Why March Is the Best Time to Reevaluate Your 401(k) Contributions

When it comes to financial planning, timing is everything. While many people review their 401(k) contributions at the beginning of the year or during open enrollment, March presents a unique and often overlooked opportunity to reassess your retirement savings strategy. With tax season in full swing, new financial goals taking shape, and the first quarter of the year providing a fresh perspective, March is an ideal time to ensure your 401(k) is aligned with your long-term financial objectives.

1. Tax Season Insights: Adjusting for Maximum Tax Benefits

March falls squarely in the middle of tax season, offering a prime opportunity to leverage tax-related insights when reevaluating your 401(k) contributions. Reviewing your tax liability and deductions from the previous year can help you determine whether adjusting your 401(k) contributions could provide additional tax benefits.

Pre-Tax Contributions for Immediate Savings

• Contributing more to a traditional 401(k) reduces your taxable income for the current year.

• If you expect to be in a lower tax bracket during retirement, pre-tax contributions can maximize tax savings over time.

Roth 401(k) Considerations

• If you anticipate being in a higher tax bracket in retirement, contributing to a Roth 401(k) might be a better option.

• Since Roth contributions are made with after-tax dollars, qualified withdrawals in retirement are tax-free.

By reviewing your tax return and projected income for the year, you can make informed decisions on whether to increase your pre-tax or Roth contributions for optimal tax efficiency.

2. Assessing Your Contribution Rate After Year-End Bonuses and Raises

Many employees receive year-end bonuses or salary increases in the first quarter of the year. March is the perfect time to evaluate how these changes impact your ability to contribute more to your 401(k).

Maximizing Contribution Limits

• For 2024, the IRS allows individuals to contribute up to $23,000 to a 401(k).

• If you’re 50 or older, you can contribute an additional $7,500 in catch-up contributions.

• If you received a salary increase, consider raising your contribution percentage to stay on track for the maximum allowed amount.

Utilizing Bonus Contributions

• Some employers allow you to allocate a portion of your bonus directly into your 401(k).

• By doing so, you can defer taxes on that income while increasing your retirement savings.

If you haven’t adjusted your contribution rate after a raise or bonus, March is an ideal time to take action.

3. Quarterly Market Review: Aligning Your Investments with Financial Goals

March marks the end of the first quarter, making it an excellent time to review market performance and rebalance your 401(k) investment allocations.

Why Rebalancing Matters

• Over time, market fluctuations can cause your asset allocation to drift from your intended investment strategy.

• Rebalancing ensures that your portfolio remains aligned with your risk tolerance and long-term goals.

How to Rebalance Your 401(k)

• Review Current Asset Allocation: Compare your portfolio’s current mix of stocks, bonds, and other assets to your original target allocation.

  
  

• Assess Performance: Identify underperforming funds and consider reallocating contributions to better-performing options.

  
  

• Reallocate Contributions: Adjust future contributions to maintain a diversified and balanced portfolio.

If you haven’t checked your 401(k) investments since last year, March provides a strategic checkpoint to make necessary adjustments.

4. Evaluating Employer Matching Contributions

Many employers offer 401(k) matching contributions, but not all employees take full advantage of this benefit. March is an excellent time to ensure you’re optimizing your employer match.

Common Matching Structures

• A typical employer match is 50% of employee contributions up to 6% of salary.

• Some companies offer a dollar-for-dollar match up to a specific percentage.

How to Ensure You’re Getting the Full Match

• Check your pay stubs or retirement plan statements to confirm you’re contributing enough to receive the full match.

• If you’re not maximizing your match, adjust your contribution percentage immediately to avoid leaving free money on the table.

5. Reviewing Fees and Expense Ratios

401(k) plans often come with investment fees that can impact your overall returns. March is a great time to review your plan’s fees and expense ratios.

Types of 401(k) Fees to Watch For

• Fund Expense Ratios: Look for funds with lower expense ratios to reduce costs.

• Administrative Fees: Some plans charge account maintenance fees—ensure these are competitive.

• Transaction Fees: Minimize unnecessary trading to avoid extra costs.

If you find that your current investment options have high fees, consider switching to lower-cost index funds or exchange-traded funds (ETFs) if available in your plan.

6. Planning for Catch-Up Contributions if You’re 50 or Older

If you’re approaching retirement and feel behind on savings, March is an opportune time to start making catch-up contributions.

Why Catch-Up Contributions Matter

• If you’re 50 or older, you can contribute an additional $7,500 beyond the standard $23,000 limit.

• These contributions allow you to accelerate savings in your final working years.

Even small adjustments now can make a significant impact on your retirement savings over the next decade.

7. Aligning 401(k) Contributions with Retirement Goals

March is a perfect time to assess whether your current contribution rate aligns with your retirement timeline and financial goals.

Key Questions to Ask Yourself

• Am I on track to replace at least 70-80% of my pre-retirement income?

• Am I contributing enough to meet my desired retirement lifestyle?

• Should I increase my contributions to ensure I reach my target savings amount?

If you’re unsure whether you’re saving enough, use a retirement calculator or consult with a financial advisor to adjust your strategy.

8. Preparing for Required Minimum Distributions (RMDs)

If you’re nearing retirement age, March is a great time to prepare for Required Minimum Distributions (RMDs), which apply to individuals over 73 years old (as of 2024).

Why This Matters

• RMDs are mandatory withdrawals from tax-deferred accounts like traditional 401(k)s and IRAs.

• Failure to take RMDs results in a hefty 50% penalty on the amount not withdrawn.

If you’re approaching RMD age, plan ahead to minimize tax implications and ensure compliance.