Assessing Your 401(k) at the End of the Year

Saving for retirement is hugely important for any working professional. Yet it's also a big challenge for many Americans. The obstacles can range from not understanding just how much of a nest egg they'll need, to not being able to contribute enough of their salary.

That said, there are vehicles that incentivize and facilitate retirement saving. Chief among them is the 401(k). These retirement products are often offered by employers, many of whom also include a promise to match funds put away. This motivates consumers to save, and so do the tax advantages.

"As the calendar winds down on 2018, take action and manage your 401(k)."

Depending on the structure of your 401(k), you can either contribute to your fund using before-tax dollars and defer taxes until withdrawn, or pay taxes as they go in and withdraw tax-free in retirement. Regardless of what kind of 401(k) you have, it's important to look at this savings account as more than a static investment that requires little to no interaction on your part.

401(k)s require active attention

All that said, there's benefit in a 401(k) in that it doesn't require as much of your time as, say, stock market investments. The focus of the 401(k) is the long term, and that's reflected in its being comparatively low touch. However, in order to get the most out of your 401(k), and to set the best course for you financial future, it's worth taking an active stake in managing your 401(k).

While consumers may work with a finance professional or other service to take care of the 401(k), there are steps individuals can take on their own. As the calendar winds down on 2018, it's even more important to take action to benefit yourself and your 401(k). A couple things to think about include:

1. Making a year-end contribution

There are limits to how much you can contribute to a 401(k) on an annual basis depending on your age: $18,500 if you're under 50 and $24,500 if above. It's typical for homeowners and others to maintain monthly contributions that fit their budgets. However, if there's some money left over at the end of the year and you haven't reached the maximum yet, consider putting it toward a contribution. There are two reasons behind this: If your employer matches, then you'll get a bigger chunk of that match. Also, you'll generate bigger tax savings if you contribute the large sum.

2. Rebalancing your portfolio

You can take a more active stake in your investment by deciding where to allocate your money. Even if you're new to the market, it's worth taking a look at how your money is invested: stocks versus bonds, developed markets versus emerging markets, safe hedges versus riskier bets. Where you are in life, financial well-being and retirement planning will decide how you allocate. For example, someone younger can stomach more risk in equities than someone approaching retirement age and who benefits from the fixed income bonds provide.

Whatever action you decide to take with your 401(k), and retirement planning in general, it's always important to consult with professionals. Work with Vectra Bank today to find strategies and leverage your savings.