Should You Auto-Increase Your 401(k) Contribution Rate?

Over the past 30 years, there has been a significant revolution in the administration of 401(k) plans. Often called auto-escalation or auto-escalation, this is how it works: If you are automatically enrolled in the plan and do not opt ​​out of the auto-escalation feature, then your deferral rate will increase over time, up to the maximum plan. frequency, the rate of increase and the maximum plan may vary, but the general approach is an annual increase of 1 percentage point in your initial re-enrollment, up to a maximum of 10%.

According to a 2021 study by The American Council Sponsorship Plan (opens in new tab), more than half of all defined contribution plans have adopted the auto-escalation approach. It has also become more common for plans with a standard automatic increase provision to increase your level above that required to receive the maximum employer matching contribution. For example, a plan that matches 100% of contributions up to 6% of deferred salary may automatically enroll you at 3% and then increase your rate by 1 percentage point per year until you reach the 10% automatic increase cap.

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