Don't go on autopilot – go on auto increase
When employees contribute to their 401(k) plan, the money goes into the plan directly before the employee ever receives the money. It's easy to lose track of how much is being contributed. Too many times the initial contribution percentage is chosen arbitrarily and is not updated. Years can go by without any changes to the percentage that is being contributed. The maximum that can be contributed to a 401(k) for 2015 is $18,000. Employees age 50 or older can contribute an additional $6,000 for a total of $24,000. If you are not contributing the maximum allowed you should elect the auto increase option for your 401(k) contributions. With this option you choose your starting contribution rate, the annual increase percent and the target rate. Your 401(k) contribution will automatically increase by the chosen annual increase percent every year until the target rate is reached. This will help you to increase your savings without having to remember to do it every year.
Got a Roth 401(k)?
Qualified distributions from a Roth 401(k) may be taken tax free. A withdrawal is considered qualified when it is made after the account holder has attained age 59 ½ and a minimum of five years have elapsed since January 1 of the year of the first contribution to the Roth 401(k) account.
Here's the catch. After you retire or otherwise leave the employer, if you rollover your Roth 401(k) to a Roth IRA the time during which the assets were in the Roth 401(k) does not count toward the Roth IRA's five year holding period.
The five-year holding period is never carried over to an individual Roth IRA upon rollover from a Roth 401(k). The Roth 401(k) funds will be governed by the five-year rule applicable to the Roth IRA. If the Roth IRA has already satisfied the five-year period, then the funds that were rolled over from the Roth 401(k) are deemed to have also met the five-year period, even if they were in the Roth 401(k) for only a year. This is why, if you choose to participate in the Roth 401(k), you should also consider establishing a Roth IRA as soon as possible either through contributions or a conversion if ineligible to contribute due to the income limits.