Maximizing your retirement savings through employer-sponsored plans is one of the smartest financial moves you can make. These plans, such as 401(k)s and 403(b)s, offer tax advantages, employer contributions, and long-term growth potential. Here’s how to make the most of them:
1. Contribute Enough to Get the Full Employer Match
Many employers offer matching contributions, which is essentially free money. If your employer matches 100% of contributions up to 5% of your salary, make sure you’re contributing at least that amount to avoid leaving money on the table.
2. Take Advantage of Tax Benefits
Contributions to traditional 401(k)s and 403(b)s are tax-deferred, meaning you lower your taxable income today while allowing your investments to grow tax-free until retirement. Roth versions of these plans offer tax-free withdrawals in retirement, which can be beneficial if you expect your tax rate to be higher later.
3. Increase Contributions Over Time
If you’re not maxing out your contributions, consider increasing your savings rate each year, even by just 1%. Many plans allow you to set up automatic increases to make this process effortless.
4. Max Out Your Contributions if Possible
For 2025, the contribution limit for 401(k) and 403(b) plans is $23,000, with an additional $7,500 catch-up contribution if you’re 50 or older. If you can afford to max out your plan, you’ll significantly boost your retirement savings.
5. Diversify Your Investments
Employer plans offer various investment options, from target-date funds to index funds. Make sure your asset allocation aligns with your risk tolerance and retirement goals.
6. Consider After-Tax Contributions & Mega Backdoor Roth Strategies
If you’ve maxed out your regular contributions, some plans allow after-tax contributions, which can later be converted to a Roth IRA. This strategy, known as a “mega backdoor Roth,” can be a powerful tax-free growth tool.
7. Don’t Ignore Your Plan When Changing Jobs
If you switch jobs, consider all four of your options:
- Leave the money in the former employer’s plan, if permitted
- Roll over the assets to the new employer’s plan, if one is available and rollovers are permitted
- Roll over to an IRA
- Cash out the account value
By maximizing your employer-sponsored retirement plan, you can take full advantage of tax benefits, compound growth, and employer contributions to pursue a confident retirement. Start early, stay consistent, and adjust as needed to make the most of your savings potential.
Contact us at in**@************rs.com to discuss your specific situation.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Asset allocation does not ensure a profit or protect against a loss.
The principal value of a target fund is not guaranteed at any time, including at the target date.
