Make most of your 401(k)
Most of us need to save and invest a lot to amass hefty safety cushions for our retirement. If your employer offers a 401(k) plan, it can be a great retirement-saving tool for you. Here are some tips:
• Start participating as soon as you can, and contribute money aggressively. The more you save and invest, the more your account can grow. For 2021, the maximum contribution is $19,500. Those 50 or older can contribute an additional $6,500.
• Consider opting for a Roth 401(k) account, if your employer offers it. Much like a Roth IRA, it will take your money on a post-tax basis, offering no upfront tax break. In exchange, though, withdrawals in retirement can be tax-free.
• If your employer matches your contributions, contribute at least enough to max that out — because it’s free money. For example, if your employer will add $3,000 to a $6,000 contribution you make, you’ve just earned an instant risk-free 50% return!
• Understand that over long periods, it’s hard to beat stocks for wealthbuilding. But many 401(k) accounts automatically invest your money, by default, in slower-growing, conservative investments. Consider setting your account to invest much or all of your money in stocks — especially if retirement is many years away.
• Low-fee index funds are great stock investments. If your 401(k) plan doesn’t include an index fund based on the S&P 500 or the broader U.S. or global stock market, ask if one can be added.
• For maximum growth, plan to leave your money in your account for as long as possible. If you leave that job, you might roll that money into your new employer’s 401(k) or into an IRA. Don’t borrow from your 401(k) unless it’s really an emergency.
Take action now, and your retirement may be much more comfortable. For practical guidance about 401(k)s and retirement in general, along with model portfolios featuring recommended funds, check out our “Rule Your Retirement” service at Fool.com/services.