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Are You Making the Most Out of Your 401k?

Are You Making the Most Out of Your 401k?

September 01, 2023

Whether you’re just starting out in a new job, or you’ve been established for a while, you might want to take a look at your 401k options.

One of the first things I ask of my clients is that they send me their 401k Summary Plan Descriptions. Why?

Because 401k plans can vary from employer to employer.

I know. As if retirement planning wasn’t hard enough.

The good news is that by knowing what to look for and/or working with a professional, you can make the most of the options available to you.

Here’s what I mean.

First, Let’s Look at the Similarities.

While the plans themselves can vary, all 401ks share the common provisions allowing for contributions through your paycheck of $22,500 if you are under the age of 50 and $30,000 if over. 

That’s about where the similarity ends. 

Some 401ks offer the ability to make Roth contributions, but not all.  These are contributions that go in after tax, grow tax deferred and come out tax free provided that you are over age 59.5 and have the funds invested for at least five years.

And then, the Fun Begins. 

The actual TOTAL contribution limit to a 401k is $66,000 for those under 50 and $73,500 for those over 50.  Unlike the contributions that you make through your paycheck, these limits also include your employer contributions. 

For example, if your employer is giving you a match and/or a profit-sharing contribution, then those dollars would be counted towards the $66,000 limit.  (Please note, not all employers give matching or profit-sharing contributions.)

But wait, there’s more.  Here are some other provisions we find in Summary Plan Descriptions:


Non-Roth, post-tax contributions

This allows you to put aside more dollars toward your retirement in a tax-deferred status. This means that you don’t pay taxes on capital gains, dividends, and interest until you take withdrawals from your account. Taxes can really add up over the years, so this provision alone can be a huge boost to your retirement savings. You will have to pay taxes at your ordinary income rate when you eventually withdrawal these funds. (As with all tax strategies, be sure to consult your tax advisor.)


The ability to convert your post-tax, non-Roth contributions to Roth status WHILE YOU ARE STILL WORKING. 

This is huge. Basically by doing this, you take the post-tax, non-Roth investments’ capital gains, dividends, and interest and make them tax-free for the future.  You pay taxes today on any gains when you make the conversion. If you deposit the funds one day and do the conversion the next day, chances are you won’t have any gains to pay the taxes on. 

Let’s take a look at a quick example. Assume that your company has these provisions written into your plan and you are under the age of 50.

  • Maximum contribution: $66,000
  • Less employee contribution: $22,500
  • Less employer match/contribution: $10,000
  • Equals potential post-tax contribution: $33,500
  • Potential Roth conversion: $33,500

Again, not all plans have this strategy written into their Summary Plan Description, but if you work for an employer who has been good enough to write this in, it could potentially be huge for your retirement savings and your tax bill (or lack thereof) in the future.

Don’t Freak Out

The purpose of this blog isn’t to make you worry about your retirement planning. It’s to make sure you know you might have more options than you realize. This is when it’s important to speak with a professional who knows what to look for and who can help you decide what’s best for you.

Ready to take a look at your 401k Summary Plan? CLICK HERE to make an appointment.