You've Likely Missed the Deadline to Max Out a 401(K) This Year. Here's What Else You Can Do

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If you planned to max out your 401(k) or other employer-sponsored retirement plan before the end of the year, you've likely run out the clock.

An employee contribution deadline is Dec. 31 or the year's final paycheck.

Employers generally need a few weeks to process requests such as putting more money into your retirement account. With the last paycheck of the year coming in the next two weeks for most, it means many have blown past the deadline to contribute more to their retirement plans.

Of course, anyone expecting one more paycheck or year-end bonus should check with the human resources department to see if you can still increase how much your are contributing, said certified planner Niv Persaud, managing director at Transition Planning & Guidance, LLC, in Atlanta.

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"It doesn't hurt to ask," said Persaud. "But be prepared for a 'no' answer."

Fortunately, even if your employer does say no, there are a few other things you can do to put extra money to work, according to financial planners.

Put the extra funds in another account

If you have extra money that you were hoping to save, there are a few other options to maximize those dollars.

Health savings account: If you'd like to use the money towards a workplace benefit, another place you could allocate it is to a health savings account, said Judson Meinhart, CFP and manager of financial planning at Parsec Financial in Winston-Salem, North Carolina.

"HSAs are one of the best opportunities for long-term savings, because you can make a contribution with pre-tax dollars," said Meinhart, adding that if you take out funds for a qualified medical expense, you don't pay taxes on it, either.

If you haven't put in the maximum for 2020, you have until mid-April to top it off, and the funds automatically rollover at the end of the year.

Individual retirement account: If you'd still like to save towards retirement, you could also deposit extra funds in an individual retirement account. Like an HSA, you have until April to contribute the maximum for 2020 into an IRA.

This could mean opening or contributing extra to a traditional IRA or a Roth IRA, which have different rules about when they are taxed. (Traditional IRAs are funded with pre-tax money and future withdrawals are taxed; with Roth IRAs, contributions are made after taxes but withdrawals are tax-free.)

"Be aware of the contribution limits and your eligibility based on your adjusted gross income," said Meinhart. Both types of IRA cap how much people can put into them each year, and Roth IRAs have an income limit for contributions.

Regular brokerage account: You don't have to put all retirement savings in a retirement-specific account, said Persaud. If you have extra money to save and invest at the end of the year, you can put it in a regular brokerage account, she said. Of course, the money is then taxable — unlike funds put into a traditional 401(k) — but there are other benefits.

"The advantage of this type of account is that there are no restrictions on when you can take money out of it," she said. "If someone wants to retire at age 55, then money in this account is easily accessible."

It's also a good idea to have your retirement assets diversified by tax treatment, or when you will have to pay the IRS for the funds, Meinhart said.

"You can either fund a brokerage account directly with your leftover savings or earmark that savings to pay the taxes you would incur on a Roth conversion," Meinhart said.

Prepare for next year

To be sure, you don't have to put any extra money you have at the end of the year into another investment account — you could also use it to pay down debt or boost emergency savings, especially if you had to tap into them this year.

Beyond deciding where to put the money, there is one more thing you can do if you missed the deadline for maxing out your employer-sponsored retirement account this year — make a plan so that it doesn't happen to you again in 2021, Persaud explained.

"Individuals should go ahead and change their designation to max their 401(k) contributions for income they will earn in 2021," she said.

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