8 Last-Minute Strategies to Maximize Your 401(k) Contributions

The end of the year is always a good time to go over your finances and make sure you’re on track to meet your financial goals. It’s time to make plans for the upcoming year–but also to make sure you’ve done everything you can this year to get on a sound financial footing for the future.

One thing you probably haven’t done is max out your 401(k). Most people don’t. According to Vanguard’s annual How America Saves report, only 12% of retirement plan participants maxed out their contributions in 2013, and only 14% of savers over 50 who had the opportunity to make additional “catch-up” contributions took advantage of it.

It won’t come as a surprise that older and more affluent investors are more likely to maximize their 401(k) savings. In a recent data analysis of data from investors who track their portfolios with SigFig, we found that 60% of 40 to 49-year-old investors are on track to contribute at least $17,500 to their 401(k) plans in 2014 (the maximum contribution limit this year, though the amounts in the analysis include employer matching contributions, where applicable), compared to 24% of investors in their 20s. At the same time, only 8% of investors with household income of $50,000 or lower were maxing out contributions, compared to more than 67% of investors earning $200,000 or more.

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But maxing out your 401(k) isn’t the only way to maximize it and the end of the year is just the right time to do that. If you’ve set up automatic deferrals and then forgotten all about your 401(k), now is the time to see how much you’re really saving, how close you are to your goals, and whether you need to make any changes to maximize your savings and minimize your costs.

Here are eight ways to get there:

1. Getting a bonus or a raise? Pay yourself first.

If you get a bonus this year, consider contributing some or most of it to your 401(k). Same if you’re getting a raise: pay yourself before you’re tempted to spend it.

Some plans will automatically treat your bonus the same as your base pay, deferring the same percentage as is usually taken from your salary. Others won’t. Ask your HR department or plan administrator how yours will be treated. Just don’t accidentally go over the maximum 401(k) contribution limit for the year — you’ll end up being taxed on that money twice.

2. Put your last paycheck (or two) straight into the plan.

Giving cash for the holidays may make Emily Post cringe, but being on the receiving end of a cash gift isn’t so bad. If you have some cash to spare, why not put your last check or two for the year into your 401(k) plan? Call your HR department or 401(k) plan manager and have them temporarily bump up your contribution percentage. You can go as high as 100% of your pay, as long as you stay under the maximum for the year. You can scale that amount back down later.

3. Learn from last year’s tax return.

Why worry about taxes now when you have until April next year to file for 2014? If you got a tax refund this April, that means your withholding is too high. You can change it so you’re paying less in taxes with each paycheck going forward and — this is key — start putting that money in your 401(k) now. The result: instead of giving an interest-free loan to the IRS, you’ll be putting that money to work for you right away.

4. Are you eligible for the Saver’s Credit?

If you earned less than $30,000 in 2014 as an individual (or $61,000 as a married couple filing jointly, or $45,000 as a head of household), you’ll be able to claim a tax credit on up to $2,000 ($4,000 for married couples filing jointly) contributed to a 401(k) or IRA. Your income may not allow you to max out your 401(k) contributions, but you will get a little bit of help in the form of the Saver’s Credit. Make sure you claim it.

5. Review your 401(k) contribution level.

If you were automatically enrolled in your plan, check how much you’re actually saving. Most plans with automatic enrollment set deferral rates at 3%, and that’s low. Increase that rate if you can.

Think you’re still too young to be concerned about retirement savings and have other bills to worry about? It’s hard to save when you’re young and you’re not earning much yet. But every dollar you put away today will likely be worth much more than a dollar you put away ten or twenty years from now, because it has more time to grow.

6. Review your 401(k) fund choices and expenses.

Do you know how much you’re paying in fees on your 401(k) investments? Analyzing fees in investors’ 401(k) accounts, we found that the average user was paying more than they needed to. In other words, while most plans have low-cost options available, many investors aren’t taking advantage of them.

7. Maximize your 401(k) company match.

It’s the 401(k) advice you see everywhere: If your employer offers a matching contribution, make sure you’re saving enough to get all of it. It’s free money. Go get it. And if your employer doesn’t offer a match, it’s time to ask for one. According to a recent survey by Aon Hewitt, 98% of employers who offer a 401(k)-type plan offer an employer match. If your employer doesn’t do this, they’re behind the times, and that’s a competitive disadvantage.

8. Maxed out your 401(k)?

Congratulate yourself for a job well done this year! But don’t stop there. It’s time to talk to an accountant or simply research your IRA or Roth IRA contribution eligibility. Consider it a gift to your future self.

Sarah Morgan
Sarah Morgan is a freelance writer and editor based in Brooklyn. Her work has appeared on SmartMoney.com and in the Wall Street Journal.