2021 is almost here! And, as the holiday season approaches, you’re probably busy buying holiday gifts and making annual donations, but what about contributing to your 401(k)? If you haven’t maximized your 401(k) contributions yet for the year, there’s still time.
Here are three reasons why you should consider maxing out your 401(k) before the end of the year.
Contributions Are Tax-Deductible
We’ve said it before but we will say it again – if you have a traditional 401(k), then your contributions are tax-deductible. As a result of your pre-tax contributions, your taxable income will be lowered for the year and thus you will owe less to Uncle Sam come April 15th.
If your goal is to retire sooner rather than later, maximizing your contributions each year can help you achieve that. If you can afford to, maximizing your contributions each year will allow you to have more money to invest and more time for it to grow.
Take Advantage Of Employer Matching
Employer matching is basically free money in your retirement account, so why wouldn’t you take it? This additional contribution can help you save more for retirement than your contributions alone, and take the place of you putting extra money into your 401(k) to prepare for a comfortable retirement.
You also want to take note of how much your employer will match you, and make sure your savings rate is the same as the match rate. Doing this will ensure you receive the maximum amount of matching you’re eligible for. Otherwise, you could be losing out on extra free money!
Overall, if you can maximize your 401(k), you should. Making additional contributions now will help you get the most out of your investment, and set you up for a more comfortable retirement. So when you’re budgeting for everything else, make sure to budget a little extra for your future!
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