How to Make the Most of Your 401(k) Contributions

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Saving and investing in your working years is your best shot at living a stress-free retirement life. Employer-sponsored retirement accounts, such as a 401(k), can help ensure financial freedom. 

That said, solely relying on traditional ways of growing your 401(k) isn’t wise. Especially when there are numerous ways available to boost your contributions. 

Here’s what you can do to make the most of your 401(k):

Choose Auto-Escalation

As you earn more, it is tempting to increase your spending. But financial advisors recommend escalating your savings. The good news? Your 401(k) plan can be auto-escalated. 

An auto-escalation is a 401(k) feature that increases your contributions at regular intervals by a set percentage. As of 2025, the escalation rate is 1% of gross salary per year up to a limit set by your employer or federal law (15% percent of pay). Once you hit that 15% ceiling, escalation will cease, but you can keep contributing.

Let’s say you were enrolled in a 401(k) plan with a 5% contribution rate. One year later, the rate would increase to 6%, then 7%, and so on, until you reach the limit or choose to opt out of auto-escalation.

Auto-escalation can increase the amount an employee would save on their own. Everything happens in the background so that you can focus on other goals. 

You can also use a 401k estimator to determine how you can save in your account and how escalation would work.

Prioritize Diversification

We get it — mutual funds are the safest investment options for 401(k) plans, with exchange-traded funds (ETFs) coming in second. But concentrating on one asset can lead to negative consequences. If a specific market suffers a downturn, your entire investment portfolio could be at risk.

This is why spreading your 401(k) balance makes sense. Look into a mix of investment vehicles, such as:

• Bonds
• Stocks
• Dividends
• Commodities
• Equities 

Review your asset location periodically, but avoid timing the market too often. Let your account grow and diversify as much as possible. This will protect your wealth from sudden market downturns, inflation, and other economic events.

Consider working with a reliable wealth management firm, such as Creative Planning, to find the most suitable investment options for your 401(k) account.

Avoid Borrowing From Your Plan

When times get tight, borrowing from your 401(k) is the first solution that comes to your mind. And while it’s tempting, it is equally dangerous. 

Borrowing from your 401(k) account nullifies the numerous tax benefits you’re bound to get. You’ll have to repay the loan in after-tax dollars. Plus, there are possible fees that might incur. 

Leverage 401(k) Employer Matching

Another possible way to get the most out of your 401(k) contributions is by leveraging employer matching. It occurs when your employer contributes to your account, matching a portion of your own salary deferrals up to a certain limit.

For instance, if you’re contributing 3% of your salary to a 401(k), your employer might match it, making the total 6%.