Missed the deadline to max out your 401(ok)? Here is what you are able to do


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If you plan to get the most out of your 401 (k) or other employer-sponsored retirement plan before the end of the year, you are probably running out of time.

A contribution deadline for employees is December 31, or the final paycheck of the year.

Employers usually need a few weeks to process applications, e.g. B. Put more money into your retirement account. With the last paycheck of the year coming up for most in the next two weeks, it means many have passed the deadline to contribute more to their retirement plans.

Of course, anyone expecting another paycheck or year-end bonus should check with HR to see if there is still room for you to add your contribution, said certified planner Niv Persaud, general manager at Transition Planning & Guidance, LLC, in Atlanta.

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“It doesn’t hurt to ask,” said Persaud. “But be prepared for a no answer.”

Fortunately, even if your employer says no, according to financial planners, there are still a few other ways you can free up extra cash for work.

Put the extra money in another account

If you have extra cash that you wanted to save, there are a few other ways you can go about maximizing those dollars.

Health savings account: If you want to use the money for a job benefit, you can also allocate it to a health savings account, said Judson Meinhart, CFP and financial planning manager at Parsec Financial in Winston-Salem, North Carolina.

“HSAs are one of the best ways for long-term savings because you can contribute with dollars before taxes,” Meinhart said, adding that if you withdraw funds for qualified medical expenses, too, you won’t pay taxes.

If you haven’t set the maximum for 2020, you have until mid-April to top it off and the funds will auto-renew at the end of the year.

Individual retirement account: If you still want to save towards retirement, you can also deposit additional money into an individual retirement account. As with an HSA, you have until April to bring the 2020 maximum into an IRA.

This may mean opening a traditional IRA or a Roth IRA, or making an additional contribution to the different rules governing when they are taxed. (Traditional IRAs are funded with pre-tax monies and future withdrawals are taxed. Roth IRAs make post-tax contributions, but withdrawals are tax-free.)

“Note the contribution limits and your eligibility based on your adjusted gross income,” said Meinhart. Both types of IRAs limit how much people can invest in them each year, and Roth IRAs have an income limit on contributions.

Regular brokerage account: You don’t have to put all of your retirement assets into a pension-based account, Persaud said. At the end of the year, if you have extra money to save and invest, you can put it in a regular brokerage account, she said. Of course, the money is then taxable – as opposed to money invested in a traditional 401 (k) – but there are other benefits.

“The advantage of this type of account is that there are no restrictions on when you can withdraw money from it,” she said. “If someone wants to retire at the age of 55, the money in this account is easily accessible.”

It’s also a good idea to diversify your retirement assets through tax treatment or when you have to pay the IRS for the funds, Meinhart said.

“You can either top up a brokerage account directly with your remaining savings, or you can use these savings to pay the taxes you would incur if you switched to Roth,” said Meinhart.

Prepare for the next year

Of course, you don’t have to put any extra money you have at the end of the year into another investment account – you can also use it to pay off debts or increase emergency savings, especially if you have to take advantage of that year.

Aside from deciding where to put the money, there is one more thing you can do if you missed the deadline to maximize your employer-sponsored retirement account this year – make a plan so it doesn’t happen to you again in 2021, Persaud explained.

“Individuals should change their designation to maximize their 401 (k) contributions for the income they will earn in 2021,” she said.

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