Let’s be honest: in some ways, contributing to your retirement account is a drain. When I started my new job, the first few weeks I had a huge paycheck; after all, my health insurance and 401(k) had yet to kick in, so other than taxes, I wasn’t losing any of my earnings to a third party. But by about six weeks in, those paychecks had taken a major hit: about $200 started going toward the medical insurance premiums for myself and my family, with another $300 going to my employer-sponsored 401(k). It almost felt like I was making less money, and in a way, I was.
For 2013, the maximum amount most of us can contribute to a 401(k) is $17,500. If you get paid every week, that means you’d have to take out $336 out of each paycheck to reach the maximum contribution allowed by the government; if you get paid every two weeks, that contribution rises to $672; if you’re on a monthly paycheck, it’ll be $1458. That’s a lot of money.
Instead, I’ve decided to search for less painful ways to contribute to my retirement accounts. Some of these tactics work for any type of investment, while others are ideal for a 401(k) or Roth IRA specifically.
- Set up automatic increases. My company’s 401(k) is set up through one of those major online investment companies. The website lets you automatically increase your 401(k) contributions on specific dates; say, on the date of your 1-year hiring anniversary when your next pay raise is set to kick in. This lets you do the work of increasing your contributions ahead of time, making it less likely you’ll actually notice the “pain” of adding to those accounts.
- Invest your birthday money. Sure, it’s less glamorous than a pedicure at the spa or 18 holes at the golf course, but putting money you get as a present – for your birthday, anniversary, or other holidays – into your retirement accounts is a great way to increase your nest egg; just think of that money as a gift for your future self. Note: this is best done with a Roth IRA, since you won’t get a lot of benefit from the tax-deferred status of a 401(k) for money received in this manner.
- Take advantage of a company match. Although this isn’t as common as it was before the financial crisis, many companies still offer employees a matching contribution on their retirement accounts. In my case, the company will match 50% of my contributions up to the first 5% of my annual salary. However, to get their money, I have to start by putting in some of my own; it’s more than worth it, though, to get that free money.
- Ask your employer to make the company match earlier in the year. This may not seem like a big deal, but the timing of your investment contributions is huge. The earlier you make them, the longer they’ll be able to work for you. If your company currently has an end-of-year matching policy, talk to them about moving it up. It doesn’t have to be January 1 (although that would be ideal), but even quarterly is better than getting a lump sum in December.
- Put in your contributions in one lump sum… and do it early. Just like you want to get your company’s 401(k) match into your retirement accounts as early into the calendar year as possible, you want to do the same with your personal contributions. Whether you’re putting in to your 401(k) or Roth, the earlier you make those contributions, the longer that money has time to grow.
What sneaky methods do you use to contribute to your 401(k), Roth, or other retirement accounts?