Remember to Take Full Advantage of your 401(k) Plan!
Employer-sponsored retirement plans such as 401(k)s are some of the most powerful retirement savings tools available. If your employer offers such a plan, we would strongly recommend you consider participating.
Understand your employer-sponsored plan
Before you can take advantage of your employer's plan, it is important to understand how 401(k) plans work. After deciding on the amount you would like to defer to the plan, your employer automatically deducts contributions from your paycheck and routes them to your plan. You may never even miss the money — out of sight, out of mind!
Contributions to the traditional portion of 401(k) plans are made on a pre-tax basis and investment earnings are not taxed. Ultimately, when funds are withdrawn, distributions are taxed at your ordinary income tax rate at the time of the distribution.
In addition to tax-deductible contributions, many 401(k) plans allow participants to make after-tax Roth contributions. With Roth deferrals there's no up-front tax deduction on contributions, but investment earnings and qualified distributions are entirely tax free.
Contribute as much as possible
The more you can save for retirement, the better your chances of retiring comfortably. Also, for many, the 401(k) contribution is the largest tax deduction available. In 2025, the maximum participants can contribute (not including the employer match) is as follows:
$23,500 for those under age 50
$31,000 if you are over age 50 on 12/31/2025.
$34,750 if you are age 60,61,62, or 63 on 12/31/2025.
Capture the full employer match
If you are unable to max out your 401(k) plan, you should at least try to contribute enough to receive the full employer match, which varies on a plan-by-plan basis. Be sure to take advantage of this “free money,” it can make an enormous impact over a long period of time!
Evaluate your investment choices carefully
Most employer-sponsored plans give you a limited selection of mutual funds to choose from. Make sure you evaluate your choices carefully and decide on an investment mix that is appropriate given your risk profile and return needs. Choosing the right investment mix could be one of the keys to a comfortable retirement. You should also make sure you select the “auto rebalance” feature if your 401k has one. Doing so keeps your allocation in check as the financial markets ebb and flow.
Know your options when you leave your employer
When you leave your job, the vested balance in your former employer's retirement plan is yours to keep. You have several options at that point, including:
Taking a lump-sum distribution. This is not usually the recommended option because not only will this option be taxable all at once, but there may also be a 10% penalty in certain situations.
Rolling funds over to an IRA or a new employer's plan (if the plan accepts rollovers). There are no income taxes or penalties if the rollover is executed properly.
Leaving funds in the old plan. Going this route allows participants to retain access to the investment choices in the plan and maintain tax-deferred growth.
We encourage everyone who has access to a 401(k) plan to take full advantage. It can make a huge difference when it comes to accumulating wealth!