The Informed Investor

How to Maximize Your 401(k) Plan in 2021

April 2, 2021

If you are saving your retirement, it’s important to do whatever it takes to maximize your 401(k) contributions each year. Tax-advantaged retirement accounts allow you to save for the future before your income is taxed.  Once you reach 59 1/2 years of age, you can withdraw funds as needed from your plan and it will be taxed as ordinary income. Here is our advice on how to maximize your 401(k) plan in 2021.

No Changes in Contribution Limits in 2021

Unfortunately, 401(k) contribution limits have not increased in 2021—they’re the same as they were last year.  If you have other types of retirement plans, you will be pleased to find out that the limits on those have increased in 2021.

The 2021 401(k) contribution limits are as follows:

The 401(k) contribution limit for employees under 50 years of age is $19,500.

If you are an employee aged 50 or older, you can contribute an additional $6,500 in catch-up contributions for a total of $26,000 in your 401(k).

Maximizing Your Contributions

The amount you save each year in your 401(k) plan is the biggest factor in determining how much you will be able to retire with, not the rate of return. Therefore, it is critical that you maximize your contributions each year. If you have had difficulty doing this, we are happy to help you explore strategies to free up the savings you need for retirement. Remember, by maximizing your tax free 401(k) contributions, you also decrease your gross income and, therefore, your tax burden.

When you work for a company that matches contributions, it makes even more sense to contribute as much as you can each year, as these contributions do not count towards your contribution limits. To ramp up your savings in a relatively painless way, ask if your company has an auto-increase program. This program increases your contribution by one percent each year until you reach a certain cap rate. A one percent increase from one year to the next represents a barely noticeable drop in take-home pay, but it will pay dividends (literally) when it is time to retire.

If you are over the age of 50, you should take advantage of catch-up contributions. Even if you are unable to contribute up to the full $6,500 limit this year, it is important to set aside whatever you can afford.

Learn More About Retirement Planning With ICC

When you work with ICC to plan your retirement, you can have comfort in knowing that our team is working hard to stay up to date on current market conditions so we can translate that knowledge into retirement planning strategies that can work for you. ICC has been providing investment management services since our founding in 1987 and today, we are one of the largest independent investment management firms in Nevada. ICC is also one of the first in Nevada to implement the fiduciary standard. This means we have eliminated or disclosed potential conflicts of interest—we do not receive commissions, nor do we sell our own investment products. Our only goal is to help you achieve your financial objectives.

If you have a minimum of $1million in investable assets and would like to learn more about our retirement planning services, contact us today at 702-871-8510.

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