be clear about your 401(k) goals
Before we dive deep into 2024, it's important to clarify your 401(k) goals. Setting a specific target and breaking it down into bite-sized steps will make it easier to create a solid plan. If you're unsure where to begin, start by answering these questions:
- How much can you afford to contribute to your 401(k) this year?
- Does your employer offer a 401(k) match?
- How does your 401(k) fit into your overall retirement plan?
- How will your 401(k) contributions affect your taxable income?
For instance, if you're 45 years old, earning $100,000 annually, and feel you're behind on retirement savings, you might want to maximize your 401(k) contributions. By putting $23,000 into a traditional 401(k), you not only boost your retirement savings but also reduce your taxable income for the year. Plus, if your employer offers a 401(k) match, contributing enough to get the full match can sweeten your retirement pot with some free money.
Manage your finances
Getting your finances in order will make it easier to sock away money in a 401(k).
For starters, you'll want to make sure you have an emergency fund. A three- to six-month buffer covering essential expenses may be a good start. But if you're a freelancer, for example, you may want to increase your savings to prepare for unpredictable swings in work. Having an emergency fund to take care of unexpected expenses will make it less likely that you'll ditch your 401(k) goals during the year.
You'll also want to keep tabs on your budget. Take a look at your monthly expenses and see if there are areas where you can trim back. This could help you free up more money that can be redirected toward 401(k) contributions.
If cutting costs isn't enough, you may want to consider picking up a side gig to increase your income. Explore opportunities to get paid for doing something you already enjoy doing, such as consulting or coaching people in your area of expertise. Even covering one or two bills per month with your side gig can free up more of your main paycheck to contribute toward your 401(k) goals.
Determine your contribution goals
You can contribute equal amounts to a 401(k) every month to help you reach your goals without lifting a finger. For instance, suppose you're 40 years old and want to max out your 401(k) contributions in 2024, but haven't begun yet. You would need to contribute $2,875 monthly from May through December to reach the $23,000 limit by year-end.
If you are still working on other financial goals now, you might prefer to beef up your 401(k) contributions later in the year. In that case, you would want to determine how much you can reasonably contribute to your 401(k) during the first six months, and then calculate how much you would have to contribute during the second half of the year to meet your goal.
But whatever your contribution goal may be, you'll want to get the ball rolling immediately, especially considering that we're already nearing the halfway mark of 2024. While you technically have until Dec. 31 to make contributions to your 401(k), keep in mind that your employer might have an earlier cutoff date for adjustments to contribution amounts, to ensure that there's enough time to process everything before the end of the year.
Retirement savings can often take a backseat when other financial obligations pop up. However, by following a plan, you'll have more wiggle room to navigate the unexpected without getting off track. You could also position yourself to tuck away more money for retirement than you ever have before.
