- Traditional Pension Plans
- Talk With Your Employer
- Ask About Plan Features
- Self Employed
- Company Doesn't Offer a Plan
- Company Doesn't Offer a Match
- Employer Matching
- Catch-up Contributions
- Automatic Enrollment and Increases
- Your Plan in a Volatile Market
- Feed Your Retirement Plan
- Understand the Market
- Review Your Retirement Plan
Matching Contributions From Your Employer
If your employer offers a 401(k), it’s simple smarts to contribute every payday - but how much?
If your employer matches a portion of your contributions, as many do, the answer is easy. Consider contributing at least enough to get the full match. It’s like getting free money! Withdrawals are taxed as ordinary income and, if taken prior to age 59½, they're subject to a 10% penalty.
Making a match
Let’s say your employer matches 50% of your contribution up to 6% of your total income. That means if you make $50,000 per year and contribute the maximum matched contribution amount of 6%, you would be contributing $3,000. Your employer would put in $1,500, for a total of $4,500.
- Your contribution: $3,000
- Your employer’s 50% match: $1,500
- Your total for the year: $4,500
If you can go above and beyond your employer’s match limit, more power to you. You might even find that you need to in order to reach your retirement goals. Keep in mind there are yearly limits on how much you can contribute. Check with the IRS for current contribution limits.
Also keep in mind that there may be a vesting period to receive employer matches. So, if you leave the company before your employer’s match is vested, you have to give that money back.
Are you a late bloomer?
You're not the only one who’s gotten a late start on a 401k. That’s why there’s a “catch-up” exception to the contribution limits shown above. If you're at least 50 or turning 50 in a calendar year, you may be eligible to contribute an additional amount to help you catch up. Check with the IRS for current information.. It's never too late to start.
Help! I've reached the limit
So, you've maxed out your 401(k), but still have money you want to invest. Lucky you! Many experts suggest a Roth or traditional IRA. Here’s why:
Roth IRA advantages
- Paid for after-tax so withdrawals in retirement may be tax-free
- Can contribute after age 70½
- No minimum age limit — start one for kids or grandkids
- Compounding interest for greater growth possibility
A Roth IRA can be a good complement to a 401(k). Its tax-free withdrawal status for qualified distributions may help hedge against the risk that you'll be in an undesirably high tax bracket when you start withdrawing from, and paying taxes on, your 401(k) investment.
Check with the IRS to learn about contribution limits and income limitations that may apply.
A major difference between a traditional IRA and a Roth IRA is tax status. A Roth IRA is paid for after paying taxes on income, while traditional IRA contributions are made pre-tax.
If your employer offers a 401k, get enrolled today. If not, talk to your investment professional about an IRA account.
Too many people put off retirement planning until they're near retirement, then scramble to come up with a plan. The sooner you start, the further ahead you'll be.
Keep in mind that all investing involves market risk, including the possible loss of principal. Neither Nationwide nor any of its representatives give legal or tax advice.