Getting the most out of your 401k plan

I have been running an IT consulting company operating out of Columbus for about 17 years now, and many of my employees are now approaching retirement. However, they have found that they have not saved enough in their 401k plans to cover their expenses post-retirement. Are there any solutions to this?
Catherine Stoch, Columbus, Ohio

Hello Catherine,

The problem that your retiring employees are facing is a common one. It is not uncommon for employees to create 401k plans and forget about their details, until they begin approaching the age of 50. Employees in the latter stages of their career suddenly realize that despite the constant contributions they have been making towards their 401k plans, they have still not saved enough to generate a solid income stream that will suffice post retirement.

Catch up contributions

Thankfully, there are a few solutions to this problem. The first of these is something known as catch up contributions. Catch up contributions were first introduced in 2006, and continue to be a great help to employees nearing the end of their careers. Pre-retirement employees are afforded a facility that allows them to increase the amount they save towards their 401k plans. The typical limit that individuals can save annually is around $17,500. However, with a catch-up contribution deferral, this limit can be increased to $23,000, as per laws set out by the Internal Revenue Service.

The good thing is that many of the latest 401k carriers do offer catch-up contributions within their overall plans. If you are looking for a reliable 401k carrier that offers flexibility in the form of catch-up contributions, and other facilities, visit for further information.

Moreover, it is not just the ones who are retiring that are afforded this facility. Any employee over the age of 50 can avail it. However, the reality is that many employees remain in the dark about catch up contributions. As an employer, you are urged to study your employees’ 401k plans carefully, and inform them of the option.

Soft retirement also an option

If catch up contributions do not seem feasible to the employees in your organization, you may want to suggest that they remain in the workforce, working on a part time basis, as they reach their retirement age. This will allow them to continue earning, albeit lesser amounts, as well as continue contributing towards their existing 401k plans.

You may want to ask your pre-retirement employees if they have considered the option of a soft retirement. Once again, one of the chief reasons why this is not a more popular option is because of a lack of awareness on the part of the employee. Make it your responsibility to inform your workforce of such an option.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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