Investing as much as you possibly can with your 401(k) contribution increases your retirement savings significantly because of employer matching amounts. That means you're getting free money along with your regular investments.
Company plans usually involve employees contributing a certain amount to meet standards for employers to make matching contributions. Plan your 401(k) contribution along with your monthly or yearly budgeting.
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You need enough for your living expenses or paying down debts. From that point you can try to eliminate or reduce certain products or events in your usual spending. Ask yourself if you really need to spend so much on entertainment or items you seldom use.
Companies usually offer matching contributions when you contribute about 3 to 6 percent of your salary into your 401(k) plan. Three percent of a $50,000 salary would mean a $1,500 contribution with a gift of $1,500 from your employer. The company doesn't match beyond its limit.
Some employers might match about 50 percent of your contribution or another percentage. Check with the plan administrator or person in the human resources department about the rules of your plan.
According to IRS regulations, the maximum contribution to a 401(k) plan was raised to $18,000 for 2015. People age 50 and older can add $6,000 more to the plan.
Most employees can't contribute enough to reach the maximum contribution, but many people get closer or reach the limit as their careers and wages rise.
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The money you put into your 401(k) account is tax-deferred, meaning it isn't taxed until you begin taking it out at age 59 and a half or later. By that time, people are usually in a lower tax bracket.
The more money you put into your account, the less taxable income you have because you can take deductions for the 401(k) contributions on your tax returns,
according to The Wall Street Journal.
Another way to look at your retirement savings is to invest a certain percentage of your income regardless of reaching limits. Many people say investing 10 percent of your income for retirement is a good start, but you can invest as much as you want.
You might be able to add a higher percentage of income for your retirement as you reach a higher salary. The 401(k) plan provides free money from matching funds and tax-free advantages, so it adds up to a lot of money when it comes time to retire.
If you're fortunate enough to max out your contributions to a 401(k) plan, you probably still have extra money to invest in other plans. You can build up your savings even more through individual retirement accounts, such as an IRA or Roth IRA. Talk to a financial planner who can offer advice on investing for your particular needs.
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