By now, we all understand the importance of having retirement savings in the form of a retirement plan. These retirement accounts are set up so that you contribute a certain amount of money and the money grows on investment shares bought with the money. This is widely believed to be the best mode of financial planning for retirement. But the real question is this: Are you taking full advantage of this option?
Many companies have a matching contribution retirement plan. In such plans, the company matches your contribution to your retirement account, up to a certain amount. For instance, if you can contribute 4 percent of your paycheck to your retirement plan, the company will match the dollar amount. If you make $2,500 every two weeks, at every paycheck $100 will be taken out automatically, and the company will match that contribution with $100 of its own. So, if that happens twice a month, your retirement account will have $400 in contributions each month. All of it growing as the stocks and funds in the plan grow.
*It is a good idea to have the money automatically withdrawn from your paycheck. That way you never actually see it, and it is not even considered part of your income available for spending.
Contributing as much as you can
It is a good idea to contribute, if you can, the full amount allowed. That way you can take the best advantage of your retirement plan. Be aware, though, that there are limits. The yearly contribution limit for an IRA is $4,000 per year, and there are restrictions on how much money you can make to participate in a Roth IRA. The 401(k) limit, however, is $15,000. If you are older than 50, you can contribute an additional $5,000 per year “catch-up” contribution to either plan. Most people can’t afford to contribute the full amount allowed each year, but it is important to contribute as much as your company will match.
Check with your company’s retirement plan administrator to see if a matching contribution is an option.