401(k) Day and Holidays
When you sign onto your social media accounts, often you see your family and friends highlighting different holidays throughout the year – May the Fourth Be With You; Talk Like a Pirate Day, or National Doughnut Day! Some of my favorite holidays include National Pizza Day, Sibling Day, and National Miniature Golf Day.
I want to talk about another holiday in this blog, one that most people may not realize exists: for retirement savings! National 401(k) Day is on September 11th, 2020 this year.
The holiday began in 1996 by the Profit Sharing/401(k) Council of America, known today as the Plan Sponsor Council of America. The National 401(k) Day is always on the Friday after Labor Day with the motto “Start the week with Labor Day and end the week with Retirement.”
401(k)s have become the most common vehicle employees use to save for retirement. About 80 percent of employees at companies that sponsor a 401(k) Plan are currently participating.
2020 Action Steps
This year the holiday takes on a whole new meaning as we continue to navigate the world pandemic. Markets, where much of our 401(k) balances are invested, continue to be volatile. If you have a 401(k) (and even if you don’t!) we recommend following these steps in the coming weeks.
- If you are not currently saving for retirement, now is a great time to start. The 401(k) limits for 2020 are the following: Employees can contribute up to $19,500 if they are under the age of 50. Anyone age 50 or over is eligible for an additional catch-up contribution of $6,500 in 2020 for a total of $26,000 for 2020.
- In the last few years, the average balance in a 401(k) was $106,478, during a time when markets were increasing, according to the latest report from Vanguard “How America Saves.” The average 401(k) deferral rate was 7 percent in 2019, and has been unchanged for the last 10 years. That means our savings for retirement in 401(k)s aren’t increasing. We tend to only contribute up to our company match so something you or your company can do if you’re managing a business is to auto-escalate contributions. It’s a small thing that goes a long way.
- This is a time to revisit your risk level given we are in a pandemic and election year. A time like this is a great time to schedule a meeting with your plan advisor or personal financial advisor. With organizations implementing social distancing, virtual meetings are a great way to connect to your advisor to ask questions about your account. Most recordkeepers have a website or phone number to address participants’ need for assistance with investment decisions. Whomever is helping your company manage the 401(k) accounts is likely available to answer individual questions for you on if your investments are at a good risk level for your life situation and help you maximize your retirement account.
- Many companies offer a match or a profit-sharing component, and we recommend you try to contribute at least up to that matching portion. Individuals who are not utilizing up to the match are leaving funds on the table that could be in their account for their own use. The employer match as well as your contributions’ annual compounding can make a big difference in your final return when you finally retire.
- If you’ve recently left a role, you have access to your 401(k) balance to receive or to roll into a new account, it can be enticing to think about receiving the check for the balance. If you do decide to cash out, understand that you will very likely be required to pay federal income taxes, state income taxes, and a 10 percent penalty if you are under the age of 59½. This can cut into your investments significantly and negatively impact your retirement savings goals! When changing jobs, you generally have three options to keep your retirement money invested – you can leave the money in your previous employer’s plan, roll it over into an IRA, or transfer the money to your new employer’s plan.
As we celebrate 401(k)s as part of National 401(k) Day, I hope you take advantage of examining your account to know where your risk level is, talk with someone who can guide you to maximize your investment, and make sure you’re confident in your plan for retirement! If you ever have questions about your 401(k) as a business owner or participant, we’re always willing to talk. Get in touch with us today!