We don’t often get the chance to say “no, thank you, don’t give me that, I will have it later.” Maybe with dessert, but “later” could be just an hour. We do get to say that when it comes to our pay aka wage aka compensation with a 401(k) plan.
This is an employee sponsored, deferred compensation plan and you voluntarily say, “no, no, I will have it later.” It being a portion of your wage and later being (generally) after age 59.5. To be able to participate, your employer has to have a plan set up and your contributions are made each pay period. No make up in December with a check, it all has come from your pay on a regular basis. You can change the amount at any time.
The magic of the 401(k) is you can defer compensation of up to $19,000 this year if you are younger than 50. For those lucky enough to be 50 or older, $25,000 is the 2019 maximum contribution amount. “The people I saw most comfortable in retirement were those who contributed as much as they could to their retirement plans,” said Andrea Roland CFP®, an instructor with Financial Knowledge. “It may not have been the maximum, but it was their maximum for their income and budget.”
This plan is made more magical if your employer also contributes to your account. It is called matching or profit sharing, both also known as free money. Some plans require tenure up to five years in a plan to receive all this free cash into your account. The company contribution becomes yours. Now is the time to email, call or walk into your payroll department and request to increase your contribution to your 401(k) account. Your 65 year old self will be happy you did!