Sick Gains, Bro
Gym rats talk a lot about “maximizing gains.” They lift heavy and eat lean in order to maximize muscle gain. This approach is similar to maxing out your 401K. A 401K allows a person to contribute part of their paycheck directly to a retirement fund. When we speak of “maximizing” your 401K, we mean the maximum amount you can contribute per year. In 2023, that amount is $22,500. Think of maximizing as the Crossfit of 401K investing. If you contribute the maximum every year, compound interest will potentially get your retirement fund yoked by the time you turn 65.
But Crossfit isn’t for everyone. Let’s consider a more moderate fitness (investing) regimen. If your son is only making $60K in his early twenties, it’ll be near impossible to maximize his 401K contributions. That said, he should aim to contribute as much as possible, again, due to compound interest. Oftentimes, employers will match these contributions. Let’s say your son’s employer offers to match 50% of his contributions up to 5% of his salary. If his salary is $60,000, he can contribute $3,000 and be matched $1,500 for a total of $4,500. Some employers will even match contributions dollar for dollar. This is a very healthy investment strategy.
That said, the fitter you get, the heavier weights you can lift. And the more money your son makes, the more he can contribute to his 401K. In fact, every time his salary goes up, he should consider putting 50% of that raise into his 401K contribution.
That’s it for today’s 401K bootcamp. If you have any further questions about maximizing, please reach out to us at Centrix Wealth Partners, your personal trainers for retirement.
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Centrix Wealth Partners is not a registered broker/dealer and is independent of Raymond James Financial Services.
The information contained does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Centrix Wealth Partners and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results.
401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
