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12 401(k) Moves You Must Make Before the End of the Year

By Maurie Backman - Oct 19, 2022 at 7:00AM
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12 401(k) Moves You Must Make Before the End of the Year

It's time to focus on your 401(k)

Saving for retirement is extremely important. And if you've been funding a 401(k) plan, you're on the right track. But it's important to manage your 401(k) wisely. That holds true whether you're in the process of building savings or gearing up to take withdrawals. With that in mind, here are a few 401(k) moves you may want to make before 2022 wraps up.

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1. See how much you've contributed to date

This year, you can put up to $20,500 into a 401(k) plan if you're under age 50. If you're 50 or older, that limit rises to $27,000. It pays to see how much you've put into your 401(k) so far to see how close you are to maxing out.

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2. See how close you are to snagging your full employer match

Many companies that sponsor 401(k)s also match worker contributions. It pays to see what your full match entails and how close you are to getting it. You don't want to give up any of that free money.

ALSO READ: How to Get the Most Out of Your 401(k) Company Match

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3. Make your catch-up contributions

If you're 50 or older, you can put $6,500 into your 401(k) on top of the $20,500 younger savers can contribute. It pays to make a catch-up if you're able to. And to be clear, you don't need to be behind on savings to take advantage of this option. You can have $2 million in savings and still make a catch-up.

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4. Check on your asset allocation

It's important to invest your 401(k) wisely so it grows nicely. When you're younger, that generally means going heavy on stocks, whereas if you're near retirement, you may want to put more of your money into bonds. Make sure to check up on your asset allocation to ensure that it's appropriate for your age.

ALSO READ: Understanding Asset Allocation for Your Portfolio

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5. Assess the fees you're paying

One downside of 401(k)s is that the administrative fees you pay can be hefty. Take some time to see what those fees are. If they're huge, you may want to consider saving elsewhere.

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6. Commit to a higher savings rate

Maybe you're behind on building your retirement nest egg. If so, now's a good time to commit to setting aside more of your salary. If you current contribute 5% of your earnings, ramp up to 6%.

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7. Choose investments if you haven't already

When you first open a 401(k) plan, your money generally goes into your plan's default investment option if you don't select your own funds. That usually means having your money invested in a target date fund. And while these funds are good for some savers, you may want to put your money elsewhere to increase your chances of meeting your goals.

ALSO READ: What Are Target Date Funds?

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8. See if it pays to move from mutual funds to index funds

The problem with many of the mutual funds you'll find in 401(k)s is that they charge high fees that can eat away at your returns. If you have most of your 401(k) dollars in mutual funds, consider switching over to index funds. Index funds are passively managed; therefore, their fees tend to be significantly lower.

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9. Sign up to save your upcoming raise

You may be in line for a raise at the start of the new year. Take advantage by signing up to add that entire raise to your 2023 contribution. You can always change your 401(k) contributions during the year if your circumstances change, but it's good to commit to that goal up front.

ALSO READ: Want a Raise in 2023? Why It Pays to Talk to Your Employer Now

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10. Consider switching to a Roth

Roth 401(k)s don't give you a tax break on the money you put in. But investment gains in a Roth are tax-free, and just as importantly, so are withdrawals in retirement. Having money in a Roth 401(k) could give you more financial flexibility later in life.

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11. Open a solo 401(k) if you're self-employed

Being self-employed doesn't mean you can't save efficiently for retirement. You may not have access to a company-sponsored 401(k). But you can open a solo 401(k) and manage that account yourself, all the while getting to enjoy a host of tax benefits.

ALSO READ: This Is the Hardest Part of Being Self-Employed for Me

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12. Consider whether it's a good time to start taking withdrawals

Once you turn 59 1/2, you can withdraw from your 401(k) without penalty. If you're of age, you may be contemplating a near-term withdrawal. Now's a good time to think about how that might impact your tax situation and future income.

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Make the most of your 401(k)

Having money in a 401(k) could mean enjoying more financial freedom as a retiree. In the coming weeks, take the time to check these moves off your list. That way, you can approach the new year with the knowledge that you're on top of your retirement plan.

The Motley Fool has a disclosure policy.

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