3 Ways to Get the Most Out of Your 401(k)

Originally published September 2016. Last updated March 2026.

Your 401(k) is probably your biggest retirement savings tool. For most people, it’s where the bulk of their wealth accumulates over a 30-40 year career. Here’s how to squeeze the most out of it.

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1. Capture Every Dollar of Your Employer Match

Many employers match a portion of your 401(k) contributions. A typical formula: 50% of your contributions up to 6% of your salary. Some match dollar for dollar up to 3-4%.

This is free money. If you’re not contributing enough to get the full match, increase your contribution today. Not next quarter. Today.

Example: On a $75,000 salary with a 50% match up to 6%, your employer contributes $2,250 per year. Over 30 years at 8% average returns, that employer match alone grows to about $255,000. You’d need to win a small lottery to replicate that.

After maxing the match: Consider fully funding an IRA ($7,000/$8,000 per year in 2025), which often has more investment options and lower fees. Then come back and increase your 401(k) contributions beyond the match threshold.

2. Get Your Allocation Right (and Keep It Right)

Your 401(k) balance depends on two things: how much you save and how you invest it.

Risk tolerance matches time horizon

If you’re 30, you have 30+ years until retirement. You can weather stock market volatility. If you’re 55 with 10 years to go, you need more stability. A common starting point:

• In your 20s-30s: 80-90% stocks, 10-20% bonds
• In your 40s: 70-80% stocks, 20-30% bonds
• In your 50s: 60-70% stocks, 30-40% bonds
• Approaching retirement: 50-60% stocks, 40-50% bonds

Target-date funds handle this automatically, shifting to more conservative allocations as you age. They’re a reasonable default if you don’t want to manage it yourself.

Watch your fees

The difference between a fund charging 0.05% and one charging 1.0% doesn’t sound like much. Over 30 years on a $500,000 portfolio, it’s roughly $200,000 in lost returns. Check your plan’s expense ratios. Choose index funds when they’re available.

Rebalance annually

If stocks have a great year, your allocation drifts. An 80/20 portfolio might become 88/12 after a strong market. Rebalancing once a year keeps your risk level where you want it.

3. Make Smart Rollover Decisions

When you leave an employer, don’t just leave your 401(k) behind by default. Your options:

• Roll into a new employer’s 401(k): Makes sense if the new plan has good investment options and low fees. Keeps everything in one place.
• Roll into a traditional IRA: Usually gives you the widest investment selection and the most control over fees. This is the most common choice.
• Roll into a Roth IRA (conversion): You’ll pay income tax on the converted amount, but future growth is tax-free. Can be smart if you’re in a low-tax year.
• Leave it in the old plan: Fine if the plan is good, but you’ll have an extra account to track.
• Cash it out: Don’t. Taxes, penalties, and lost growth make this the worst option in almost every scenario.

Important note: If you’re between 55 and 59 and a half and left your job, your current employer’s 401(k) allows penalty-free withdrawals. An IRA does not (until 59 and a half). Factor this in before rolling over.

2025 Contribution Limits

• Under age 50: $23,500
• Age 50-59 and 64+: $31,000 ($7,500 catch-up)
• Ages 60-63: $34,750 ($11,250 super catch-up, new for 2025)

These limits include your employee deferrals only. Employer matching contributions are on top of these numbers. The total combined limit (employee + employer) is $70,000 for 2025.

FAQ

Should I contribute to a traditional or Roth 401(k)?

It depends on your current tax bracket vs. your expected retirement bracket. Traditional reduces your taxes now; Roth gives you tax-free income later. If your employer offers both, splitting can give you the most flexibility.

What if my 401(k) has bad investment options?

Contribute enough to get the full employer match (even in a bad plan, free money is free money). Then redirect additional savings to an IRA with better options. Come back to the 401(k) only after you’ve maxed the IRA.

Can I have a 401(k) and an IRA?

Yes. The contribution limits are separate. You can put $23,500 in your 401(k) and $7,000 in an IRA in the same year. Your IRA tax deduction may be limited if you have a workplace plan, but you can always contribute.

Schedule a free 20-minute consultation to review your 401(k) strategy.

R.L. Brown Wealth Management
106 W Vine St, Suite 300, Lexington, KY 40507
859.317.5889