Do you know these 3 things about your 401(k)?

September 09, 2022

Allworth Co-CEO Scott Hanson shares a few key reminders about 401(k)s.

Each year, National 401(k) Day lands on the first Friday after Labor Day.

It’s a good reminder that there’s a versatile retirement preparation vehicle that’s available to millions of working Americans.

In fact, 79% of employed people work for a company that offers one, making it the most widely accessible vehicle of its kind.

Unfortunately, having access to a 401(k) doesn’t mean everyone automatically signs up and contributes. I was disappointed to learn that only 41% (barely half) of all eligible employees partake in their employer’s plan.¹

So, if you’re retired, or you don’t have access to a 401(k), why should you care?

Despite the middling participation rate, with tens of millions of participants, I can think of several reasons. First, someone you love or care about almost certainly still has money in a 401(k). And even if you’re retired, if you have money saved in one, you might be eyeing those upcoming required minimum distributions, either with excitement or trepidation (more on that below).

Another reason to pay attention to 401(k)s is that, in today’s inflationary environment, and with the market still officially in bear territory, the balance in your (or your loved one’s) 401(k) has probably dipped since January 1st.

Some of the most important advice is to keep saving. Don’t worry about what the markets are doing today. Just make certain your 401(k) is allocated in a way that is appropriate for your risk tolerance and personal time horizon (the time in your life when you’ll need the money).

The reason National 401(k) Day exists isn’t to celebrate, but to promote education and awareness. It was launched back in 1996 by the Plan Sponsor Council of America because an alarmingly small number of 401(k) plan participants were able to answer even the most basic questions about their plan(s).

With the year heading into the home stretch, now is a great time to review the status of your 401(k) to make certain you are doing everything you can to build that balance and prepare yourself for the future.

Here are three basics that everyone, retired or not, should know about their plan.

What are the contribution maximums for 2022?

If you are under age 50, you can contribute $20,500 of pre-tax income to your 401(k) this year (2022). That’s a $1,000 increase from 2021. If you’re 50, or older, you have the option to add a “catch up” contribution of $6,500, which means that this year you can sock away a total of $27,000 of pre-tax money in your 401(k). (And, I should note that if you save in both a Roth 401(k) and traditional, pre-tax 401(k), these totals are your combined limit.)

The beneficiaries in your 401(k) usually supersede those in your will.

When was the last time you checked the beneficiaries on your defined contribution plan? I’m specifically talking about a 401(k), 403(b), or 457.

Most people have no idea that the following law applies: The beneficiary listed on your defined contribution plan typically takes legal precedence over whoever is listed in your will.

That shocks most people, but it’s true.

If you can’t remember the last time you checked, or you aren’t 100% positive who you have listed, take a minute today and verify that your beneficiaries are up to date.

RMDs now begin at age 72.

Required minimum distributions (RMDs) are mandatory yearly withdrawals you must take from your employer-sponsored retirement plan each year once you reach age 72 (until recently, the age RMDs began was 70 1/2).

RMDs exist so the IRS can start collecting their cut of the money from tax-deferred accounts.

Your RMD is calculated by dividing your prior year balance by a life expectancy factor (speak to your advisor) based on an IRS table. (If you are married and your spouse is 10 years younger, a different table is applied).

A little warning: Do not automatically wait until age 72 to take a required minimum distribution (RMD). The reason is, that if you’ve saved exceptionally well, and you wait until you turn 72, you may come to find that your RMD is so large, it bumps you into a higher (and avoidable) tax bracket.

I’ve seen that miscalculation cost people tens of thousands of dollars, so speak with your tax professional now to review all the money (and income) you’ll be using for retirement, so you don’t get hit with an unnecessarily large tax bill.

Here’s to National 401(k) Day! As an advisor for almost 30 years, I’ve come to view it as much more than just another Friday.

¹^{NATIONAL 401(K) DAY - September 9, 2022 - National Today}

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¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.