Saving for retirement can be tough. It’s easy to say “Oh, I’ll set aside a certain percentage of my paycheck for saving and investing, the way experts say I should.” In practice, however, that 10% can get nibbled away at pretty quickly by anything and everything. An unexpected car repair, a vacation that runs over budget, back-to-school shopping, sports league fees for your kids, the small financial burdens of life add up and can affect your – or anyone’s – ability to save for retirement.
That brings us to 401(k) plans. 401(k) plans, if you’re not familiar, are employer-sponsored retirement accounts. They’re considered “defined contribution plans” because the amount an employer contributes in matching funds is set. Often this amount is set as a percentage of your salary – and dependent on you making a contribution yourself. For example, an employer might offer to contribute 3% of your salary… if you contribute 6% of your salary.
Furthermore, saving in a 401(k) plan is – in terms of your budget – a little bit invisible, for lack of a better term. Contributions are made directly from your paycheck, meaning you don’t have to remember to contribute each month. Because it’s done for you, it’s a more effective way to save.
Why discuss this now? Because 401(k)s as an employer benefit are on the upswing. The Wall Street Journal reports:
The average company contribution to 401(k) plans rose to an estimated 4.7% of employee salaries in 2016, up from 3.9% in 2015, according to data on 1,900 workplace retirement savings plans…. It was the highest percentage and biggest year-to-year jump since at least 2007
401(k) plans can be an effective component of your retirement savings strategy. And now that employers are increasing their contribution size it’s more important than ever that you understand your employer-sponsored retirement benefits and the role they play in your own financial plan. Contact an advisor associated with Waddell & Reed today to review your 401(k) – or other employer-sponsored retirement benefits – and see how it aligns with your retirement goals.
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The Internal Revenue Service (IRS) announced it is increasing the amount you can contribute to your workplace retirement plan. The contribution limit for retirement savings accounts, including 401(k), 403(b) and the majority of 457 plans, has increased to $18,500 from $18,000.Read More
Employer contributions are subject to a vesting schedule, which can be based on length of employment or any other restrictions your employer may impose.
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