Time To Increase Your 401k Contribution
The beginning of the year is the time when many employees receive a pay raise in the form of bonuses and/or salary increases. Plan sponsors may encourage plan participants that if they get a raise to give their 401k a raise as well. Increasing their 401k contribution percentage each time participants receive a pay just by 1% each time, can get them that much closer to their retirement goals.
An Overlooked Opportunity
This strategy may be an overlooked opportunity by many plan participants, especially those participants whose contribution levels may have stalled at the minimum 3% contribution level since enrollment. However, as defined benefit plans become less common and Social Security payment amounts become increasingly uncertain, encouraging these participants to take control of their retirement savings strategy cis key. Gradually increasing the amount participants contribute to a 401k plan over time is a practical and relatively painless way to fund their retirement nest egg. Increasing 401k contributions by 1% each year ’ accounts over time.
Hopefully, plan participants can increase their contributions enough over time so that they can approach or meet the allowed Internal Revenue Service contribution limits (see below). Alternatively, many advisors recommend that participants strive over time to save at least 10-15% of their annual income.
401(k) Plan Limits 2014
Maximum annual employee contribution $17,500
Additional annual catch-up contribution (age 50 and older during year) $5,500
Many factors beyond participants’ control, such as market fluctuations, may have an impact on whether they reach their retirement goals. While participants can’t control the market, they can control their contribution amounts and the rate of contribution increases over time. Plan sponsors should remind participants that this strategy is a practical step in the right direction and provide them with the necessary information to put this strategy into action.
To discuss ways to encourage and communicate the value of increasing contributions over time to your participants, contact your Alliance Benefit Group Representative.