Maximizing Your 401(k)
Retirement may feel like a long way off, especially if you are younger or early in your career. But the sooner you begin saving, the more time your money has to potentially grow.
A 401(k) plan can help you build retirement savings through automatic payroll contributions, tax advantages and, in some cases, employer matching contributions.
The Importance of a 401(k)
A 401(k) is a retirement savings plan offered through an employer. You can contribute part of your pay to the plan and choose from the investment options available within it.
Many employers also make matching contributions. The amount and formula vary by plan, so review your plan documents to understand how the match works and how much you may need to contribute to receive the full amount.
Your plan may offer traditional, Roth or both types of contributions.
Traditional 401(k) contributions are generally made on a pre-tax basis. Taxes on those contributions and their investment earnings are generally deferred until you take distributions.
Roth 401(k) contributions are made with after-tax dollars. Qualified distributions, including earnings, are generally tax-free.
2026 401(k) Contribution Limits
For 2026, employees can contribute up to $24,500 to most 401(k) plans.
Participants age 50 and older may be eligible to make an additional catch-up contribution of up to $8,000. Participants who turn 60, 61, 62 or 63 during the year may be eligible for a higher catch-up contribution of up to $11,250. Your plan must allow catch-up contributions for you to use them.1
Beginning in 2026, participants whose prior-year wages from the plan sponsor exceeded $150,000 must generally make their catch-up contributions on a Roth basis when the plan includes a Roth feature.3
The annual employee limit applies to your combined traditional and Roth 401(k) contributions.2
Ways to Get More From Your 401(k)
- Start contributing as early as you can
Starting early gives your investments more time to potentially grow through compounding. Even if you can’t contribute the maximum amount, consistent contributions can make a meaningful difference over time.
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Understand your employer match
Review your plan’s matching formula and consider contributing enough to receive the full available match, when your budget allows. Also check the plan’s vesting schedule, which determines when employer contributions fully belong to you.
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Increase your contribution over time
You don’t have to reach your savings goal all at once. Consider increasing your contribution percentage when you receive a raise or bonus. Some plans also allow you to schedule automatic annual increases.
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Choose investments that fit your situation
Review the investment options available in your plan and consider your goals, time horizon and tolerance for risk. Your investment allocation may need to change as your financial situation or expected retirement date changes.
A target-date fund may provide a diversified investment mix that gradually becomes more conservative as its target date approaches. However, target-date funds can differ in their investment strategies, risk levels and fees, so review the fund before investing.
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Consider traditional and Roth contributions
Choosing between traditional and Roth contributions often depends on your current tax situation and the tax rate you expect to face later.
Traditional contributions may provide a current tax benefit, while Roth contributions may provide tax benefits when qualified distributions are taken. Some participants choose to divide their contributions between both options.
Because individual tax situations differ, consider speaking with a qualified tax or financial professional before making a decision.
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Review your account regularly
Check your contribution rate, investment allocation, beneficiary information and plan fees at least periodically. Major life events, such as a job change, marriage or a change in your retirement plans, may also be a reason to review your account.
Pitfalls to Avoid
Taking money from your 401(k) before retirement can affect your long-term savings. An early distribution may be subject to income taxes and an additional 10% tax unless an exception applies.
Some plans allow participants to borrow from their accounts. A plan loan generally must be repaid according to the plan’s terms. If it isn’t repaid, the unpaid amount may be treated as a taxable distribution and may also be subject to an additional tax. Money removed through a loan also has less time to remain invested in the account.
Avoid making investment changes based only on short-term market movements. Your investment decisions should remain connected to your goals, time horizon and comfort with risk.
Conclusion
A 401(k) can play an important role in your retirement plan. Starting early, understanding your employer’s match, increasing your savings over time and choosing an appropriate investment allocation can help you make better use of your plan.
Review your account regularly and adjust your approach as your financial situation and retirement goals change.
Note: Contribution limits are subject to change based on IRS regulations. This material is for informational purposes only and does not constitute tax advice. Investment advice is offered through OneDigital Investment Advisors LLC.
1: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500
2: Retirement plans FAQs on designated Roth accounts
3: Retirement topics - Catch-up contributions
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