Fortunately, there may be a way in which you can boost your 401(k) contributions — without cutting into your take-home pay.
Specifically, you may be able to convert any unused vacation and sick time to your 401(k) or other employer-sponsored retirement plan, such as a 457(b) or 403(b). Many employers have offered this conversion option for years, but relatively few employees have taken advantage of it.
Now, however, the Obama administration has asked the U.S. Department of the Treasury and the IRS to issue new rulings on the topic in the hope of getting more people to increase their retirement savings. And this is an important goal, because many of us still need to put away much more money on a regular basis if we're going to enjoy the type of retirement lifestyle we've envisioned.
The ability to convert vacation or sick time to your 401(k), 403(b) or 457(b) plan can help you make progress toward that lifestyle. While the conversion feature won't enable you to exceed the contribution limit for your plan —which for 2009 is $16,500, or $22,000 if you're 50 or older — it may make it easier for you to beef up your contributions for this year, particularly if you have unused vacation or sick time you can't carry over.
Not all employers are willing or able to turn vacation or sick hours into retirement plan contributions, so check with your human resources or benefits office to see if you can make this move. If it is allowed, though, consider taking action.
Once you know how many retirement plan dollars can result from your unused vacation or sick days, go over your 401(k) or other plan, perhaps with the help of your financial advisor, to determine an appropriate allocation of your money. For example, you may have accounts within your plan that are currently under-funded. Or you might benefit from "rebalancing" your plan by adding some new money into different accounts. Keep in mind, however, that diversification does not guarantee a profit or protect against loss.
In any case, consider this opportunity to add to your retirement plan. The more you save today, the brighter your outlook could be for tomorrow.
Mollye Raney, an Edward Jones investment representative, may be reached by calling 744-7190. This is a paid advertisement.