Maximizing Your 401(k): 20 Tips and Tricks for Better Returns

Though retirement planning is filled with options, a 401(k) plan is one of the most powerful tools available for building a secure financial future. It’s a tax-advantaged retirement account offered by many employers, allowing you to save and invest a portion of your paycheck before taxes are taken out. However, to truly maximize the benefits of your 401(k), it’s important to be strategic.

The earlier you start contributing to your 401(k), the better. Time is your greatest ally when it comes to investing because of the power of compound interest. Even small contributions made early in your career can grow significantly over time, so when given the option, make sure you maximize them now.

In 2024, the IRS allows you to contribute up to $23,000 to your 401(k) if you’re under 50, and an additional $7,500 in catch-up contributions if you’re 50 or older. While it may not be possible to contribute the maximum right away, increasing your contributions each year can make a significant difference. 

The bottom line is that your 401(k) is one of the most powerful tools you have to build a secure retirement. Financial resolutions are common, including saving more for retirement. For many people, a 401(k) is their main retirement savings vehicle, so it’s important to make sure to get the most out of it.

Here are 20 tips and tricks to help you maximize your 401(k) to get the most out of retirement.

Debt can be a major obstacle to meeting your financial goals and hitting 401(k) contribution limits.

However, “getting out of debt frees up your largest wealth-building tool: your income,” said Chris Hogan, author of “Retire Inspired.” “When you’re out of debt and ready to invest, you’ll have a lot more money to put toward your retirement, and you won’t be looking over your shoulder at your creditors because you won’t have any.”

If you don’t have the safety net of an emergency fund, you’re putting your financial future at risk.

“If you have no emergency fund, but you do have a 401(k), guess what happens when a big emergency pops up?” Hogan said. “Your 401(k) becomes your emergency fund — and you’ll lose up to 40% of your money to taxes and penalties in the process. That’s a bad plan.”

While it’s ideal to start saving early, it’s still important to save no matter when you start. Robertson said people 50 or older can use tax-advantaged options to help them invest more in their retirement accounts.

In 2024, investors who are 50 or older can contribute up to $30,500 to a 401(k) — that’s $7,500 more than investors under 50 can contribute.

Perhaps one of the most important investment choices to make is finding a professional investment advisor.

“A good financial advisor will help you choose the right options for your situation,” Hogan said.

“That phrase ‘help you choose’ is extremely important,” he added. “You never want to pay someone to make your decisions for you — that’s your responsibility. An investment advisor’s primary job is to teach you how things work and empower you to make your own decisions.”

Many companies offer some form of a matching contribution, which is one of the biggest advantages of a 401(k), said Catherine Golladay, managing director at Schwab. So it’s important to make sure you save enough to get the full 401(k) match.

“For example, it might be a match of 50 cents for every dollar you contribute, up to 6% of your salary,” she said. “If your employer does offer a match, I strongly encourage you to contribute enough to take advantage of it in full, because the match is like an automatic return on your investment that you can’t get anywhere else. In fact, I always say this should be your No. 1 financial priority, even before paying down debt.”

Saving enough to get the employer match is the right first step, but maxing out your 401(k) can really boost your efforts to meet your retirement goals, Golladay said.

For people over 50, personal finance author Valerie Rind suggested another way to make sure you hit the maximum 401(k) contribution.

“An easy way to do this is to contribute exactly $2,000 per month, instead of trying to calculate a percentage of your gross income,” she said.

Knowing your company’s matching and 401(k) vesting schedules can help you plan to better maximize your 401(k).

“For example, at my company they match a 5% contribution 100% for three years; after three years their contribution vests,” said finance blogger Elizabeth Stapleton. “After three years, they will also increase their match of a 6% contribution with a 7% contribution (100% the first 5% and 200% the next 1%).”

“Many 401(k) plans offer some sort of help, such as investment advice or account management from a third-party financial professional,” Golladay said. “If this resource is available, commit to taking advantage of it.”

Schwab Retirement Plan participants who used third-party, professional 401(k) advice were more likely to “increase their savings rate, were better diversified and stayed the course in their investing decisions,” she added.

It’s important to hold a diverse range of investments that align with your goals and risk tolerance.

When the stock market goes up and down, you’ll want to make sure you rebalance to keep your portfolio in check. Some plans offer auto-rebalancing at certain intervals, which might be worth considering, Golladay said.

Make sure you’re not paying too much in fees, as that reduces what you can save over time. Check to see if your plan offers lower-cost options.

“Increasingly, lower-cost investment products — like index mutual funds and exchange-traded funds — are making their way onto 401(k) menus,” Golladay said. “By selecting these for your portfolio, you can put fewer dollars toward management fees and more into your account.”

If you have any old 401(k)s from previous jobs, find out what you need to do to address them.

“If you recently started a new job, you may very well have a 401(k) from your old employer,” Golladay said. “This would be a good time to explore your options, which include rolling it into an IRA, moving it to your new plan or leaving it alone. If you choose the last option, be sure your investment options reflect your current preferences.”

When you’ve had a major life change — like the birth of a child, a marriage or a divorce — it’s time to review and update your 401(k) beneficiary designations so they’re in line with your current situation.

“If you’re married, your spouse automatically gets the money, unless he or she waives that legal right,” Golladay added.

This might sound like a simple step, but using the various retirement tools available to you can have a profound impact on the decisions you make.

“One example of this is using a retirement calculator to track how savings habits will impact retirement readiness,” said Geno Cufone, senior vice president of retirement plan administration for Ascensus.

Nearly 18% of calculator users increased their contributions after use, and 37% of employees who weren’t saving started contributing after using a retirement calculator, according to Ascensus data.

When the markets take a dive, your first impulse might be to change your contributions. That can work against you, however.

“Participants should not be tempted to decrease their contribution percent when the market goes down,” said wealth advisor Robert Runnfeldt at David A. Noyes & Company. “By adding to their 401(k) every paycheck, participants end up with a below-average dollar cost average price. This takes place because, when the market is low, you buy more shares for investing the same amount of money.”

Consider diversifying your investments. This can also be a helpful strategy if you can’t afford to contribute the annual maximum to your 401(k), said personal finance writer Julie Rains.

“Set up your 401(k) to max out your contributions. Sell your concentrated position, either a large portion annually or a couple of thousand dollars monthly,” Rains said.

“This sale generates the cash that allows you to have the funds needed to max out your 401(k) account,” she added. “Note that this path may not liquidate your concentrated holding as swiftly as you should, but offers a steady way to diversify.”

If you’re invested in company stock, be sure you’re still well diversified.

“Check to make sure you aren’t overloaded on company stock, no matter how well it has performed,” Golladay said. “Typically, company stock should make up no more than 20% of your overall 401(k) portfolio.”

If your employer’s 401(k) plan has a Roth option, it’s worth looking into.

“Since a majority of 401(k) assets are pretax, many (people) do not realize that the distributions from this lifelong savings vehicle are fully taxable in retirement,” said financial advisor Denise Halford Holder with David A. Noyes & Company.

“For example, if you have $200,000, and are in a 25% tax bracket, you actually only have $150,000,” she said. “However, if this money were in a Roth 401(k), you would have the entire $200,000, since the contribution was taxed initially. This option tends to be very beneficial to younger workers. One should consult a financial advisor to investigate this option.”

Many plans offer an auto-increase feature to help participants reach their 401(k) contribution limits, said financial advisor Daniel Zajac. Enrolling should be relatively easy.

“Simply log into your account and check that box (that) enrolls you in the program,” he said. “Once enrolled, your annual deferral should increase each year without you doing anything. For example, if you are currently contributing 5%, the following year your deferral will increase to 6%. Do this for a few years and your savings percentage could double in no time.”

Target date funds are big business for the mutual fund companies offering them. They also represent a “safe harbor” from liability for your employer if they’re used as the plan’s Qualified Default Investment Alternative. This doesn’t mean they’re a bad option, but you should do your research to make sure they’re the best option for you.

For younger investors or those who don’t have investments outside of the plan, a target date fund offers an instant diversified portfolio.

Before you decide, make sure you understand how the fund invests your money, the glide path into retirement, the fund’s expenses and the level of risk. Also, don’t always assume that the fund with the target date closest to your anticipated retirement date is the right one for your situation.

One way to save more money is to take action when you’re making more money.

“Don’t forget to increase your savings when your salary grows,” said Andrew Meadows, senior vice president of brand and culture at Ubiquity Retirement + Savings. “That big bonus you’ve been waiting on — bonuses are subject to 401(k) contributions.”

Put in more money whenever you can, he said. When you change jobs, your new job might have even better benefits, so it’s a great time to reach the maximum 401(k) contribution if your new job pays you more money.

If you’re having trouble getting motivated to save more or to even start saving, remind yourself of the longer-range benefits and your retirement goals.

“Consider this: Saving $10,000 a year for 30 years at a 7% growth rate would yield about $1,060,000 at retirement,” said investment advisor Betsy Vallone. “Remember, your money not only grows tax deferred, but there is a big tax savings in the year you contribute.”

Caitlyn Moorhead contributed to the reporting for this article.