Here’s today’s Money Challenge, should you choose to accept it: reassess your 401K contributions and investments.

This is part of our series on occasional tasks you can do to improve your financial well-being. I’m not a personal finance expert — this is just stuff that I do myself from time to time. If you have any comments or different strategies, I’d love to hear them! See the entire Money Challenge series here.

(If you’re looking for more basic investing advice, I’d suggest taking a look at our Money Roadmap, which lays out what steps you should take and in what order, with links to posts with more information and discussion.)

You also may want to check out our personal money snapshots, where anonymous readers share their net worth, salary, and other thoughts on personal finance!

How to Assess Your 401(k) Contributions

The IRS recently announced that the 2022 contribution limit for 401(k) plans will increase to $20,500. So if you want to max it out for 2022, now is the time to do the math with your paycheck schedule. For example, if you’re paid weekly, you should be contributing around $394.24 each week to your 401(k). (To discuss in the comments: how difficult is it to make allocation changes in your 401(k)? What does the form look like, where do you find it, and so forth?)

Something to consider: when I was in BigLaw the rumor around the office was that it was good to try to have a big chunk of your bonus go into your 401(k), and for years I diligently set my contribution limit to 25%, which was the highest we could go. I could see how putting a big chunk of change in your 401(k) with your bonus accomplishes a lot mentally because you know your retirement is being taken care of for the year, and bonuses should always be treated as “found money” anyway. There may also be other factors at play with that advice, such as whether your bonus is taxed/withheld differently than your regular paycheck, which may be varied based on income and locale. In any event: if you’re expecting a big bonus in early 2022, consider putting a lot of it into your 401(k), and then reassessing how much your regular contribution should be after that.

{related: how to respond to a good bonus}

Of course, as we’ve noted in the past, there are different benefits to cash savings vs retirement savings – so while maxing out your 401(k) is always great, it may not be right for everyone. If at all possible, though, you should check and see if your company offers a 401(k) match, and bend over backwards to put at least enough to get the full match. (For example, if your employer will match the first $4,000 you put into a 401(k), make sure you’re contributing the full $4,000, so you can get a total of $8,000 for the year.)

{related: here’s one of our previous discussions on decisions around retirement savings…}

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How to Check Your 401(k) Investments

We talked a bit in one of our prior money challenges about why you should check your expense ratios from time to time — and this is still important. Other broad stroke things to consider:

• Do you have any money in cash in your 401(k), waiting to be invested? Hopefully not — every plan I’ve ever seen asks you to pick your investments, but on the off chance you had the option to pick a money market fund or something, take a look.
• Do your investments work with your personal timeline? Remember, money invested in a 401(k) generally can’t be touched until you turn 59.5. If that birthday is 30 years away for you, make sure you’re not being too conservative with your investments. On the flip side, if you’re getting closer to that birthday, you may want to look at more conservative investments.
• In general, how are your investments doing? The general index funds have been doing pretty great, so if you’re in something else, you may want to reassess why. For example, I’ve tried to diversify some of my holdings with small cap funds, bond funds, and international funds — but I need to take a closer look at what I’m holding and where because some are doing significantly worse than the index funds.

{related: tips on rebalancing your investments}

Readers, how often do you make changes to your 401(k) contributions and investments? Do you try to steer your bonus towards your 401(k), and if so why?

Stock photo via Deposit Photos / Ai825.