You Work Hard, Make Your 401(k) Plan Work Harder

Life expectancy continues to expand, thanks to new advances in medical care and a focus on better health habits. A longer life often means more years in retirement, which could last 30 years or more.

How much money is enough for a comfortable retirement? The IRS suggests you’ll need up to 80% of your annual income today to help maintain your quality of life once you say goodbye to a regular paycheck.¹ And when you consider the average benefit amount paid monthly by the Social Security Administration is $1,177, many of us may need to boost our nest egg.²

How to Help Maximize Your 401(k) Plan

One of the simplest and most effective ways to save for retirement is to contribute to your company’s 401(k) plan. A 401(k) plan allows you to defer a portion of your paycheck to your 401(k) plan retirement account each pay period automatically, while potentially reducing your tax bill for that tax year. But are you getting the most out of your 401(k) plan savings?

Here are three 401(k) plan retirement strategies to consider:

1. Get the Match

Does your employer offer a matching contribution to your 401(k) plan? If so, find out how much you need to save to qualify for that match. A common match formula is 50 cents for every dollar saved, up to 6% of your pay. Employees participating in a plan with this type of formula need to contribute at least 6% of their salary to their 401(k) plan to get the maximum possible employer matching contribution to their 401(k) plan.

Saving 6% of your pay in a 401(k) plan and earning a 3% employer matching contribution means you are tucking away an amount equal to 9% of your salary each pay period for retirement. For a worker earning $75,000 per year this means that employee would have a total annual 401(k) plan contribution amount of $4,500 that year, plus another $2,250 in employer matching contributions. The employer match is a powerful incentive to participate in and contribute to a 401(k) plan—essentially earning "free" money from your company—that will help you get closer to your retirement savings goal.

If your employer does not currently offer a matching contribution, it still makes sense to contribute to your plan on a regular basis for three important reasons:

• There are tax advantages. In a traditional 401(k) plan, your contributions to a 401(k) plan are excluded from your gross income for that year, resulting in a lower taxable income for that year (although you have to pay taxes on the distributions).

 

• Your money potentially grows tax-deferred. If you had earnings in a savings account or brokerage account, you would have to pay taxes on the earned interest, dividends or other income at the end of the year. With a 401(k) plan, your earnings are rolled back into the plan and are not included as income on your tax return until the year in which you withdraw assets from your 401(k) plan retirement account. As a result, your account balance has the potential to grow faster.

 

• Interest on your savings compounds. This is what makes a 401(k) plan so powerful. Any interest, dividends or other income you receive within your 401(k) plan account is reinvested, so you earn income on your original principal plus additional income on the interest, dividends or other income you earn within your 401(k) plan account. Over the short term, the gains may appear small. But over time, you can experience larger results.

 

2. Increase Your Deferral Rate

Taking advantage of a company match helps you capture valuable contributions from your employer, but it may not be enough. Many 401(k) plan providers recommend saving at least 10% annually over the course of your career.³ Typically, employee contributions fall between 8% to 10%.⁴

If you aren’t able to save 10% to 15% of your pay at the beginning of your career, aim to gradually increase your deferral rate over time. One smart tactic is to boost your 401(k) plan deferral rate every time you get a raise or bonus. This enables you to save more without reducing your take-home pay.

Another way to consider for enhancing your savings rate is to increase your deferral rate by 1% every year. Some companies offer an automatic escalation feature that will periodically increase your savings rate with a simple click of a box, while other companies require you to manually make this change.

A good time to review your contribution amount is at the beginning of the year when you’re looking carefully at other benefits elections, such as medical and dental insurance, since the amount you put towards these benefits will have an impact on your paycheck. Another good time to revisit your contribution amount is when you receive additional compensation, whether through a raise, promotion or bonus.

3. Consider Maxing Out Your Retirement Plan Contribution

For 2026, the maximum amount you can contribute to your 401(k) plan annually is $24,500. If you’re 50 or older, you’re eligible to make "catch-up" contributions up to an additional $8,000—for a maximum possible 401(k) plan contribution of $32,500 in 2026.⁵ And if you are between the ages of 60 and 63 and participate in a 401(k), you can now take advantage of a higher catch-up contribution limit of $11,250, instead of the $8,000 noted above.

When you max out your traditional 401(k) plan contribution limit, you not only save more for retirement, but you also potentially pay less in taxes that year since your taxable income would be lower as traditional contributions to your 401(k) plan are taxed when they are withdrawn, not when they are made.

To max out your 401(k) plan contributions in 2026, you’ll first need to calculate the percentage of your annual pay that adds up to $24,500 (if you are age 49 or younger), $32,500 (if you are 50 or older) or $35,750 (if you are between the ages of 60 to 63). For example, a 42-year-old worker earning $140,000 annually would need to contribute approximately 17.5% of her salary to her 401(k) plan to reach the contribution limit in 2026. Make sure to adjust your deferral rate after you receive a raise or bonus to avoid exceeding the 401(k) plan contribution limit.

As of January 1, 2026, the SECURE 2.0 Act mandates that individuals aged 50 and over who earned more than $150,000 in FICA wages in the previous year (as reported by your employer) can only make catch-up contributions on a Roth, after-tax basis, and only if the plan permits. This means contributions will be made with after-tax dollars, potentially allowing for tax-free growth and withdrawals in retirement.

This change is designed to enhance flexibility and tax planning for higher earners. As this rule takes effect, it's important to review your retirement strategy and consult with a financial or tax advisor to understand its impact on your planning. Additionally, check with your employer about any potential Roth options available in your company-sponsored 401(k) plan.

Save Smart for Retirement

Whether you’re nearing retirement or just starting your career, it’s always a good time to save for the years ahead. Putting these simple 401(k) plan strategies in place will help you accumulate more money for your retirement years , and your pre-tax 401(k) contributions can even help reduce the taxes you pay for the current year. As you consider these ideas, you may want to work with a professional, like a Financial Advisor, to help ensure the strategies you put into place align with other investment decisions, so that all your assets are working together to help you achieve your short- and long-term goals.

Footnotes:

¹ IRS.gov https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-benefits-of-saving-now. Accessed December 18, 2025

² IRS.gov https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-benefits-of-saving-now. Accessed December 18, 2025

³  Forbes.com  https://www.forbes.com/advisor/retirement/401k-calculator. Accessed December 18, 2025

⁴  Yahoo Finance  https://finance.yahoo.com/news/typical-401-k-contribution-rate-112900238.html. December 2, 2025

⁵  IRS.gov . https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500  Accessed December 18, 2025