6 Ways To Grow Your 401(k) For Long-Term Retirement Wealth

If financial peace of mind in your retirement years, tax advantages, and free money sound good to you, then don’t wait another year before you start contributing to your 401(k).  It may be one of the best fiscal decisions that you ever make. 

Whether you are in your 20’s or your 50’s, if you haven’t started putting money away in your 401(k), then the best time to start is the present.  Many people don't always realize that a 401(k) plan can be a major source of income to ensure a comfortable retirement.

Here are six helpful ways to maximize your 401(k) growth:  

1. Contribute automatically.  Don’t wait until after you receive your paycheck to put money into your 401(k). Have the money automatically withdrawn from your income so you don’t have a chance to spend the contributions. Increase your contributions over the years as you earn more income.

2. Pick your own saving rate.  A typical default saving rate for a 401(k) is about 3 percent. This amount doesn’t really guarantee a wealthy retirement, so take a look at your other options and find a higher rate.

3. Look into employer contributions. While most companies match a certain percentage to your 401(k), some may offer contributions based off of your income or a percentage of company profits. Weigh which scenario will save you the most money.

4. Defer taxes.  A traditional 401(k) will allow you to defer income tax payments on your deposited money until you actually withdraw it from your account.

Any investment growth on the account is also tax-free.

5. Choose low-cost investments.  Some investments in your 401(k) may have an expense ratio that actually detracts from your retirement account, so be sure to check your options and find investments with the lowest cost.

6. Avoid fees and penalties.  If you withdraw money from your 401(k) before you’re 59 1/2, you can be penalized up to 10 percent for the early withdrawal.

 But don't wait too long- at age 70 1/2 you are required to take what is known as a required minimum distribution (RMD).  If you fail to take this distribution, you will be required to pay a 50% penalty (50% of the amount of the distribution). 

Are you interested in more information on how your 401(k) can be a significant source of income in retirement?  If so, contact a qualified financial advisor that can help you.  For valuable additional tips, please download this e-book, How A 401(k) Can Become Your Pension.

Follow Wes on TwitterFacebook and at Wesmoss.com 

For valuable financial tools and information on how to set yourself up for a happy retirement, check these out:

Social Security Optimizer, Retirement Calculator, 401k Allocator, How Do I Stack Up Quiz, Money & Happiness Quiz, and You Can Retire Sooner Than You Think

Disclosure:  This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.

  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.