Even though 2014 is just about over you still have plenty of time to execute smart IRA and 401k tactics before year-end. If you do so, you could save a lot of cabbage this year and make your retirement much more secure at the same time. No time to waste. Let’s get to it.
If your employer matches a portion of your contributions, move heaven and earth to get your contribution levels up that level. This is free money so I suggest you do everything you can do make this happen. Even though there aren’t that many pay periods left, you might still be able to catch up.
I met with Jim and Marie a few weeks ago. They are a great couple but like everyone, they get busy and never got around to raising their 401k contribution levels at work. As a result, they didn’t max out the employer match opportunity.
When I saw them, they were afraid it was too late to fix that problem. Well…we made a few calls to HR and determined that they still had time. Marie basically set it up to put 100% of her salary into the 401k for the next 3 pay periods in order to get the money into the plan – and snag that employer match.
How could they live with basically no salary for 6 weeks? In Jim and Marie’s case, they lived off savings. But they also could have financed their living expenses for a short time and it still would have been a smart move (as long as they absolutely positively knew they could pay that debt off immediately). That’s because the employer match of $.50 for every dollar they put in was he same as earning 50% on their money.
If you are in a similar situation, you can do the same thing that Jim and Marie did. Just make a few calls to your HR department and put it in place.
No Match? Max Out Anyway
You can (and probably should) have the same approach to maxing out your retirement contributions even if there is no match. Why? Because the money grows tax deferred (or tax free in the case of a Roth IRA or Rot 401k). Over time, that tax advantaged growth will make you rich – I guarantee it.
And there is another benefit. Typically, people accumulate wealth in one of two places; their retirement accounts and their real estate. Do you know why? It’s because those assets are hard to get to. They are protected by moats of illiquidity and tax penalties. That means they are protected from your spending. Your other assets are much more accessible and as a result, that dough gets spent.
Use those safe havens to your benefit by putting as much as you can into the retirement accounts. Don’t go into long-term debt in order to make retirement contributions. But if you have to borrow a little for a very short time it can be a smart move.
If you find yourself having to scramble this year, make it easier on yourself going forward. As soon as January rolls around, go meet with the HR people. Arrange to max out your retirement contributions but make the payments even throughout the year. That will eliminate the last minute craziness and make for a much calmer you.
Are you maxing out your retirement plan contributions? If not, why not?