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5 Little Known Facts About Your 401k

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January 15, 2023

401k plans have been a popular employer sponsored retirement vehicle since employers have moved away from traditional pension plans for their employees. However, there may be a few things you might not know about your plan:

"Maxing out": It's a common misconception that maxing out your 401k means you are contributing up to what your employer is matching you. For example, contributing 4% of your salary if your employer is matching 4% of your contributions. In reality, you can contribute up to the IRS maximum of $22,500 for 2023. This limit is set each year by the IRS.

Catch Up Contributions for 50+: Once you reach age 50, the IRS generously allows you to contribute an additional $7,500 for 2023. This means if you are 50+, the maximum contribution limit you can defer for 2023 is $30,000.

Self Directed Brokerage Accounts: Some 401k plans offer what's called a self-directed brokerage account. This is a separate account inside your 401k that allows you to invest your funds in ways other than the mutual funds in your standard plan. This would let you invest in individual securities that you might not see in your standard 401k.

Distributions: It is a well-known fact that you cannot take distributions from a retirement account until age 59.5 without incurring a 10% penalty on top of any other federal and state incomes taxes you might owe. However, some 401k plans and employers offer the ability to take the funds at 55 if you separate from your employment. It's important to talk to your HR department and your financial advisor to see if this is the best move for you.

Target Date Funds: Target date funds are mutual funds that are designed to decrease in risk level the older you get. Rather than worrying about your allocations and rebalancing each year, you can choose a target date fund with the year closest to when you plan to retire. The funds start our more aggressive and slowly become more conservative as you reach retirement age.

As always, be sure to check with your financial advisor to be sure your 401k contributions make most sense to you.

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About the author

Allison Baines

Allison Baines

Wealth Plan Design Specialist

Allison graduated Magna Cum Laude from the University of Georgia with a bachelor's of science in family & consumer sciences as a double major (financial planning & consumer economics). She started at oXYGen Financial shortly after in the Fall of 2014 and has been building her career in financial planning ever since. One of her biggest accomplishments was passing the CFP® exam in 2018.

Allison was born and raised in Dallas, GA but currently lives in Ball Ground, GA with her husband Rob and their son Carter. They also share their home with a Labrador named Sunny and a German Shepherd named Lola.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. Investor Disclosures: https://bit.ly/KF-Disclosures

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.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Background and qualification information is available at FINRA's BrokerCheck website.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. https://Bit.ly/KF-Disclosures

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