There is a reason your company considers its retirement plan an employee benefit: it is. If you don’t believe this, ask anyone who does not have access to a pre-tax, company-matched and fee-free retirement plan.
How to Get the Most Out of Your Company’s Retirement Plan
Divert Money to Your Company’s 401K
One big advantage of your company’s 401K retirement plan is that the money is directed to your retirement fund before your income is taxed on your paycheck. Before you say that you can’t do without that money, do the math.
But I’m Only 20-Something!
The youngest employees, who have the most to gain by investing in a company-sponsored retirement plan, may be thinking more about college loan and car payments rather than retirement. Investing in your company’s retirement in your 20s is the smartest move you can make.
Bonus = Extra Retirement Money
Any bonus you receive through work should be directed to your company sponsored retirement plan. It’s extra money, and as long as you’ve paid taxes on it, your budget is working and your credit card debt is low, you should save 75 to 100 percent of that bonus for retirement.
Vacation Buy Out
Some companies enable employees to buy back up to a week of unused vacation time. If your lucky enough to have three to four weeks of vacation or more and have the option to buy a week back, this extra money can go into your company-sponsored retirement plan.
Raise Your Percentage
When you receive an annual increase or raise that is above the cost-of-living, increase the percentage of your paycheck that is directly deposited into your retirement fund.
Company Stock Option
Another way to take advantage of your company’s retirement benefits is to buy company stock if it’s offered. Automatically reinvest any dividends paid by the company stock.
Aim for the Max
While you may not be able to do it in the first couple of years with the company, as your time with the company progresses, you should be aiming to divert the highest possible percentage of your paycheck into your retirement fund. There are annual contribution limits (ex. $16,500), which change. Check with your company’s HR department or with the company where you have your retirement fund. Sometimes you can change percentages at will, while others only allow changes during a certain time of the year.
Keep Track of Investments
You will have access to your retirement fund gains and losses. Review your statements quarterly and annually and make adjustments as needed.
Think Outside The Company
One surefire way to have more money in retirement is to make extra income now. If your income at your job is limited by infrequent or stingy raises, non-existent bonus plans and no opportunity to earn overtime, it’s time to find a secondary source of income. Any “extra” income you make through consulting, your own service or repair business or speaking engagements can be saved for retirement.
Tax Topics, http://www.irs.gov/taxtopics/tc424.html
Financial Literacy Organization, http://www.mymoney.gov