Getting the Most out of Your 401(k): Start Saving

This is the first of a seven-part series to help participants get the most of their 401(k) plans.

Does your employer offer a 401(k) plan? Have you been reluctant to get involved? We hear many employee excuses why they haven’t started saving for retirement:

• I’m so young and retirement is so far away
• I’ll start saving later
• I can’t afford to save anything now
• I don’t know where to invest

Well, if you are participating in your employer’s 401(k), Congratulations! And even if you’re not, I’ve included a few tips that can help you maximize your plan’s benefits.

1. Start Saving

Every journey starts with that first step – take yours now. The sooner you begin saving, the less you’ll need to save each pay period to attain your savings goal. The key is to start with an amount you feel you can afford, and then let compounding interest help you accumulate greater savings.

Let’s think of your 401(k) account like a snowball at the top of a mountain, with your retirement date way down at the bottom. By starting with a little savings snowball at the top…and giving it a little push down the hill, your savings snowball will pick up additional “snow savings” (earnings from interest, plus additional contributions) as it rolls down the hill (and into your future). Sure, there may be peaks and valleys along the way, but by sticking to your savings plan you will generate the largest snowball possible at retirement.

But remember, the most important step is to start saving, not to decide how much. Most miss the few dollars from each paycheck much less that initially feared.

To help make getting started more affordable, the Federal government provides a Saver’s Tax Credit that could provide a tax credit of up to $2,000 ($4,000 if married filing jointly).

Check back next week for tip #2 to help you get the most out of your 401(k).

Ready to read the rest of the tips on how to get the most out of your 401(k)? Read part 2 right here!