Maximizing Your 401(k) Benefits

Your 401(k) is more than just another retirement account—it’s a powerful wealth-building tool that can significantly impact your financial future. Understanding how to maximize its benefits can help strengthen your retirement strategy.

“The biggest mistake I see people make with their 401(k)s is not taking full advantage of their employer match. It’s literally leaving free money on the table,” says David Neuwirth,  Senior Vice President, David Lerner Associates. “Even if you’re focused on paying down debt, contribute enough to get that full match can be a smart move.”

In 2025, the annual contribution limit for employees participating in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan has increased to $23,500, up from the previous limit of $23,000. This change allows workers to set aside more pre-tax income for retirement, helping them work toward long-term financial goals

Key Strategies for Maximizing Your 401(k)

• Consider Asset Allocation: When deciding between stocks and bonds, consider your age and risk tolerance. A diversified mix of stocks and bonds can help manage risk and potential returns.
• Regularly Review and Rebalance: Checking and adjusting your portfolio as needed ensures it stays in line with your objectives. Remember, tax-deferred growth means your investments compound more efficiently over time.
• Increase Contributions Over Time: Raising your contribution percentage with each salary increase can gradually boost savings without significantly impacting your take-home pay.
• Leverage Tax-Deferred Growth: Contributions to a traditional 401(k) grow tax-deferred, allowing for compounding over time, while Roth 401(k) contributions provide tax-free withdrawals in retirement if certain conditions are met.

Strategic Tax Planning Through Account Variations

The standard pre-tax 401(k) represents just one potential approach to retirement saving. Alternative structures offer distinct advantages for specific financial circumstances:

Roth 401(k) Utilization merits serious consideration, particularly for professionals with specific tax profiles. Unlike traditional accounts, Roth contributions occur after tax payment, with qualified withdrawals remaining tax-free. This structure proves especially valuable for those anticipating higher retirement tax brackets.

Early-career professionals often benefit most substantially, as their current tax rates may be lower than future rates. Additionally, high-income earners who expect sustained earnings in retirement find particular value in this approach.

• After-Tax Contribution Assessment can expand total retirement savings capacity. These contributions do not reduce current taxable income but allow for additional asset accumulation within the tax-advantaged account structure. For professionals already maximizing pre-tax or Roth contributions, this represents an additional vehicle for retirement saving.
• Coordinated Investment Allocation across retirement accounts optimizes both tax efficiency and risk management. Proper coordination places less tax-efficient investments (such as those generating ordinary income) in traditional accounts, while positioning assets with higher growth potential or tax-favorable treatment in Roth accounts.

This allocation strategy requires comprehensive analysis of all retirement holdings rather than viewing each account in isolation.

Strategic Job Transition Planning

Career mobility presents key decision points regarding existing 401(k) assets that can affect long-term financial planning.

• Former Employer Retention sometimes represents the optimal approach, particularly when the existing plan offers institutional pricing, unique investment options, or specific creditor protections. This option typically requires minimum balance maintenance and understanding of former employer policies regarding separated employees.
• Rolling Over to a New Employer’s Plan: Consolidating accounts can simplify management, but it’s important to compare fees and investment choices before making a decision.
• IRA Transfer provides maximum investment flexibility and potential fee reduction. Unlike employer plans with limited investment menus, IRAs offer access to virtually the entire investment universe.

This approach benefits those seeking specific investments unavailable in employer plans or those prioritizing simplification of account management. However, this strategy requires careful consideration of potential downsides, including loss of ERISA creditor protection, different early withdrawal provisions, and potential fee increases for smaller accounts.

• Partial Distribution Strategies allow for hybridized approaches rather than all-or-nothing decisions. Some participants find optimal outcomes by diversifying across multiple account types—maintaining some assets in former employer plans, rolling portions to new employer plans, and transferring specific holdings to IRAs. This nuanced approach allows for tailored solutions addressing specific tax, investment, and access requirements.
• Professional Coordination between financial advisors, tax professionals, and estate planning attorneys ensures cohesive strategy implementation. These complex approaches interact with multiple aspects of comprehensive financial planning, requiring integrated expertise for optimal outcomes.

While 401(k) plans offer valuable retirement saving frameworks, many successful investors incorporate these advanced strategies into their broader financial planning.

Optimal approaches vary based on individual circumstances, tax situations, and specific plan provisions. Consultation with a qualified investment counselor provides essential guidance for evaluating these sophisticated techniques within your personal context.

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 Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.