National 401(k) Day

Dan Honsberger tells us how to maximize 401(k) savings

Dan Honsberger, CFP®

On National 401(k) Day, Agili Financial Strategist, Dan Honsberger, shares ways to maximize 401(k) savings with the Richmond Times Dispatch. Readers with subscriptions have access to the article. Read the article here.



History of National 401(k) Day

For more than 25 years, the Friday after Labor Day (today) has been recognized as National 401(k) Day in the United States. While the day may not be celebrated with fireworks and family gatherings, it is worthy of bringing to people’s attention. National 401(k) Day was established in 1996 by the organization now known as the Plan Sponsor Council of America (PSCA) to encourage employers to teach workers about their 401(k) plans. So, this week we’re not only reminded that summer is over but that it’s time to get back to “adulting” and planning for retirement.


Only 41% of Eligible Employees Save into 401(k) Plans

According to the PSCA, 79% of Americans work for employers offering 401(k) plans, yet only 41% of employees are enrolled in the plans. Since this is the primary tax-advantaged way to save for retirement, it should be a priority for anyone with access to a 401(k) plan. There’s no better way to invest in your future retirement than starting, even today.


Tips for Maximizing Your 401(k)

How can you get the most out of your 401(k)? Let’s review six impactful tips:

  • Start saving early and in an automated way. Set up automatic contributions from your paycheck to your 401(k) plan. After the Pension Protection Act was passed in 2006, some businesses began automatically enrolling employees in their 401(k) plans. Be sure to review your statement to ensure you’re saving enough.
  • Take advantage of your employer’s match. An employer’s match is “free money” and a great way to boost savings. Be sure to save at least to your company’s full match.
  • Increase contributions along with raises and promotions. This is a way to increase contributions without eating into the take-home pay you’re accustomed to. If, for example, you get a 2% salary increase, you could increase 401(k) contributions by 2% and still wind up with the same take-home pay.
  • Do not use the account until retirement. Save for emergencies outside retirement accounts – three to six months’ worth of expenses is a good target. Prioritize saving for other goals alongside retirement – whether it’s a home purchase, a wedding, your kids’ education, or other items. Remember that while you can take out a mortgage to buy a house, or a loan for college, you can’t take out a loan to pay for retirement.
  • Invest in low-cost diversified mutual funds and ETFs. If you are a set-and-forget investor, equities (US and international stocks) have the best long-term track record for rate of return. If large swings up and down in the market are hard to stomach, it’s a good idea to have an allocation to bonds. Pay attention to minimizing the “expense ratio” of your investment funds – this can have a significant impact on long-term returns.
  • If you can save more, do it! Because of inflation, a million dollars today isn’t worth the same as it was yesterday, and it won’t be worth as much tomorrow.


401(k) Contribution Limits in 2022

In 2022, the contribution limit for employees into their 401(k) is $20,500. Those who are 50 or older are allowed an additional annual catch-up contribution of $6,500.


401(k) Plans Are Protected by ERISA

Remember, assets in 401(k) plans are protected from creditors by ERISA. So, even if you are sued, your plan cannot be garnished by creditors.


Final Thoughts

Admittedly, with today’s higher inflation (and the resulting increases in monthly expenses), a saver may find it harder to stomach their automatic contribution to a 401(k). But even with today’s less-than-ideal economic environment, it is important to remember that 401(k) investing is long-term investing. So, try your best to keep saving.


Hopefully, these tips will convince a few readers to contribute and increase contributions over time.


Finally, I recommend that you do your best to follow Warren Buffet’s sage advice, “Do not save what is left after spending, but spend what is left after saving.” If you do, you’ll not only build up a nice retirement nest egg, but you’ll also gain peace of mind. “Future you” will appreciate it!


Other Resources

For more information about 401(k) savings, check out Dan’s blog post, Habits of a 401k Millionaire.

For more details about 401(k) limits, please see the IRS’s Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits.