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Increase Your 401(k) Savings With These Helpful Tips

Jul 24, 2020 3 min read Karen Kroll

Key Takeaways

  • Contribute at least enough to capture your employer's match.
  • Steady, manageable contribution increases really add up.
  • Earmark a portion of your raises and bonuses to your 401(k).

If you're like most employees, your 401(k) (or 403(b) or 457) will play a critical role in helping you achieve a financially secure retirement. As of March 2020, Americans had invested an estimated $5.6 trillion in their 401(k) accounts, according to the Investment Company Institute.1

That's why it's important to capture as much value as possible from your workplace retirement plan. These steps can help.

Take advantage of the company match

Does your employer match some or all of the amount you stash in your 401(k)? For instance, one common practice is to match 50% of the first 6% of pay you contribute.

So in this case, for every dollar you stash in your 401(k) account (up to 6% of pay), your employer would add 50 cents.

This means contributing at least enough to receive the full employer match works to your advantage.

Increase contributions automatically

It’s wise to save as much as you can for retirement. But even if you start small, regular increases can go a long way toward your goals. Luckily, many 401(k) plans allow you to set up automatic increases to your contributions.

For instance, you can boost the amount you're saving by two percentage points each year (often up to a set limit), until you reach the savings rate you want. This can be a relatively painless way to increase your savings (and capture a portion of any raises).

Similarly, check with your benefits or human resources department to see if you can allocate a portion of any bonuses to your 401(k). If you're living within your paycheck, bonuses are kind of “found money." So, investing some of this money in your 401(k) shouldn't affect your lifestyle — but it could better prepare you for the future.

Watch the fees

Along with saving as much as you can, you want to keep more of what you save. That means keeping an eye on the fees charged by the investments in your account. These can vary, from less than 1% to about 2% or more of the amount you invest.

Admittedly, even 2% might not sound like a lot — but over time, it really adds up. For example, if you invest $100,000 in a fund that earns 7% a year but charges a 2% annual fee, after 25 years you'll have paid $100,187 in fees — and (because you’d have less money for you) reduce your overall earnings by even more. But cut the fee to 1%, and your expenses drop to $58,130 (while your potential earnings rise even higher).

Your retirement plan’s website should list the fees your available investments charge, but but if you can’t find them, check with your human resources or benefits department.

Consider a Roth 401(k)

“Traditional” 401(k) plans offer a great way to save for retirement, especially if your employer matches your savings: You contribute pretax dollars, and your account grows tax deferred until you withdraw your money in retirement. Yet other plan options also have a place in most retirement savings strategies.

For instance, does your plan offer a Roth account? If so, consider directing some of your savings there. Unlike a traditional account, you'll contribute money that’s already been taxed — but your withdrawals will be federal tax free if you hold the account at least five years and meet other criteria. Diversifying your contributions this way can help you manage taxes in retirement.

A 401(k) plan can be a cornerstone of your retirement savings plan. By making smart choices, you can better leverage the money you're working hard to earn and save.

Try not to borrow from your account

As your account balance inches up, it may be tempting to borrow against it. But try to resist the temptation unless you're facing a dire financial hardship and have no other way to cover a major expense. For starters, by removing money from your account, you may no longer be earning money on it. In effect, you're likely sabotaging your efforts to save for retirement.

Taxes are another concern. True, your loan payments (plus interest) will go into your account as long as you’re still with your employer. But you'll have to repay your loan with after-tax money — and you'll owe taxes again when you withdraw the money in retirement.

If you become unable to repay the loan, the amount you borrowed can be considered a distribution that may be subject to taxes and penalties.

Similarly, if you quit or lose your job, the plan may require you to repay the loan within a certain amount of time, such as 60 days. If you can't, the balance also may be considered a distribution — and subject to taxes and possible penalties.



What you can do next

Review your workplace retirement plan and take advantage of every benefit it offers, from pretax contributions (or tax-free withdrawals) to employer matching to automatic contribution increases. Pay attention to investment fees, and try not to borrow from your account if you can avoid it.


Please consult your tax and legal advisors regarding your particular circumstances.


Karen Kroll is a freelance writer and editor with a focus on corporate and consumer finance. Her articles have appeared in AARPBulletin.com, Bankrate.com, Business Finance, CFO, CreditCards.com, Global Finance and many other publications.


1. Investment Company Institute, "Frequently Asked Questions About 401(k) Plan Research," March 31, 2020


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