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In an earlier post, we reviewed four ways to get your retirement savings into shape for the coming year. In this FutureTrack post, we’ll focus on one tip in particular: know when to increase 401k contribution. If you have been thinking of your 401k as a hands-off account, you’ll be happy to know that there are many occasions when increasing your contribution – and your overall savings toward retirement – can be a smart move. Here are 5 considerations for increasing your 401k contribution.

Consult with your financial adviser.

The most important step in deciding whether or not to increase 401k contribution next year is to meet with your financial adviser. They can help you evaluate not only your account but also the overall state of the market, offering insights on current trends and cyclical expectations. For example, if your current income and cash flow would make increasing your contribution challenging, your adviser might suggest diversifying your investments in order to affect your savings without necessarily impacting your day-to-day funds. Meeting with your adviser at least once per year is always a good idea, even if you don’t intend to change anything at all.

Consider your next 12 months.

If after consulting with your adviser you decide to increase 401k contribution in 2019, start thinking about upcoming life events and how they may be affected. Are you planning a wedding for yourself or someone in your life? Are you buying a home or expecting a new addition to your family?

You may also be making life changes in the coming year that could further help you make the 401k increase. If you are on the verge of accepting a new job or promotion that will result in a pay raise, you may find yourself with some flexibility when it comes time to increase your contribution. Have the grown children in your life moved out? As an empty nester, you’ll likely find yourself with more disposable income than you’ve had in quite some time. After turning that kid’s room into the gym or craft area you’ve always wanted, think about increasing your monthly 401k contribution to make the years ahead even sweeter.

Whether you anticipate spending or earning more in the coming year, knowing what to expect over the next 12 months can help guide your decision.

Increase to your employer match.

Many employers that offer a 401k program also have a maximum match. A company’s match is the maximum percentage that they will contribute to your 401k account to match your own contribution. If your employer has a 3% match and you currently contribute 3% of your monthly paycheck to your 401k, then you are effectively doubling your contribution every month. Pretty great, right? Your employer match does not limit how much you can personally contribute, it just means that they cap their contribution at a certain percentage, often between 2-4 percent.

If you currently have a 401k with your employer but are not contributing at least the match percentage, you are effectively throwing away free money. Of course, there are circumstances that make increasing your contribution more difficult. However, if you have the means to increase 401k contribution to your company’s match, keeping in mind that the money taken from your paycheck is pre-tax (unless your 401k plan has a Roth option), you should strongly consider it. Contributions can be decreased if and when needed, but you cannot retroactively collect months or even years spent receiving under your employer match.

Increase to the maximum 401k contribution limit as soon as you can.

As we have discussed so far in this blog, deciding to increase 401k contribution when you can make a big difference in the long run. The idea of maxing out your 401k contribution may sound intimidating, but if you are in the right financial position to make it work, it’s a great move to make for your future.

Since you have already considered the events in your life over the coming year, you can confidently start thinking about whether or not maxing out your 401k contribution is a possibility in 2019. For example, if you have recently finished paying off your student loans or even your mortgage, this could be a great time to make the increase. Saving the money now before you even have time to miss it is a positive habit to make.

The maximum 401k contribution limit changes nationally on an annual basis, as do certain exceptions. In 2018, the maximum 401k contribution limit is $18,500, but if you are over age 50, you are eligible to supply a “catch up” contribution of $6,000. Consult with your human resources department and your financial adviser over the next couple of months to learn your limits for 2019.

If nothing else, increase 401k contribution by 1%.

If you are still on the fence about increasing your 401k contribution in 2019, then imagining 1% less each month is probably a bit unnerving. The best way to face this uncertainty is to run the numbers and see how much will actually be coming out of your take-home pay. One percent pre-tax is likely a lot less than you think. It might even be less than two weeks’ worth of daily gourmet coffees. Reserving one morning per week for your latte indulgence could free up enough money for you to increase 401k contribution by 1%, or more. If you can make this increase year over year, you’ll be on your way to a stronger financial future.

Deciding to increase 401k contribution can be an intimidating thought. Breaking down the numbers and looking at how a change could potentially impact your daily life and the course of the coming year can help put it into perspective. Check out more money saving tips on our FutureTrack blog to help get you started, then schedule your complimentary appointment to start planning your financial future.

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