5 Strategies to Make Your Employer-Sponsored Retirement Plan Work Harder
5 STRATEGIES TO MAKE YOUR EMPLOYER-SPONSORED RETIREMENT PLAN WORK HARDER
You work, you save, you invest.
One of the keys to successful investing is making sure your investment works hard for you. Take a 401(k) for example; participating in this employer- sponsored retirement plan can make it easy to invest. But there is more to a 401(k) than automatically deferring income from your paycheck, choosing a few mutual funds, and letting your account ride for a few decades. Instead, you can employ some strategies specific to your life and goals to help your retirement plan work just as hard as you do.
How can you maximize your plan’s growth and help make sure you have the income you need in retirement? Below are five strategies savers can use to help make the most of an employer-sponsored retirement plan.
Get ‘Free’ Money
If your employer offers a matching contribution to your 401(k) plan, try to defer at least a percentage of your income required to take full advantage of that match.
To see how this “free” money works to your advantage, consider Jane, who earns $75,000 a year. If she defers 6% of her annual earnings, she’ll contribute $4,500 a year. If the company contributes a 3% match, that’s another $2,250 invested. Assuming Jane continues with this investment pace and earns $75,000 per year (although her income will likely grow) for 30 years, an average annual investment return of 6% would yield $181,822 more in retirement savings because she took advantage of the company match.*
Make It Grow Faster
The nice thing about automatic deferrals from your paycheck is that your 401(k) balance may continue to grow regardless of market performance. One way to help it grow faster is to contribute more each paycheck.
In other words, if you’re contributing only the amount that allows you to take full advantage of your employer’s match, you may not be contributing as much as you’re permitted. In 2025, the employee contribution limit for a 401(k), 403(b), 457 or TSP is $23,500. Employees age 50 and up may contribute an additional $7,500, or $31,00 total, and new for 2025, employees who are ages 60 - 63 have a higher catch- up contribution amount of $11,250, or $34,750 total. (Employer matches do not count toward the contribution limit.)[1].
An additional benefit of maxing out your 401(k) plan contributions is the money you contribute from each paycheck is subtracted from your current taxable income. That means you pay less in taxes each year, while your 401(k) account has the opportunity to grow every year until you withdraw the money.[2]
Make It Last Longer
It’s not unusual for retirement to last 30 years or more. For many people, that’s longer than they’ve accumulated enough savings for. One way to augment your retirement income plan may be to purchase an annuity contract. Most annuity contracts offer the option to convert your principal into a stream of income guaranteed (by the issuing company) for the rest of your life.
In recent years, some employers have begun offering an annuity option within their 401(k) plan. This is a little ironic since 401(k)s were meant to supplant the traditional, defined-benefit pension plan; similar to how an annuity option works. With an annuity, however, the guarantees are backed by the insurance company, not the employer. Typically, employer-sponsored annuity option participants receive a customized estimate of the monthly income expected in retirement based on the current annuity account balance as well.
Note that you may purchase an annuity either within a 401(k) plan or separately from a licensed financial professional. This option is a way to make your retirement savings continue paying out income regardless of how long you live.
Temper Volatility
While a substantial allocation to stocks offers greater potential for growth, it also increases the risk of loss. The investment markets are always subject to dramatic swings, so one of the best ways to help temper that volatility is by appropriately diversifying your assets based on your financial goals, investment timeline and tolerance for risk.
Most employer-sponsored plans offer a wide array of stock and bond mutual funds and exchange-traded funds (ETFs), as well as cash instruments. Spreading your contributions across a strategic allocation of these options can help protect your account from periodic market declines. As a general rule, young adults are encouraged to invest a higher allocation to stocks, and that allocation may grow more conservative over time as they get closer to retirement age.
Remember to Rebalance: Once you select your 401(k) investment allocation, it’s important to rebalance that mix every so often to help keep your investments on track. Note that since you are buying and selling within the tax umbrella of an employer-sponsored plan, you won’t incur taxes on capital gains from rebalancing.[3]
Optimize Taxes
The day will come when you need to begin withdrawing your plan assets for retirement income. The money distributed will be taxed at your applicable income tax rate and calculated by all sources of your retirement income, including Social Security.
But not all retirement investments generate income taxes. For example, Roth IRA contributions are made on a post-tax basis. Not only are contributions not taxed again, but investment gains grow tax free. While an employer-sponsored plan offers the opportunity to save taxes on current income throughout your career, the Roth IRA can save money on income taxes. So, it may be a good idea to diversify your income tax liability. However, it’s important to work with a financial professional if you’re considering a Roth conversion.
WHERE TO GO FROM HERE
An employer-sponsored plan can be an excellent accumulation vehicle for retirement income, as well as a tax-savings benefit for employees. If you do nothing but set your deferral rate to your employer’s match and ignore it until you retire, you’re already reaping some of the benefits. However, with a little effort and strategic planning, you can get your plan to work harder for you. It’s important to discuss your retirement plan and portfolio with your financial advisor to help ensure your investments are appropriately allocated and diversified. It’s also helpful in developing a distribution plan for your retirement income that could potentially minimize your tax bill and address your needs for growth, risk management and a long, fulfilling retirement.
To see how Cornerstone can help you with financial planning, call our office today at (775)853-9033 or click here.
*This is a hypothetical example provided for illustrative purposes only; it does not represent a real-life scenario and should not be construed as advice designed to meet the particular needs of an individual’s situation. Past performance is not indicative of future performance.
1. IRS. Nov. 1, 2024. “401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000.” https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000.
2. IRS. Aug. 2, 2024. “401(k) plan overview.” 401(k) plan overview | Internal Revenue Service
3. Shauna Croome. Investopedia. Oct. 29, 2024. “Rebalance Your Portfolio to Stay on Track.” https://www.investopedia.com/investing/rebalance-your-portfolio-stay-on-track/.
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©2024 Prime Capital Investment Advisors, LLC. The views and information contained herein are (1) for informational purposes only, (2) are not to be taken as a recommendation to buy or sell any investment, and (3) should not be construed or acted upon as individualized investment advice. The information contained herein was obtained from sources we believe to be reliable but is not guaranteed as to its accuracy or completeness. Investing involves risk. Investors should be prepared to bear loss, including total loss of principal. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Past performance is no guarantee of comparable future results.