How To Maximize A 401k: 10 Tips From a Financial Advisor In Annapolis

As you may be reassessing your financial goals and retirement savings to account for inflation, a common place to begin is within your 401(k) plan if your employer offers it. As traditional pensions are not as common, protecting and growing your 401(k) is pertinent for a secure retirement.

We are asked at Scarborough Capital Management, “what percentage should I contribute to my 401k?” This blog will answer that question and provide some insight to help you start saving more thoughtfully with an awareness of 401(k) fees, taxes, and rules.

For those of you who have careers offering a 401(k) plan, we hope you elected to use it. Knowing how to maximize your 401(k) opportunities is where you can win. It is possible to grow a seven-figure 401(k) faster with a few simple steps, as noted in this article.

1. Use the 401(k) Employer Match

At Scarborough, we specialize in 401(k) management, and we tell clients every day: If you’re eligible for an employer match program, take advantage of it. When your employer matches your contribution, it’s free money. Why would you not opt in for that considerable benefit?

Different companies offer different match programs (usually 3% to 6%), so read the fine print, and if it’s possible, contribute the amount that your employer will match.

2. Meet the 401(k) Maximum Contribution

Discuss making the maximum contribution to your 401(k) with a Scarborough Capital Management advisor. We can help you find ways to save on everyday expenses to help you increase your contribution amount.

For 2026 you can contribute up to $24,500 to your 401(k) plan. Spend some time reviewing your budget to see if there is anything you can cut out. Remember, saving money now means having more money available for your future.

3. Start Contributing Early

Because of the power of compound interest, the sooner you can increase your contributions, the better. The secret to creating wealth is quite simple: spend less than you earn, then save and invest consistently to take advantage of the power of compounding—when your money makes money.

Prioritize making the maximum contribution to your retirement account early on. Then leave it there and continue to put additional money into other investments to get compounding to work for you.

4. Use Any Catch-Up Contributions That You Are Entitled To

If you are age 50 or older, the tax law provides you with another benefit called catch-up contributions. These allow you to put additional dollars into your health savings and retirement accounts. They are designed to help late starters save more, but when you want to build your wealth, they can help you get there faster.

Since these are also tax-favored, you can either get the upfront tax deduction (with a traditional retirement account) or contribute more that will be taxable upfront but tax-free later (with Roth accounts).

5. Consider a Health Savings Account

Any time you invest with tax benefits, you make your money work harder for you. A Health Savings Account (HSA) is another tax-advantaged way to save money. However, it also provides you with a rare triple tax benefit.

• You can take an immediate deduction for your money in your HSA each year.
• If you invest the money in your Health Savings Account, those funds will also accumulate on a tax-deferred basis. No matter how well your HSA investments perform, you will not be taxed on those earnings while they remain in the account.
• Tax benefit involves how you withdraw money from your HSA account. As long as you use the money for approved health care expenditures, you will not owe any taxes on those funds, giving you a rare triple tax savings benefit. These health care expenditures don’t necessarily have to be for you; they can be for your spouse or any dependents.

With HSAs, your money stays in your account, even if you don’t spend it all. You never lose any of it. If you’re healthy and don’t go to the doctor often, they can be especially beneficial since you can keep that unspent money invested for your future. When you’re saving money on insurance, it’s more that you can use elsewhere, like your 401(k) contribution.

6. Increase Your Contributions When You Get a Raise

When you get that well-deserved raise at work, don’t splurge and spend it on a high-end want. Instead, consider using a large majority of the raise to fund your savings. If the money is put toward your retirement accounts, you could also take advantage of tax benefits.

This habit alone can make a substantial difference in your financial future. If you’ve been living comfortably on your current income, you may not even notice the raise if you put it away. Remember, this can mean a more comfortable lifestyle down the road.

7. Use Your Tax Refund Wisely

A tax refund can be used the same way as a raise. Put that refund to good use in your 401(k) to make the money work for you. If you receive an annual tax refund, talk with a financial advisor about changing your withholdings, so less is taken out every paycheck, and you can contribute that money earlier.

8. Avoid 401k Mistakes

Small decisions about your 401(k) can turn out to be big mistakes. Taking a loan against your 401(k), for example, can have more considerable drawbacks than benefits because you may have to pay taxes twice on the money, and it can diminish any help you get from compound interest.

Talk with a professional before making any decisions about your 401(k) to ensure it's the best move for your situation and long-term goals. Remember, you want to maximize the opportunities available through your 401(k), not minimize the benefits of having one.

9. Review Your 401(k) Plan Regularly

Regardless of whether you’re working with a financial advisor or handling your finances independently, you want to make sure you review your financial plan regularly. Many life events can change your financial needs and, therefore, the amount of money you can contribute.

For example, if you just started a family, you may want to contribute a bit less, preventing the need to take out a loan. If you received a large inheritance, on the other hand, you might be able to save more. Re-evaluating your financial plan on a regular basis, at least once a year, is wise.

10. Get 401k Management Help

If we are honest with ourselves, humans are biologically wired to be lousy investors since we typically react based on emotions. When it comes to our money and life savings, it’s harder to pause and take a deep breath than it may sound.

Most of us have emotional attachments to money without consciously realizing it. That’s why working with a professional can give you an outside, unbiased opinion. If you decide to take it on yourself, make sure you commit the necessary time for self-education.

We are here to help ensure your future quality of life. Make the first move by reaching out for support. Contact our team to schedule a complimentary, no-strings-attached call to see how we can help.