5 Tricks for Making the Most of Your 401k

Don’t ask me how, but I was savvy enough at 21 to enroll in my employer’s 401k plan. I didn’t know what I was invested in, I just knew the match was 5%, so I contributed 5%. 11 years later and I had over six-figures in that 401k plan! About halfway through that 11-year time frame, I had read about 401k investments and made changes to mine – that’s when the real magic happened!

When it comes to saving for retirement, getting started is the best thing you can do. From there, you can learn some tricks for making the most of your 401k plan, so you can get the most bang for your buck! I’m sharing some of those tricks with you! Get ready to see some major progress with your retirement savings.

#1 Change your investments

Most people who are enrolled in their employers’ 401k plan are automatically invested in a Target Date Fund. A Target Date Fund is a pool of investments designed to help you “retire” by the target date of that fund. For example, Target Date 2055 is a fund that invests your money in a way that helps you retire by 2055.

While this type of fund is better than no investment at all, it’s not the most effective way to get the most bang for your retirement-contribution buck. I learned this from personal experience. Whether you work with an advisor at your retirement plan provider’s company, or you make the changes yourself…do yourself a favor and update your investment options. Check out the article How I Picked My 401k Selections for the changes I made to my portfolio way back when.

#2 Rollover old 401ks into your current one

The more money you have invested at a single time, the bigger your compounding growth. That means a single 401k plan with $50,000 in it will grow bigger than 3 401k plans with $20,000 each in them. So, what does that mean for you? Well, if you have multiple 401k plans that you’re no longer contributing to, your best bet is to roll them into your current 401k plan.

Rolling over old 401ks sounds intense, but it’s not. In fact, Capitalize is a company that does all the heavy lifting for you! Not that you need them, but if the idea of doing the work is resulting in inaction, let Capitalize help you for free! If extra growth isn’t a big enough reason to rollover old 401k plans, check out 4 Reasons to Rollover Your Old Retirement Plans.

#3 Increase your 401k contribution before contributing to an IRA

Did you know the annual contribution limit for 2023 into a 401k is $22,500? Did you know the annual contribution limit for 2023 for an IRA is $6,500? Now, let’s refer back to the previous trick: the more money you have invested at a single time, the bigger your compounding growth.

Knowing that, would your $22,500 401k balance grow more than your $6,500 IRA balance? Absolutely.

If you’re contributing to both an IRA and a 401k, I want you to think about why. Are you doing it because you were told you should? Regardless of your rationale, to get the most bang for your retirement contribution buck, you’ll want to contribute the max to your 401k BEFORE you contribute to an IRA.

#4 Every time you get a raise, up your contribution percentage

A good rule of thumb to follow for your retirement contribution is to increase your contribution percentage every time you get a raise. At minimum, a 1% increase will suffice. However, if you can contribute a higher percentage, I encourage you to do so. The more you contribute now, the more you will have when it’s time to retire.

Also, you were living life perfectly fine without that increased contribution, so I promise that you won’t miss it. Don’t even give yourself the opportunity to have that money hit your checking account – it’ll be much harder to let it go then!

#5 Schedule a meeting with an advisor at your plan’s provider

I mentioned this earlier, but whether you’re looking to change your investments or not, it’s always a good idea to schedule a meeting with an advisor who works for your company’s retirement plan provider. Building that relationship can come in handy in the future. It’s nice to know you can go to someone for questions or updates.

Often, the meetings are free of charge and can be leveraged to give you an overview of your plan and make any changes that align with your long-term goals. If you haven’t taken advantage of this opportunity, hop to it!

Related: 8 Things to Know About Your 401k

Each of the tricks above can help you make the most of your 401k plan and set your future-self up for success in retirement. As you can see, you don’t have to take drastic measures to have drastic results. Start with the tricks above and tweak whenever you see fit! Are you contributing to a retirement plan? How do you make sure you’re making the most of it? Share your questions and comments in the Comments section below!

-Raya
The CGS Team
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