401(k) Planning: What Do You Need to Know?

Having a 401(k) plan is one of the best ways to maximize your retirement savings. It’s a great way to capture tax benefits while automatically saving money from every paycheck. When this is combined with an employer match, a 401(k) can become one of the most powerful investment tools for retirement. 

While enrolling and participating in a 401(k) with your employer is a simple and straightforward process, some planning help from an advisor could allow you to align your choices with what you want to accomplish. Let’s discuss some of the basics so you can make your retirement plans work even harder for you.

Investment Choices

Picking the investments in your 401(k) can be overwhelming and confusing. Often there is more than one choice for each category. As a result, target-date funds have become popular choices recently, allowing participants the convenience of having their investments on autopilot in one fund based on a projected retirement date. 

However, if you decide to split your allocation between a target-date fund and another mutual fund, you may leave yourself open to duplications in certain asset classes and have a completely skewed mix of assets. In addition, target-date funds offer a cookie-cutter solution for what may not be a cookie-cutter need. Each individual has a unique and personal situation that may require different asset mixes than the predetermined asset mix of a target-date fund.  When you choose this option, there’s no room for personalization.  

Roth 401(k)s

While Roth IRAs put income limits on who can contribute, Roth 401(k)s do not have this limit. The question is do you want to pay taxes now or in the future? If you expect to be in a lower tax bracket at retirement (which isn’t always the case), then the regular 401(k) is the option for you. It’s hard to predict the future, but all your pensions, Social Security, investment accounts, 401(k)s, and IRAs could add up and put you in a higher tax bracket. Think about your spouse; if you should pass away, they will have to file as a single person, increasing their tax burden. 

Contribution Limits

It’s important to know your limits. For 2022, you can defer as much as $20,500. The total limit for employee deferrals plus employer contributions is $61,000. An additional $6,500 in catch-up contributions is allowed for those over 50.

Valued Advice From a Trusted Advisor

You’ll need to consider many factors when participating in your company’s 401(k) plan, and a little extra thought and consideration can make a big difference in your financial future. As with any important financial decision, it’s wise to first consult with an experienced professional.

At FMF&E, our goal is to help our clients be fully prepared by helping them build a plan and get the best life possible with the money they have. Their portfolios may have multiple accounts, including their 401(k)s. We view these as one entity, rather than looking at each account separately. Implementing the right strategy within your 401(k) is an essential step. 

Get our insights on building your financial future and getting the best life possible with the money you have by scheduling a conversation today or reaching out to me at jcampbell@fmfewealthmgt.com.

About Jeff

Jeff Campbell is a Wealth Advisor with FMF&E Wealth Management, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps business owners secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn. You can also register for his latest webinar on How We Help Business Owners Retire With Confidence.