Contributing to a retirement account might not be the most exciting item on your to-do list, but it can lead to rewards both now and in the future. If you have access to a traditional 401(k), you can tap into perks that can score you a win on your tax return and get you one step closer to the retirement you've always dreamed of.
But if you're unsure how to maximize your 401(k) this year, we've jotted down a few perks worth considering.
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1. Enjoy higher contribution limits in 2024
The contribution limits for a 401(k) surpass those of traditional and Roth individual retirement accounts (IRAs), and in 2024, you'll have a chance to unlock the biggest 401(k) contribution limits we've ever seen.
You're allowed to contribute up to $23,000 to a 401(k) if you are 49 or younger in 2024. However, if you're older, your contribution cap jumps to $30,500 for the year. Your 401(k) contribution is automatically deducted from your income before your paycheck hits your checking account. This automated process makes it easier to save money for retirement.
If you haven't begun contributing to your retirement plan yet, this is a good time to review your company's 401(k) plan documents. Take a look at the fees and investment options offered to ensure they align with your goals. If the plan meets your criteria, determine how much you want to contribute from each paycheck every month. Remember, you can adjust your contribution amount at any time during the year.
2. Qualify for an employer match
Unlike an IRA, you can get help building your 401(k) savings. Your employer may decide to chip in and help you save for your retirement by matching some or all of your 401(k) contributions. This is known as 401(k) matching.
Let's say your employer offers a 50% match on all your contributions to your 401(k) plan, up to 6% of your salary. If you earn $90,000 per year, 6% of your salary would be $5,400. Since your employer matches 50%, you could receive a maximum of $2,700 as a match for the year. That's extra money that your employer deposits straight to your retirement account. Keep in mind that you'll only receive this match from your employer if you contribute at least $5,400 to your 401(k) this year, which comes out to $450 per month.
More than 8 out of 10 employees with 401(k)s at Fidelity received some type of matching contribution in 2023. So if you work for a large employer, there's a good chance that you can tap into this benefit if you contribute to your company's 401(k) plan. Read your employer's 401(k) plan documents to determine if they offer a 401(k) match and how it works. Also, look into your company's vesting schedule to find out if there are any conditions you need to meet to claim 100% of the contributions your employer made to the account.
3. Secure tax benefits for 2024
Beefing up your retirement savings may be one reason to contribute to a 401(k), but if you're looking for ways to trim your taxable income, contributing to a 401(k) can also help you out.
Let's say you are a 40-year-old single taxpayer earning $130,000. If you claim the standard deduction of $14,600 for your 2024 tax return, your taxable income for the year would be $115,400. But if you max out your 401(k) contributions for 2024, your taxable income would drop even further to $92,400. This move would shift you from the 24% to the 22% marginal tax bracket.
Time is ticking away, but there's still an opportunity to claim these 401(k) perks for 2024. Start by determining your contribution goals and looking into your employer's match. If you need an extra push to get started, consider the tax benefits you'll be able to unlock this year and the retirement savings that will bring you closer to the life you've always dreamed of.
