Were you enrolled automatically into your company’s 401(k) plan? Did you ever check to see how much of your pre-tax income is being deferred into your 401(k) plan? There is a strong chance that you are not contributing as much as you should or could.
From the Wall Street Journal:
A 2006 law designed to boost employees’ retirement-savings is having the opposite effect for some people.
Under the law, companies are allowed to automatically enroll workers in their 401(k) plans, rather than require employees to sign up on their own. The measure was intended to encourage more people to bulk up their retirement nest eggs—a key goal in a country where millions of people aren’t saving enough.
But an analysis done for The Wall Street Journal shows about 40% of new hires at companies with automatic enrollments are socking away less money than they would if left to enroll voluntarily, the Employee Benefit Research Institute found. The nonprofit performed a complex computer simulation of savings patterns drawing on data from more than 20 million 401(k) participants.
401(k) Law Suppresses Saving for Retirement by Anne Tergesen
According to the article, the majority of companies set the automatic contribution rate at 3% compared to the 5-10% rate people usually choose on their own. The auto-enrollment has greatly increased 401(k) participation. However, workers are missing out on a great retirement saving opportunity if they do not increase their automatic contributions above the standard 3%.
What percent of your pre-tax income is going into your 401(k) plan?
The maximum 2011 contribution limit to a traditional or safe harbor 401(k) plan is $16,500. If you are over 50 years of age and your company’s 401(k) plan allows catch-up contributions then you can add another $5,500 at the end of the year according to the IRS 401(k) Resource Guide
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