Hispanolistic | E+ | Getty Images
There’s nonetheless time to spice up 401(okay) contributions and max out your plan account for 2024, however not everybody ought to, in keeping with monetary advisors.
For 2024, staff can defer as much as $23,000 into 401(okay) plans, up from $22,500 in 2023, with an additional $7,500 for employees age 50 and older. Some 401(okay)s permit added financial savings past these limits.
Generally, “it’s a no-brainer” to avoid wasting no less than sufficient to get your employer’s full matching contribution, which deposits more money based mostly in your deferrals, mentioned licensed monetary planner Donald LaGrange, a wealth advisor with Murphy & Sylvest Wealth Management in Dallas.
More from Personal Finance:
Some school listing costs close to $100,000 a yr, ‘a worrisome development,’ knowledgeable says
Walz’s household turned to Social Security when his father died. Some youngsters miss out
Here’s the best way to use required retirement withdrawals to enhance your portfolio
After receiving your employer’s full 401(okay) match, you must think about “several variables” earlier than including extra to the plan, LaGrange mentioned.
Some 14% of buyers maxed out their 401(okay) worker deferrals in 2023, in keeping with a 2024 report from Vanguard.
Meanwhile, the typical 401(okay) financial savings charge in 2023 — together with worker deferrals and firm contributions — was an estimated 11.7%, which matched a report excessive from 2022, the identical Vanguard report discovered.
If you may afford to go additional and max out your 401(okay) for 2024, listed here are three issues to think about first, consultants say.
1. Prioritize high-interest debt
After getting your employer’s full 401(okay) match, paying down high-interest debt such as credit cards and auto loans should be a priority, said Austin, Texas-based CFP Scott Van Den Berg, president of Century Management Financial Advisors.
“With today’s higher interest rates, prioritizing debt repayment is crucial if they must choose between the two,” he said.
The average credit card interest rate was hovering close to 25% in early August, in keeping with LendingTree. But that would fall as soon as the Federal Reserve begins slicing charges, which might come as quickly as September.
“The key is to pay off the debt first, which will free up cash flow,” for larger 401(okay) contributions sooner or later, Van Den Berg mentioned.
2. Plan for short-term objectives
Before maxing out your 401(okay), you must also think about whether or not you may want the funds for different short-term objectives, akin to paying for a wedding or buying a home, experts say.
“A 401(k) is not the most efficient account to save for pre-retirement goals,” LaGrange from Murphy & Sylvest Wealth Management said. “Savings should reflect a family’s goal priorities and timelines.”
If you tap your 401(k) before age 59½, you’ll generally trigger a 10% early withdrawal penalty, along with regular income taxes.
3. Weigh your emergency fund
Most experts recommend keeping a minimum of three to six months of expenses in cash or other liquid assets for emergency savings, depending on your circumstances. Some experts say that should be higher for entrepreneurs or small business owners.
Nearly 60% of Americans aren’t snug with their quantity of emergency financial savings, up from 48% in 2021, in keeping with an annual Bankrate survey that polled greater than 1,000 U.S. adults in May.
If your emergency financial savings aren’t enough, you might think about boosting money reserves earlier than maxing out your 401(okay), consultants say.
