Miami Herald Logo

Just do it: Maximize your 401(k) contributions | Miami Herald

×
  • E-edition
  • Home
    • Site Information
    • Contact Us
    • About Us
    • Herald Store
    • RSS Feeds
    • Special Sections
    • Advertise
    • Advertise with Us
    • Media Kit
    • Mobile
    • Mobile Apps & eReaders
    • Newsletters
    • Social
    • Facebook
    • Twitter
    • Google+
    • Instagram
    • YouTube

    • Sections
    • News
    • South Florida
    • Miami-Dade
    • Broward
    • Florida Keys
    • Florida
    • Politics
    • Weird News
    • Weather
    • National & World
    • Colombia
    • National
    • World
    • Americas
    • Cuba
    • Guantánamo
    • Haiti
    • Venezuela
    • Local Issues
    • Crime
    • Education
    • Environment
    • Health Care
    • In Depth
    • Issues & Ideas
    • Traffic
    • Sections
    • Sports
    • Blogs & Columnists
    • Pro & College
    • Miami Dolphins
    • Miami Heat
    • Miami Marlins
    • Florida Panthers
    • College Sports
    • University of Miami
    • Florida International
    • University of Florida
    • Florida State University
    • More Sports
    • High School Sports
    • Auto Racing
    • Fighting
    • Golf
    • Horse Racing
    • Outdoors
    • Soccer
    • Tennis
    • Youth Sports
    • Other Sports
    • Politics
    • Elections
    • The Florida Influencer Series
    • Sections
    • Business
    • Business Monday
    • Banking
    • International Business
    • National Business
    • Personal Finance
    • Real Estate News
    • Small Business
    • Technology
    • Tourism & Cruises
    • Workplace
    • Business Plan Challenge
    • Blogs & Columnists
    • Cindy Krischer Goodman
    • The Starting Gate
    • Work/Life Balancing Act
    • Movers
    • Sections
    • Living
    • Advice
    • Fashion
    • Food & Drink
    • Health & Fitness
    • Home & Garden
    • Pets
    • Recipes
    • Travel
    • Wine
    • Blogs & Columnists
    • Dave Barry
    • Ana Veciana-Suarez
    • Flashback Miami
    • More Living
    • LGBTQ South Florida
    • Palette Magazine
    • Indulge Magazine
    • South Florida Album
    • Broward Album
    • Sections
    • Entertainment
    • Books
    • Comics
    • Games & Puzzles
    • Horoscopes
    • Movies
    • Music & Nightlife
    • People
    • Performing Arts
    • Restaurants
    • TV
    • Visual Arts
    • Blogs & Columnists
    • Jose Lambiet
    • Lesley Abravanel
    • More Entertainment
    • Events Calendar
    • Miami.com
    • Contests & Promotions
    • Sections
    • All Opinion
    • Editorials
    • Op-Ed
    • Editorial Cartoons
    • Jim Morin
    • Letters to the Editor
    • From Our Inbox
    • Speak Up
    • Submit a Letter
    • Meet the Editorial Board
    • Influencers Opinion
    • Blogs & Columnists
    • Blog Directory
    • Columnist Directory
    • Andres Oppenheimer
    • Carl Hiaasen
    • Leonard Pitts Jr.
    • Fabiola Santiago
    • Obituaries
    • Obituaries in the News
    • Place an Obituary

    • Place an ad
    • All Classifieds
    • Announcements
    • Apartments
    • Auctions/Sales
    • Automotive
    • Commercial Real Estate
    • Employment
    • Garage Sales
    • Legals
    • Merchandise
    • Obituaries
    • Pets
    • Public Notices
    • Real Estate
    • Services
  • Public Notices
  • Cars
  • Jobs
  • Moonlighting
  • Real Estate
  • Mobile & Apps

  • el Nuevo Herald
  • Miami.com
  • Indulge

Business

Just do it: Maximize your 401(k) contributions

By Andrew Menachem Special to the Miami Herald

    ORDER REPRINT →

July 27, 2018 04:37 AM

When you’re starting your career, just paying your bills can be a financial challenge. It’s difficult to begin saving for the future when every dollar seems to be committed to your current household expenses. A great way to take more control over your finances is to prepare a monthly budget. Once you start tracking your income and spending, you may be able to shift some of those dollars in a savings account or money market fund.

Along with managing your personal finances, you should also start contributing to a qualified retirement account, such as a 401(k) plan offered by your employer, an individual retirement account (IRA) or a SEP-IRA if you are self employed.

If you are in your 20s or 30s, a comfortable financial retirement may seem like a distant goal. But the years pass quickly, and getting an early start on your retirement savings can make a big difference in your financial future.

One of the best ways to save for retirement — regardless of age — is maximizing your contributions to your employer’s 401(k) or a similar “defined contribution” plan. Unlike a traditional corporate pension plan, you are responsible for accumulating a retirement nest egg through your contributions.

Sign Up and Save

Get six months of free digital access to the Miami Herald

SUBSCRIBE WITH GOOGLE

#ReadLocal

A recent study from the National Institute on Retirement Security on “Millennials and Retirement: Already Falling Short,” found that more than half of Millennials have nothing saved for retirement, including 83 percent of young Hispanic employees.

While 66 percent of Millennials, born between 1981 and 1991, work for an employer that offers a retirement plan, only 34.3 percent actually participate in their employer’s plan. That’s a missed opportunity for many young workers.

DSC_9327-5 (2) (1)
Andrew Menachem, CIMA®, is a Wealth Adviser at The Menachem Group at Morgan Stanley in Aventura.
.

Good reasons to contribute

There are good reasons why putting as much as possible into your qualified retirement plan, makes financial sense. First, every dollar that you contribute can usually be subtracted from your annual gross income, reducing your current income tax liability.

For example, let’s say you’re a single person who expects to make $60,000 in taxable income this year. Under the 2017 tax law, you would likely owe $9,138 in taxes next year, not counting any deductibles.

But if you contributed $6,000 or 10 percent of your total income to your 401(k), your taxable income would be only $54,000. That would reduce your tax payment to $7,819, giving you an extra $1,319 to save or spend in 2019.

This is just a hypothetical illustration, and you should talk with a tax professional or financial advisor to discuss your individual situation. However, the basic principle remains the same: every dollar you contribute will lower your current income tax liability.

So, what’s the catch? You will need to pay the difference in taxes at some point later in life. However, if you make those withdrawals at age 70 or above in retirement, you may be in a lower tax bracket compared with your peak earning years. In the meantime, those dollars you contribute can grow tax-free through the decades based on your long-term savings and investment plan.

A second reason for putting money into your 401(k) is that many employers will match a portion of your contributions. For instance, if you contribute 10 percent of your income, your employer might add another 5 percent to your retirement plan.

If you contributed $6,000 to your account this year, as in the previous example, you would get an extra $3,000 as well. That means you would be able to put away $9,000 for retirement in just one year, with the potential for even more employer contributions in the future.

In many ways, an employer’s contribution to your 401(k) is even better than an annual bonus. After all, you would have to pay income tax, reducing the take-home amount of your bonus. It’s also tempting to spend that bonus right away, rather than saving those extra dollars.

So, after you get your monthly bills under control, start making contributions to a qualified retirement plan. Your employer can usually deduct those funds from your regular paycheck, along with your withholding tax and any insurance premiums.

If you get a raise in your salary or another boost to your income, think carefully about increasing the level of your contributions to your retirement plan. Take advantage of the nation’s tax laws, as well as any benefits from your employer, in order to reduce your current taxes and save as much as possible for the future.

Andrew Menachem, CIMA®, is a Wealth Adviser at The Menachem Group at Morgan Stanley in Aventura. Views expressed are those of the author, not necessarily Morgan Stanley, and are not a solicitation to buy or sell any security. The strategies and/or investments referenced may not be suitable for all investors. Follow Menachem on Twitter @AMenachemMS.

  Comments  

Videos

Miami Yacht Show to open in its new location

Kevin Tomlinson, the broker convicted of extorting two prominent rivals in South Beach’s high-end real estate market is sentenced to 364 days in jail

View More Video

Trending Stories

Haiti is once again on edge, and humanitarian aid groups debate whether to go or cancel

February 14, 2019 07:24 PM

He was robbed while mowing a lawn. He talked. Then 40 bullets were fired into his house

February 14, 2019 08:45 AM

Dolphins sign former second-round defensive end and a young cornerback

February 15, 2019 03:30 PM

Hearts are heavy, attendance is light at Marjory Stoneman Douglas High School

February 14, 2019 09:05 AM

Here are some of the worst mistakes immigrants make applying for legal papers

February 15, 2019 11:26 AM

Read Next

Business

Iran: Sabotage may be behind failed satellite launches

The Associated Press

    ORDER REPRINT →

February 16, 2019 03:47 AM

Iran's foreign minister claims that sabotage by the U.S. was a possible reason for Tehran's failed attempts to launch two satellites in the last two months.

KEEP READING

Sign Up and Save

#ReadLocal

Get six months of free digital access to the Miami Herald

SUBSCRIBE WITH GOOGLE

MORE BUSINESS

Business

Sheriff’s 50 years of police work fun, sad, nerve-wracking

February 16, 2019 03:05 AM

News

3 road construction workers injured on I-4

February 16, 2019 03:01 AM
Trump declares emergency at border after stinging defeat

Business

Trump declares emergency at border after stinging defeat

February 16, 2019 02:55 AM
Trump emergency declaration faces fights in the courts

Business

Trump emergency declaration faces fights in the courts

February 16, 2019 12:36 AM

Business

Community Coffee firmly in family hands at 100

February 16, 2019 12:01 AM

News

How man went from high roller to YouTube apology

February 16, 2019 03:00 AM
Take Us With You

Real-time updates and all local stories you want right in the palm of your hand.

Icon for mobile apps

Miami Herald App

View Newsletters

Subscriptions
  • Start a Subscription
  • Customer Service
  • eEdition
  • Vacation Hold
  • Pay Your Bill
  • Rewards
Learn More
  • About Us
  • Contact Us
  • Newsletters
  • News in Education
  • Public Insight Network
  • Reader Panel
Advertising
  • Place a Classified
  • Media Kit
  • Commercial Printing
  • Public Notices
Copyright
Commenting Policy
Privacy Policy
Terms of Service


Back to Story