Three ways to Increase 401K Contributions without hurting your budget

Three ways to Increase 401K Contributions without hurting your budget

You know you need to either start contributing to your 401k plan or increase the amount you are contributing but where do the funds come from? It can be hard to pull money out of your normal budget to invest for retirement especially if you are a little older. The more financial responsibilities you have in life the harder it is to take any money out of pocket each month or week. Here are a couple of solutions to this problem….

First, everybody eventually should get some type of raise with their jobs, if not you should always be looking for something better. A good average cost of living raise is about 3% each year. If you are already investing in a retirement or 401k plan this is a good opportunity to increase your contributions by at lease another percentage point or more depending on the raise. If you haven’t started investing in a retirement plan this is also a great opportunity. You don’t have the money budgeted so put every penny of your raise each pay period into the retirement account.

A second way to boost or start your retirement fund is to invest a lump sum of unexpected money. If you get a tax return (you shouldn’t) invest this money in a Roth IRA. Don’t waste hundreds of dollars on something that isn’t necessary. Your future is necessary and very important so that should be a major priority. Other ways to invest lump sums of money are bonuses from work, inheritance, commission checks that are larger than normal, etc.

 Finally, a trickier approach is to increase the number of deductions by 1 on your W4 and start the 401k plan or increase your contributions. Increasing your deductions on your W4 will decrease the amount of federal taxes your employer holds out which give you more “bring home” pay. Take this new found money and start contributing to your 401k plan. If you are worried you might have to pay in federal income taxes because you are having less federal taxes withheld through the year you may want to increase the deductions by an additional 1 or 2 and put this money into a savings account to collect interest which can be used to pay the taxes at the end of the year. Don’t get out of hand with your deductions, try to find the right amount of deductions that will leave you breaking even at the end of the year. Your accountant or your financial advisor or even your tax preparer can help you find the right amount.