National 401(k) Day

National 401(k) Day, celebrated each year on the Friday after Labor Day, is a great time to consider your retirement savings and make sure you’re on the right track.

We all have our own vision of the perfect retirement—whether it’s spent traveling, pursuing favorite hobbies, or spending more time with family. To make these dreams a reality, it’s crucial to understand your retirement plan. National 401(k) Day encourages us to pay attention to important retirement metrics, including our savings levels and investment allocations.

The Complexities of a 401(k)

If you’re unsure about your 401(k), you’re not alone. According to Beyond Finance, a recent survey of 2,000 Americans, evenly split by generation, revealed that nearly half (43%) of the respondents didn’t know what a 401(k) was. Others thought they were contributing to one but weren’t.

With so many complexities involved, it’s no wonder that 401(k)s can be confusing:

• Frequent changes to regulations. Retirement savings regulations are constantly changing, so what you understood about your 401(k) a few years ago may not apply today.

• Different rules for different employers. When you change jobs, it’s likely that your new company’s 401(k) plan has different rules and options than a previous employer’s.

• Uncertainty about contributions. Many people are unaware of their current 401(k) plan’s conditions around eligibility, matching, or vesting periods.

• Overwhelming investment choices. The variety of investment choices within a 401(k) can be hard to navigate, making it difficult to decide how to allocate your money.

The History of National 401(k) Day

National 401(k) Day began in 1996 by the Profit Sharing/401(k) Council of America (PSCA), known today as the Plan Sponsor Council of America. The Friday following Labor Day (Monday) was chosen so Americans could “start the week with Labor Day and end the week with Retirement.”

The goal of the holiday is to promote a range of retirement themes, including retirement savings education, encouraging more employers to sponsor retirement programs, and helping ensure that employees are knowledgeable about the benefits of participating in employer-sponsored retirement plans. (This day is also a fantastic way for not-for-profit employees to recognize their contributions to their 403(b) plans.)

If your employer provides a 401(k) or 403(b) plan, you can use that resource to start your retirement plan. If you’re self-employed, you can start your 401(k) through a financial institution. There are two distinct types of 401(k) – traditional and Roth. The traditional route takes a percentage of your paycheck out before taxes; through the Roth 401(k), contributions are made with money you’ve already paid taxes on, meaning your money grows tax-free.

5 Tips for Maximizing Your 401(k) or 403(b)

1. Start contributions early. It’s never too late to start saving for retirement, but the key to maximizing retirement savings is to begin early. Whether through a 401(k), 403(b), or IRA, if you or someone you love is in their 20s, start saving today.
2. Take advantage of matching contributions. Most employers match their employees’ contributions by a certain amount – for example, they may match 50% of your contribution up to 6%, which means if you contribute 6% into your 401(k) or 403(b) account, they will contribute 3%.
3. Select personally compatible investments. The typical 401(k) or 403(b) plan also allows you to select from a variety of investments that fit your investment preferences. You can then create an investment portfolio that aligns with your personal risk and tolerance levels no matter how many years you have until retirement.
4. Avoid early withdrawals. Premature withdrawals from a retirement plan can be expensive. Not only will they be taxed as income, but they can also result in fees and tax penalties for a participant, not to mention the loss of future tax deferral.
5. Check in periodically. These long-term investments are easy to forget about, but you should monitor as you go in order to adjust as needed.

National 401(k) Day serves as a valuable reminder of the importance of retirement planning. Whether you are already enrolled in your company’s 401(k) plan or considering starting your own, this day encourages you to take control of your financial future. Don’t let another day go by without learning why you should save for retirement through your company’s 401(k) plan, or how to save for retirement if you do not have a plan.

As experienced financial professionals, we’re here to help you plan for retirement and other major milestones in life.

Contact the HT|TC team today to learn more about our retirement planning services.