By Edward “Ed” V. O’Neal, Senior Vice President and Manager, Retirement Plans
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National 401(k) Day for 2023 will be observed on Friday, September 8. This important day serves as a reminder to review key retirement goals, while also highlighting the importance of retirement planning, preparation and readiness strategies. We all fantasize about a certain lifestyle during our golden years of retirement. For some it might be exotic travel destinations, while for others it might entail starting a new business venture or just spending time with their family. National 401(k) Day encourages all of us to pay attention to important retirement metrics, including savings levels and investment allocations.
National 401(k) Day was established by the Profit Sharing Council of America (PSCA) in 1996 with the date intentionally selected so that employees could start the week with Labor Day and end the week focused on retirement goals. The goal is to promote a range of retirement themes, including retirement savings education, encouraging more employers to sponsor retirement programs for their employees and ensuring that employees are knowledgeable about the benefits of participating in employer-sponsored retirement plans.
Despite these efforts, surveys show that only 70% of Americans believe they are financially prepared for retirement, and although 79% of Americans work for an employer offering a 401(k) plan, only 41% choose to participate in the program.* The recently enacted SECURE 2.0 Act could certainly help improve these statistics with its emphasis on expanding retirement plan coverage and increasing overall retirement savings for employees. Some of the key provisions of the Act include:
- An automatic enrollment and escalation provision required for most new 401(k) plans.
- Expanded and newly introduced tax credits to encourage new plan establishment for small business owners.
- Expanded contribution limits for employer retirement plans (e.g., SIMPLE IRA plans, etc.).
- Employee and employer Roth contribution availability for SIMPLE IRAs, SEP-IRAs and 401(k) plans.
- Emergency savings accounts to permit employee access to retirement assets for emergency needs.
Additionally, here are some best practices that employees can utilize to help improve their retirement savings and chances for retirement readiness:
- Take advantage of employer sponsored retirement plans – If your employer provides an opportunity to participate in a retirement plan (e.g., a 401(k) plan), this can be an effective, tax-advantaged tool in helping to reach your retirement goals. If you’re fortunate enough to have access to an employer-sponsored retirement plan, take advantage of it.
- Start contributions early – It’s never too late to start saving for retirement, but the key to maximizing retirement savings is by starting early.
- Take advantage of matching contributions – Many 401(k) plans are designed to include a matching feature. If available, participants can supercharge their retirement savings by contributing enough to maximize any employer matching contributions.
- Select personally compatible investments – Retirement plans often allow participants to choose from a menu of preselected investments. Participants then can create an investment portfolio that aligns with their personal risk and tolerance levels no matter how many years they have until retirement.
- Avoid early withdrawals – Premature withdrawals from a retirement plan can be expensive. Not only will they be taxed as income, but they can also result in fees and tax penalties for a participant, not to mention the loss of future tax deferral.
- Check-in periodically – Although retirement plan assets are generally considered long-term investments, remember to monitor these investments as you go and make adjustments as needed.
National 401(k) Day is a reminder that there is still work to do in improving employee confidence with retirement goals and establishing a secure retirement. Retirement planning can be complex, and it seems that retirement regulations change almost as frequently as the market, causing even more stress and frustration for many employees. Taking a measured approach to retirement planning and incorporating key best practices can lead to better financial outcomes and improve your chances of a secure retirement. Happy National 401(k) Day!
*SpiritoftheHolidays.org (National 401k day)
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.