5 Tips To Get The Most Bang for Your Buck in Your 401(k)

Our last article was terrifying! Not in the “ax murderer” or “subway clown” sense… but if paying Uncle Sam more than necessary is your worst nightmare 😱, then you’ve found the right blog! 😁

(Yes, I’m a nerd. With a terrible, horrible, no-good, very bad sense of humor 🤣)

Moving on… in our last article, we talked about the five things your employer won’t tell you about your 401(k). These hidden truths affect your tax burden, your savings strategy, and even how losses can add up without you even being aware of it. These five tip-offs are things that everyone with a 401(k), 403(b), etc, deserves to be aware of.

Well, great, Melissa, now I’m aware of these things, and you just gave me more things to worry about! 🤨

No fear, friend- today, we’re going to discuss what you can do about it 😁👍

Some housekeeping details before we start- please know that 401(k)s, 403(b)s, IRAs, and other accounts are all types of employer-sponsored retirement accounts (ESRAs). We’ll refer to them as ESRAs from here on out, for simplicity’s sake.

First of all, remember all the good things about ESRAs- they put millions of Americans into the “I am an investor” niche; they help you save on taxes in the year you contribute; and best of all, they are dead easy to participate in, because your employer takes care of the money management. All good things 👍

So how do we enjoy all these advantages, and avoid the hidden cons as much as possible? 🤔

5 Ways to Get The Most Bang for Your Buck in Your ESRA

1. Maximize Your Free Money. Contribute as much as your employer will match. If your employer matches 50% of your contribution up to 6%, that means that if you contribute 6%, they’ll contribute 3%. “But I can’t contribute 6%, Melissa! I can only contribute 5%!” Well then… you’re leaving money on the table. Your employer is only going to contribute 2.5% of your salary into your account. Why would you leave free money on the table?
   Sometimes it’s not possible, of course. But if you are able to- and want to- maximize your money, then contribute as much as your employer will match 😊

2. Don’t Contribute *More* Than Your Free Money. The best advantage of your ESRA is the employer match. If you contribute more than that, then you’re not getting more free money, and you’re still bound by the rules, limits, fees, and other IRS-related downsides of ESRAs 😣
   As a side note- you MUST contribute anywhere from 10-20% of your salary (or more) in order to have the retirement you want. This means that you have to set up other accounts in order to save the correct amount, and have it grow into the wealth that you want.
   In other words… just because you don’t save in an employer-sponsored account, doesn’t mean you get to spend everything else! Save what you need, and you’ll be well-rewarded in your golden years 👴👵

3. Know Thyself. You don’t have to follow Rule #2, here. If you know- absolutely know- that you will see that money in your bank account and spend it before you save it, then you need to “trick” yourself into saving more, by having your employer manage it for you 👍
   If this is you, then save as much as you can in your ESRA (until you hit the IRS limits, of course).

4. Set It And Forget It- *Yourself*. An alternative to #3 is to set up your own, private retirement account. You can still save money into that account automatically, so it won’t go into your bank account, and you won’t be tempted to spend it 🤯
   Frankly, #4 is better than #3-

   1. You can have better growth, due to lower fees and more personal attention, from your own personal money manager that you have selected

   2. You can set up accounts that are truly tax-advantaged- you pay less taxes over your lifetime. Read more on that here.

   3. You can set up accounts that do not have the rules, Minimum Required Distributions, and limits of ESRAs 😖

5. TAKE. YOUR. MONEY. WITH YOU. I didn’t mean to yell, but I can’t stress this enough. Seriously, though- the second you leave an employer, take your money with you. Roll it over into a different type of retirement account; it’s easy, your money person can do this in a matter of days.

   ROLL. OVER. OLD. ACCOUNTS. Oops, see? It’s so important that it slipped out again! 🤷
   I’m honestly begging you at this point. I want you to be happy, safe, healthy, and wealthy- and a really important part of growing your wealth is not letting savings stagnate, wither, and die. It’s that important to roll over all your accounts 👍
   Why bother saving money in order to earn more free money from your employer- and then let those hard-earned savings get fee’d to death, after you leave that employer? Again, don’t let yourself leave money on the table- make sure you & your money person always control your money 👍

   If you have any old plans from former employers, I can almost guarantee those accounts are not doing as well as you think. (Never say never, but srsly, people. I’d be shocked stiff if you had an old ESRA that grew over time.) 😲
   There are two ways to do this:

   1. Find a money person, and have them roll the money over for you.
      This has all the benefits of setting up an account for yourself; refer to, and re-read, Rule #4.

   2. Roll your old ESRA into your new ESRA.
      Talk to your current employer’s HR department, and they can roll your old ESRA into your current ESRA.
      Pluses- this may be more convenient for you.
      Cons- You still have the same rules, limits, fees, etc as an ESRA- without the benefit of an employer matching your rolled-over money.

Sorry about the yelling! But some things are so very important that they bear repeating 😊

Ta-Da! Now you know more about ESRAs than most Americans. ESRAs are great, with many advantages, and if you know the five little tricks to getting the most out of your ESRA while you are an employee- as well as after you leave your employer- you will be well on your way to avoiding paying unnecessary taxes, and keeping more of your hard-earned money where it belongs- in your pocket! 😁

Now That’s Smart Money 🧐