Now’s the time to boost 401(k) contributions for 2022

Planning to save more this year? There is a higher 401 (k) employee carryover limit for 2022, and now is the time to increase contributions, financial experts say.

Employees can funnel $ 20,500 towards 401 (k), 403 (b) and other plans for 2022, up from $ 19,500 in 2021, thanks to IRS cost-of-living adjustments, and catch-up filings for investors 50 and over are $ 6,500.

“You’re smart to jump on it,” said certified financial planner Catherine Valega, wealth consultant at Green Bee Advisory in Winchester, Massachusetts. “Most people define [401(k) contributions] once and never look back. “

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If you’re aiming to maximize 401 (k) contributions for 2022, it may pay off to start early, as spreading out may be more manageable than year-end increases.

And more time in the market may offer more growth potential, said Marguerita Cheng, Washington-based CFP, CEO and co-founder of Blue Ocean Global Wealth and a member of the advisory board of CNBC.

“The sooner you can increase your contributions, the sooner you can make your money work for you,” she said.

High income earners may also consider taking 401 (k) contributions to meet the deferral limit before the end of the year.

For example, if someone receives an October bonus, they can take 401 (k) contributions to maximize the plan, freeing up more take-home pay for November and December.

Before you max out the plan early, however, you need to know how your 401 (k) match works, Valega said. Many companies only provide matching funds when you defer part of your salary.

In this case, you will not receive the full consideration from the employer unless you make 401 (k) contributions each pay period.

However, other plans have what’s called an “adjustment,” which means the company calculates the 401 (k) match on an annual basis rather than for each pay period.

“It means they don’t really care when you invest your money,” Valega said. “They will make sure you get the full game at the end of the year.”

You can learn more about your correspondence by checking the description of your 401 (k) summary plan, which covers how the account works, or by reviewing the document with a financial advisor.

While maximizing 401 (k) contributions is an ambitious goal, there are reasons why you may decide to limit carryovers after receiving full correspondence from the company.

“This, of course, can vary depending on the goals,” said Marianela Collado, CFP and CPA at Tobias Financial Advisors in Plantation, Fla.

For example, if you’re saving a down payment for a house, you may decide to redirect the funds until you reach your short-term goal, she said.

Likewise, if you have high interest credit card debt or don’t have emergency funds, you can allocate money elsewhere before increasing the 401 (k) deferrals.