By: Bryan Uecker, QPA, QPFC, AIF, AIFA
2024 end year to Happy New Year 2025 with Doctor, heart shape and coins stack. Money for Healthcare cost, Money Saving, Health Insurance, Medical, Donation and Financial concept
As the year winds down, it’s a great time to take stock of your financial progress and prepare for the year ahead. Your 401(k) plan is one of the most powerful tools for building long-term wealth, so don’t overlook the opportunity to give it some year-end attention. A few simple housekeeping steps now can help ensure your retirement savings are on track and working as hard as you are.
Here are three essential tasks every 401(k) participant should complete before the new year:
- Increase Your Contribution Rate by At Least 1%
Small, consistent increases to your deferral rate can make a huge difference in your retirement savings over time. If your plan doesn’t have auto-escalation, it’s up to you to manually increase your contributions.
• Why It Matters: A 1% increase may seem small, but over time, compounded growth can turn modest contributions into significant savings.
• How to Do It: Log into your 401(k) account, find the contribution section, and raise your deferral rate. Even better, if you’ve received a raise or bonus, consider increasing your contributions by more than 1% to fully capture the benefits of your income growth.
Pro Tip: If your plan offers a match up to a certain percentage, make sure you’re contributing at that level to get the full match – it’s free money! - Set Up Auto Rebalance
Market fluctuations can throw your portfolio out of alignment with your intended investment strategy. Auto-rebalancing automatically adjusts your holdings to maintain your chosen asset allocation, ensuring your investments stay on track.
• Why It Matters: Over time, certain investments may outperform others, causing your portfolio to drift from your risk tolerance or retirement goals. Rebalancing helps reduce risk and maintain diversification.
• How to Do It: Most 401(k) plans allow you to enable auto-rebalancing online. You can typically choose the frequency (quarterly, semi-annually, or annually). Select a schedule that works for you and let the system handle the adjustments.
Pro Tip: Rebalancing doesn’t involve selling or withdrawing funds—it’s simply reallocating your existing investments. It assures that you are always selling high and buying low. - Update Your Beneficiary Information
Life changes, such as marriage, divorce, or the birth of a child, can impact who you want to inherit your 401(k) assets. Failing to update your beneficiary designations can lead to unintended outcomes.
• Why It Matters: Beneficiary designations override your will or trust, meaning the person listed on your 401(k) account will receive the funds, regardless of other legal documents.
• How to Do It: Log into your account, locate the beneficiary section, and ensure your information is up to date. If your marital status has changed this year, updating your beneficiary designation is especially important.
Pro Tip: Include a contingent (backup) beneficiary to ensure your wishes are honored even if the primary beneficiary is unavailable.
Bonus: Review Your Overall Retirement Strategy
While you’re tidying up your 401(k), take a moment to ensure your broader retirement plan aligns with your long-term goals:
• Check Your Savings Progress: Are you on track to meet your retirement savings goals? Consider increasing contributions if you’re behind.
• Review Investment Performance: Look at your portfolio’s performance and make sure your investments are still aligned with your risk tolerance and time horizon.
• Understand Plan Features: Take advantage of features like catch-up contributions (if you’re over 50) or Roth 401(k) options for tax diversification.
Start the New Year Financially Strong
A little year-end attention to your 401(k) plan can go a long way toward securing your financial future. By increasing your contributions, setting up auto-rebalance, and updating your beneficiary information, you’ll enter the new year with confidence and a well-tended retirement plan. Take 30 minutes today to complete these tasks—you’ll thank yourself later!
