Retirement tips to remember when starting a new job
Congratulations on landing a new job! There is no better time than now to think about your 401(k) and planning for retirement. At Western Financial Corporation, we believe that saving and investing for your retirement is important at all ages, so if your employer provides a 401(k), do not let this great opportunity fall to the bottom of your list.
Here are four tips to consider when starting a new job and a new 401(k).
- Make larger contributions if you have a bigger paycheck via a raise or performance bonus. When you receive a raise, it is a good practice to increase the amount you contribute to your 401(k). Due to these contributions being made on a pre-tax basis directly out of your paycheck, by not having this money in your packet, it is easier to not miss making the contribution when you put it straight into your 401(k). The contribution limit for 2021 is $19,500, or $26,000 if you are over 50. In some cases, you already may be meeting the annual limit, therefore you should consult with your financial advisor whether you should consider contributing to an individual retirement account (IRA) for even more retirement savings. This would permit you to contribute an additional $6,000, or $7,000 if you are over 50.
- Do you like free money? Then do not pass up the new employer’s match. Find out if your new employer provides a match as part of their employee benefits package. Some companies may match your contribution dollar for dollar or a percentage of it up to a set amount. Remember, your company match is free money. Do not let this slip through your fingers. Imagine if you were offered free money, let us say a few thousand dollars, would you turn it down? So, it is important to find out the limit your employer will match and at a minimum contribute that amount.
- Do not forget to name the beneficiaries for your new 401(k) plan. It is important to keep your beneficiaries consistent across all retirement accounts as well as your estate plan as well. So, if you have made any changes to your beneficiaries, be sure to update your new plan to reflect the changes made. Are you now a parent or do you happen to have a new spouse? By updating your beneficiaries this would allow your 401(k) account to pass directly to the person of your choice should you pass away.
- Finally, do not forget to enroll in your new plan! Some companies have an automatic enrollment feature although do not rely on it. While this may seem obvious, it is easy to forget for your new company’s 401(k) plan, due to employers requiring a short waiting period before new employees are eligible to join. In many cases you can learn about the eligibility requirement from your HR department. As a safeguard, put a reminder in place on your calendar highlighting the enrollment date. You can even set an alert on your smartphone. The point is, just do not forget.
You may be wondering what you should do with your previous employer’s 401(k)? Good thing you have options. You may prefer rolling over your old 401(k) to an IRA, as it gives you the flexibility to invest your account in a variety of stocks, bonds, exchange traded funds or mutual funds. You will surely have access to more than what your employer may offer. This kind of freedom and flexibility will allow you to build a well diversified investment allocation.
You may also consider consolidating your old 401(k) account into your new plan. You will need to research investment options that are provided in the new plan before making any decisions. If you find yourself lost or just unsure of which funds you should pick, get in contact with a financial adviser that can assist you with fund selection, asset allocation and understanding your risk tolerance. It’s never a bad idea to get a second opinion.
The least popular option is taking money out of an old 401(k). If you are under 59 1/2, you must pay taxes on the withdrawal and a penalty from the Internal Revenue Service. Typically, keeping those dollars in a tax-free or tax-deferred account if possible is a good idea.
If you have more questions, schedule a complimentary consultation with a lead adviser at Western Financial Corporation.