401(k) Limits Are Rising in 2022. 10 Steps to Max Yours Out
401(k) Limits Are Rising in 2022. 10 Steps to Max Yours Out
Hit that max
In 2022, 401(k) limits will increase from their current levels. If you want to put yourself in a strong position to max yours out, here are some essential steps to take.
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1. Know what the annual limits look like
Right now, 401(k)s max out at $19,500 for workers under 50 and $26,000 for those 50 and over. Next year, they'll max out at $20,500 for workers under 50 and $27,000 for the 50-and-over set. While this isn't a huge jump, given that 401(k)s have high contribution limits to begin with, hitting yours may be a challenge.
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2. Get on a budget
The more organized you are at tracking your spending, the easier it'll be to free up money for your 401(k). To this end, it'll help to set up a budget. Comb through your recent bank and credit card statements, see what your monthly bills look like, and jot those numbers down in a notebook or on a spreadsheet so you can keep your expenses in check.
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3. Cut back on a bunch of smaller expenses
You may need to spend less than what you're spending right now to max out next year's 401(k). If you don't want to make drastic lifestyle changes, pick a series of smaller bills to reduce. That could mean cutting one takeout meal a week, canceling one of two streaming services you have, and replacing nights at the movies with at-home screenings.
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4. Slash one major expense
Cutting smaller expenses might help you max out next year's 401(k) if you're close to hitting that mark already. But if you're still several thousand dollars off, then you may need to cut back on one large expense in your budget. That could mean downsizing your living space or getting rid of a car if you're able to get by without one.
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5. Boost your income with a side job
The more money you earn, the easier it'll be to max out a 401(k). If you can't hit next year's limit on your regular paycheck alone, boost your earnings with a side hustle. You can even choose a gig that's flexible, like driving for a ride-hailing service, so it fits seamlessly into your schedule.
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6. Pay off existing debt as soon as possible
The less money you spend on interest, the more you can put into your 401(k). Do your best to eliminate existing debt, whether by working a second gig or cutting back on spending. It might also help to make that debt less costly to pay off, and you might pull that off with a balance transfer or by consolidating your debt into a personal loan.
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7. Save your entire raise
If your pay is going up in 2022, you have a prime opportunity to pad your 401(k). Since that extra money isn't income you're used to having, you can send all of it right into your retirement plan to get closer to your goal.
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8. Bank any windfalls that come your way
You may come into extra money next year, whether it's a tax refund or even a surprise stimulus check (a less likely scenario, but one we can't completely write off). Funneling that money into your 401(k) could be your ticket to maxing out.
ALSO READ: Why We Should Hope There's No Fourth Stimulus Check
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9. Get a tax break on your contributions
Roth 401(k)s have their benefits, like tax-free withdrawals during retirement. But you may have an easier time maxing out your 401(k) if you stick to a traditional one. That way, you'll get a tax break on your contributions, which could make it more feasible to meet your savings goals.
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10. Keep reminding yourself what maxing out might do for your retirement
Parting with either $20,500 or $27,000 of your income is hard. But you may have an easier time doing so if you remind yourself that maxing out your 401(k) could mean having fewer financial worries when you're older. In fact, it may help to think about some of your retirement goals -- and picture how a nice, hearty nest egg could make them possible to achieve.
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Push yourself to do your best
Maxing out next year's 401(k) could work wonders for your finances. But remember, if you can't max out, do your best to save as much as you can. Every extra dollar you sock away for retirement will go a long way toward carving out the financially secure future you deserve.
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