Can You Change 401k Contribution Anytime? When, Why & How?

Can you change 401k contribution anytime? Or not? Many 401k account holders who want to increase their retirement savings wonder this. So, what’s the right time to do it? Well, you can adjust your 401k anytime. However, this also depends on the terms and conditions set by your employer. Want to know how can you change 401k contribution anytime while complying with all these regulations? You can find it out here! This blog is your all-you-need-to-know guide on 401k contribution rate adjustments.

• You can change your 401k contributions anytime, but it's subject to your employer's rules.
• The IRS increased the 2024 401k contribution limit to $23,000, with an additional $7,500 for catch-up contributions for those aged 50+.
• Assess your income, expenses, and employer match to determine the optimal contribution amount for your financial goals.
• Adjusting 401k contributions can optimize savings and accommodate life changes but can also lead to tax complexities and administrative hassles.

Can You Change 401k Contribution Anytime & How Often?

You are allowed to change your 401k contribution anytime but it depends on the rules defined by your company or employer. According to government regulations, employers have to allow at least quarterly adjustments to employer-sponsored plans like 401k or 403b. Remember that this is the minimum requirement, employers can even allow their employees to change their contribution rate more often. 

“Participants of a 401k must be allowed to make adjustments to their plan on a quarterly basis.” – Department of Labor

So, now you know that the answer to the question – can you change 401k contribution anytime? – is yes! But do you know how to do it? And that too the right way? Well, most 401k participants are unaware of how to navigate such nuances of their plan. But having know-how about different aspects of 401k is important, especially if you have signed up for one. You can even consult a 401k financial advisor for this.

How to Change Your 401k Contribution Amount?

You should know that even the slightest increase in your annual contribution can give a major boost to your retirement savings. And who wants to miss out on this boost? No one! After all, it's your key to a secure financial future. Therefore, you should contribute as much as you can afford to. 

“11% of the total 401k account holders focus on maxing out their annual contribution limit.” – CNBC 

And these are smart people. They know what’s the right thing to do to build the life they want to lead. With their maximum annual contributions, they’re building themselves a comfortable lifestyle. Apart from finding the answer to: can you change 401k contribution anytime? you should also know how to do it. Here is a step-by-step guide on how you can change your 401k contributions. 

1. Reach out to Your 401k Provider

You must contact and inform your 401k provider or plan administrator when you decide to change your contributions. This is because you have to comply with certain regulations when making this adjustment. So, having a discussion with the provider can help you understand these rules in a better way. As a result, you’ll be able to follow them without missing out on anything important.

2. Calculate How Much to Contribute

Before deciding on how much you are going to contribute, it's important to calculate the amount you need for your current expenses. After all, you can’t just put all your amount into your 401k and be broke for the rest of the year. Besides, always consider your company’s match percentage before deciding an amount. Also, your plan rules may also require you to adjust your asset allocation as you change your contributions. 

3. Fill Out the Form for New Contributions

Once you’ve gone through your current expenses, employer matching ratio, and asset allocation rules, it's time to seal the deal. To change the contribution amount, you simply have to fill out a form – available on the plan’s web portal. You can also request physical copies of documentation if you find it more convenient. Clearly, these steps will only take a few minutes of yours. After filling out the form, you are all set to maximize your retirement savings.

Why Change Your 401k Contribution?

You have the option to both increase or decrease your 401k contributions. And there are several reasons why an employee may do it. Let’s break them down for you:

🗸 Change in Income

Got a salary raise? Or a salary reduction? In both cases, you need to revisit your plan. This is the time when you should consider adjusting your contribution amount. If your salary has increased, you should increase your annual contributions too. Moreover, rebalancing your contributions is important if you want to optimize your retirement savings. For example, your salary was previously $100000 and you contribute 8% of it annually. If your salary increases, let’s say to $120000, you can consider raising your contribution to 10%.

🗸 Major Life Changes

You can and should consider reassessing and updating your 401k contribution in case of major life events like marriage, divorce, or the birth of a child. After all, these events can result in a 360-degree life change. You have to consider your current expenses and future needs and update your contribution amount accordingly. 

🗸 Change in Financial Goals

Financial goals never stay the same – they evolve. The best part about your retirement contributions is that you can change them as your financial goals change. You have the choice to adjust your annual contributions based on your objectives, like buying a house, financing your child’s education, etc. Undoubtedly, you are fully entitled to assess and adjust your plan as your financial responsibilities evolve. 

🗸 Inflation and Market Conditions

The financial market is not always the same. In fact, it keeps on fluctuating. Moreover, this can affect your financial growth. Therefore, to keep pace with these fluctuations, you should review and update your 401k contributions. You can adjust the amount you add based on your investment strategy and risk tolerance. This ensures that there is no hurdle in your way of achieving a peaceful retirement.

🗸 A Secure Retirement Lifestyle

Those who are nearing their retirement can fine-tune their contributions to max out their savings. And this is a great strategy! After all, these are the golden years of your life and you should live them with peace of mind. For this, it’s necessary to save up as much as you can. Furthermore, you can also use your catch-up contributions to maximize your retirement savings.

Apart from knowing – can you change 401k contribution anytime or not? – you now also know why you need to update your contributions every now and then.

Pros and Cons of Changing Your 401k Contribution

The answer to – when can I change my 401k contribution – is yes, but do you know what are the benefits of doing so? Well, there are some disadvantages too. We’ll discuss both so you can make an informed decision for your financial life. You can even consult pension plan consultants. After all, they are skilled professionals and can give you well-rounded advice. Anyhow, let’s get to the pros and cons:

The good thing about having a chance to change your contributions is that you can accommodate your life changes and expenses. It also lets you contribute the maximum so you can take full advantage of employer matching. But it has some downsides too. Changing your contributions frequently can leave you entangled in tax complications. Plus, filling and submitting documents is too much of a hassle.

Quick Question: What if I contribute more than the limit?

Excess contributions are not allowed in any condition. Plus, you won’t have any tax benefits on these contributions. Besides, if you don’t withdraw this amount before the 15^th April of the following year, you’ll have to pay a 6% excise tax on it. Remember, participants have to abide by the limits IRS has set for employer-sponsored plans like 401k or 457b or 403b.

Ending Thoughts!

Let’s go back to where we started: can you change 401k contribution anytime? You now know that you can! And if you’ve read the whole blog, you also know the answer to how often can I change my 401k contribution. This means you are all sorted when it comes to adjusting 401k contributions. Moreover, if you use this strategy wisely, you can maximize your retirement savings. So, utilize this opportunity and prepare for a secure financial future! Don’t just seek the answer to – when can I change my 401k contribution? – take action. After all, even a small change in your annual contributions can take you a long way.