The conventional personal finance playbook for retirees with 401(k)s is to trim exposure to stocks and dial down risk as they age. But many savers over age 70 are defying that rule, packing their 401(k)s with more stocks than experts recommend, according to Fidelity Investments.

Half of Fidelity 401(k) plan participants aged 70 or older have a "higher equity allocation than suggested," more than any other age group and well above the 34% average for all ages, according to Fidelity's 1Q 2026 retirement analysis report. Similarly, nearly four of 10 401(k) savers aged 65 to 69 also have a larger helping of stocks than investment pros recommend.

Whoa, Nellie! Is retirees' love affair with stocks a ticking time bomb that threatens to blow up their nest egg if the market tumbles? Or a shrewd financial move designed to boost returns so they don't outlive their money? Or is it simply a case of taking their eye off the ball and not keeping track of what they own and failing to regularly rebalance their 401(k) holdings?

All of the above, say financial advisors. And that's mainly because every retiree's financial situation is different.

"There's really no right or wrong answer" when it comes to the proper size of a stock weighting in a retirement portfolio, says Mike Shamrell, vice president of thought leadership at Fidelity.

Adds Jared Chase, a financial adviser at Signature Estate & Investment Advisors (SEIA): "I wouldn't want to put people into a box simply based on age." A 50% stock/50% bond portfolio, for example, might not be right for everyone. The optimal asset mix, says Chase, should be based on a retiree's goals, objectives, and risk tolerance.

Shamrell stresses that a "suggested asset allocation" is just that: a suggestion.

For its study, Fidelity compared a 401(k) saver's stock allocation in their overall portfolio with the stock weighting (e.g., equity glide path) in Fidelity's age-appropriate target-date Freedom Funds.

Consider, for example, someone who retired in 2020 at age 65 who is now 70. The total stock weighting in the Fidelity Freedom 2020 Fund (which corresponds to the investor's 2020 retirement date) is 50%. So, a 70-year-old retiree who holds a higher percentage of stocks (say, 60% or 70%) than the recommended 50% weighting in Fidelity's target-date fund is seen as having "a higher equity allocation than suggested."

As the table below shows, half of those aged 70 and older hold more equity than is recommended. By contrast, only 15% of those in their late forties are overweight in equity investments.

Source: 1Q 2026 Fidelity Retirement Analysis

Shamrell says retirement savers can use the equity weightings in age-appropriate target-date funds as a "yardstick" to estimate how much stocks are in professionally managed funds that take a saver's age and risk tolerance into account.

Fidelity conducted the asset allocation analysis as part of an awareness campaign.

"We just want everybody to be aware (of how big a stock exposure they have)," said Shamrell. "The report is sort of a trigger to check their allocation. We don't want to have a situation where individuals have more stocks than they are comfortable with in the event the market goes down. We don't want people to get caught off guard and be like, 'Hey, why did my balance drop so much?'"

Why retirees are overweight stocks

There are many reasons why a retiree in their 70s may hold a bigger-than-recommended helping of stocks, financial advisors say.

Overconfidence. It's not uncommon during bull markets, when market returns are strong, for behavioral biases to impact decision-making, says James Demmert, chief investment officer at Main Street Research. Overconfidence can cause investors to let their money ride when stocks are performing well. "As bull markets mature, investors gain more confidence," says Demmert. "Optimism turns to excitement as the market continues to go up, and they start feeling really smart."

Market appreciation. The mere fact that stock prices are rising can push a stock allocation above its recommended weighting. And if an older investor is managing their own money (which Fidelity says many do) and isn't regularly rebalancing their portfolio to keep their stock and bond weightings aligned with their financial plan, those weightings can easily get out of whack. "Just the market going up can take somebody from 50% stocks to 60% stocks," says Demmert.

Less need for income. A retiree who has a large cash hoard or ample income streams, such as a pension, Social Security and annuities, to cover most or all of their monthly living expenses can use their 401(k) money bucket for longer-term goals, says Shamrell. "If they've got a large pool of savings to fall back on, they can maybe afford to be a bit more aggressive," says Shamrell. If the market is in a steep downturn, retirees whose income needs are covered can avoid selling stocks at depressed prices to generate income.

Chasing returns. Bad investment behavior can also be to blame, says Jason Grover, a financial planning specialist at Grover Financial Services. Buying stocks just because they are going up doesn't always end well. "Chasing returns and just letting things ride, and not rebalancing portfolios," amounts to bad behavior, says Grover. "Don't look at your portfolio as if the stock market never loses."

Fear of running out of money. Retirement these days can last 20 or 30 years, placing a premium on returns that outpace inflation. Stocks fit the bill, as the long-term average annual return of equities is about 10%, handily topping inflation. "A large retirement risk for many affluent households isn't volatility, it's becoming too conservative too early (in life) and failing to maintain purchasing power," says Chase.

Putting too much money in lower-yielding assets like bonds and cash makes it harder to keep up with annual cost-of-living increases, adds Chase.

The risks of retirees loading up on stocks

Suffering outsized losses. The more stocks a retiree holds, the more money they can lose if the stock market suffers a steep decline, Demmert warns. "When these really terrible markets occur, or a bubble pops, the people that can least afford the losses — retirees — are the ones that get hurt the most," says Demmert.

Selling into a falling market. Retirees who rely on the stock portion of their 401(k) for everyday income risk having to sell their equity holdings at depressed prices to pay the bills. "The real risk isn't volatility, it is being forced to sell during volatility," says Chase. Liquidating stocks in a down market can more quickly deplete a nest egg as more shares are needed to raise cash and, as a result, fewer shares are left in the retirement account to benefit from the eventual market rebound.

3 ways retirees can dial back stock exposure

Let's say you read this story and realize that your 401(k) has more stock exposure than you are comfortable with. What can you do?

Here are some easy fixes to get your equity exposure back to where you want it to be:

1. Rebalance. If your plan calls for 50% stocks and 50% bonds and your equity weighting is now 60%, sell equity holdings and put the proceeds into bonds to get back to your preferred asset mix. "We encourage people to take a look at their asset allocation and make sure that it is at a level they want it to be at," says Shamrell. If you're unsure of how big an exposure to stocks you should have at your age, you can get a general idea by looking at the stock allocations in target-date funds that coincide with your retirement date, says Shamrell. Read our comprehensive guide on How to De-Risk Your Portfolio.

2. Sell into rallies. When trimming stock exposure, take advantage of big up days or periods when the market is climbing, says Demmert. You can also set up a regular distribution schedule, such as monthly, until your allocation is back in line with your targets. "Dollar cost average out of the market," says Demmert. This selling strategy helps smooth out market volatility, so you don't get spooked into selling at a market low. "That tends to work psychologically for most people," says Demmert.

3. Always have ample cash reserves. A stock-heavy asset allocation only hurts if you need to sell stocks to raise cash in a down market. One way to avoid that is to keep at least two years' living expenses in a liquid, cash-like account that isn't affected by market swings, says Grover.

When you have ample cash reserves, you can invest more aggressively in stocks and hold more equities without the downside risk of having to sell in a down market.

"I like the fact that retirees are taking on more equity risk in their portfolio," says Grover. "Because owning the great companies of the world is what provides growth."

And growth is good, no matter if you're a 25-year-old investor, a 45-year-old investor, or a 70-year-old investor.

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While the daily news cycle can make anyone feel anxious about their nest egg, a quiet and highly strategic shift is underway within American retirement accounts. Rather than running to the sidelines or moving to cash when things get bumpy, seasoned savers are building up their balances and locking in long-term security.

The latest data from Fidelity’s Q1 2026 retirement analysis shows that today's preretirees are moving away from emotional, knee-jerk decisions and instead focusing on steady discipline and smart tax planning.

“Retirement savers started the year strong with record-high savings rates and contributions, reflecting the long-term approach they’re taking with retirement preparedness," said Sharon Brovelli, president of Workplace Investing at Fidelity Investments.

According to Fidelity's analysis, which tracks more than 54 million accounts across IRAs, 401(k)s and 403(b)s, American workers have entered an era of financial discipline. Rather than surrendering to market fluctuations, retirement account holders are locking in long-term positions and building structural financial defenses.

The sentiment vs behavior divergence

A gap has emerged between negative economic sentiment and the actual financial behavior of experienced savers. While broader economic indicators have generated widespread uncertainty, total savings rates surged to historic highs in the first quarter.

The combined employee and employer contribution rate for employer 401(k) accounts reached an unprecedented 14.4%, moving closer to Fidelity's recommended 15% target. At the same time, 403(b) workplace savings rates reached 12%.

Individual investors also expanded their independent safety nets; total IRA contributions surged 29% year-over-year, supported by a 28% increase in the number of individual accounts actively contributing. Roth accounts were the most popular, accounting for 67% of IRA contributions.

Managing what you can control to beat market drops

This steady cash inflow from contributions has created a short-term disconnect between what savers can control and immediate market returns. During the first quarter, brief market volatility caused average account balances to decline slightly on a quarter-over-quarter basis.

Specifically, the average IRA balance fell 4% from Q4 2025 to $131,380 in Q1. Workplace 401(k) accounts averaged a slightly higher $141,000, which was also down 4% from the previous quarter. Considering the longer-term trend, however, 10-year balances are up 46% for IRAs and 61% for 401(k)s, according to Fidelity.

In previous decades, shrinking balances often sparked emotional panic, prompting investors to freeze their contributions. However, in this period, investors took the opposite approach. Nearly one in five plan participants (18%) successfully increased their savings rates during this period, while asset-allocation adjustments remained near historic lows at 5.7%, down from 6.0% a year prior.

Keeping asset allocation steady regardless of market fluctuations is a strategy that has been rewarded in the long term; despite minor quarterly fluctuations, average 401(k) and 403(b) balances increased 7% and 11%, respectively, above their 2025 levels.

The shift to tax-free growth

Perhaps the most strategic behavior highlighted in the data is the massive acceleration into post-tax accounts. Roth accounts dominated the market, representing a staggering 67% of all Q1 IRA contributions. More remarkably, Roth conversion transactions escalated by 41% year-over-year.

A Roth conversion requires an investor to pay ordinary income tax on assets immediately, out of pocket, at current tax rates. Choosing to take a definitive, immediate cash-flow hit during an uncertain economic landscape suggests investors are heavily prioritizing future tax flexibility and predictability over immediate liquidity.

Automated inertia

As the data show, the primary reason contribution rates went up isn't that millions of Americans suddenly found the collective willpower to log into their accounts and manually increase their savings during a turbulent quarter. They did it because of auto-escalation features built into their workplace retirement plans.

When a system automatically bumps a worker's contribution rate by 1% every year, inertia becomes a superpower. Because it takes manual effort to log in and stop the increase, most people just let it ride.

For the portion of the data that was manual — specifically the 29% surge in IRA contributions and the 41% spike in Roth conversions — we're seeing the reality of a much more financially literate investing public.

Long-time savers have finally internalized a lesson that financial planners have been preaching for decades: Market downturns are a buying opportunity. In this case, these savers "bought" a tax-free stream of income and fewer RMDs.

Long-term vision over short-term noise

For decades, economists worried that emotional panic would always be the Achilles' heel of the individual investor. However, Fidelity’s Q1 2026 analysis reveals a different story. The latest retirement trends show that the modern pre-retiree is becoming a more resilient saver.

By maintaining a steady approach that has brought average savings rates close to the recommended 15% benchmark, investors have largely avoided the psychological traps of market volatility — at least in the first quarter.

This stability has allowed them to focus on what matters most for the next chapter: capitalizing on temporary market dips to execute strategic Roth conversions.

By accepting an upfront tax hit today, these savers are mitigating the risk of future tax hikes and building more predictable financial security for themselves and their heirs.

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Dear Wealth Wise: As a retired 66-year-old, I find plenty of guidance on portfolio allocation but very little on asset location — how investments should be divided among taxable accounts, traditional IRAs/401(k)s, and Roth IRAs/401(k)s.

Many experts suggest a portfolio split such as 50% stocks (mostly U.S., with some international exposure) and 50% more conservative investments, such as bonds and money market funds. But there's far less discussion about where those assets should be held to maximize after-tax returns. I feel undereducated on the topic of asset location and would like more guidance on how retirees can optimize investments across accounts with different tax characteristics.
— Where Should I Stash My Assets?

Dear "Where Should I Stash My Assets?": Asset allocation is an important part of retirement planning. And you, as a 66-year-old retiree, seem well informed about how much of your portfolio should go into aggressive holdings like stocks versus stable or income-producing assets like bonds.

But your question is one that's not raised often enough — where do the assets actually go?

Mark Sanaiha, CFP, founder and wealth advisor at Macallen Capital, says he likes to tell clients to follow a simple rule.

"Put your least tax-efficient assets where the IRS can't touch them, and your most tax-efficient assets where they're built for low taxes."

Let's dig deeper into that strategy to answer the burning question of how to find the right home for your various retirement assets.

Assets that belong in a traditional IRA or 401(k)

Traditional IRAs or 401(k)s offer the benefit of tax-free contributions and tax-deferred gains while you're in the process of building wealth. In retirement, though, they become less tax-efficient, since withdrawals are taxable and required minimum distributions (RMDs) eventually kick in.

Cody Garrett, CFP, owner and financial planner at Measure Twice Financial, says, "Traditional pre-tax retirement accounts should generally hold tax-inefficient assets, such as taxable bonds, money market funds, REITs, and BDCs."

As Garrett explains, these assets tend to distribute ordinary income rather than qualified dividends and can have higher yields than equities.

Garrett also says that for many retirees, it makes sense to allocate most or all of their bond holdings to traditional retirement accounts. Doing so could shelter your bond interest from immediate taxes, which is important, since bond interest is taxed at ordinary income rates.

Assets that belong in a Roth retirement plan

Roth accounts are often touted as a shining example of tax efficiency. Though contributions are made with after-tax dollars, gains are completely tax-free, as are withdrawals. There are also no RMDs to worry about.

Because assets held in a Roth IRA or 401(k) aren't subject to tax gains, Garrett says, "Roth accounts are often best used for assets with the highest expected long-term growth."

If you have U.S. or international stock market funds and other growth-oriented equity investments, you may want to load them into your Roth.

Sanaiha says, "Your Roth IRA is your growth engine, … so don't waste that on cash or money markets."

Sanaiha also cautions that while it often makes sense to hold international funds in a Roth IRA, it depends on the fund.

"In some cases, the tax drag is comparable to a value fund, so we'll then consider traditional or Roth IRAs for placement," he says.

Assets that belong in a taxable account

With a taxable account (such as a standard, non-retirement brokerage account), there's no IRS benefit when you're contributing funds and building wealth. But there's flexibility. You don't have to worry about annual contribution limits, early withdrawal penalties, or RMDs. Still, it's important to choose the right assets for these accounts.

"Taxable accounts favor tax-efficient investments that produce little taxable income each year and receive long-term capital gains tax treatment on qualified dividends," Garrett explains. "Examples include low-turnover equity funds, such as U.S. stock market index funds. These investments often generate modest dividend income."

Garrett says taxable accounts can also be appropriate for holding crypto ETFs and other volatile assets.

"Investors can harvest capital losses if values decline, while long-term capital gains from securities held longer than a year receive favorable tax treatment," he says. "Many crypto investors instinctively place speculative assets in Roth accounts hoping for tax-free growth, but taxable accounts provide useful tax benefits if the investment performs poorly."

That said, many retirement investors may prefer to skip highly speculative investments like crypto, even with the tax-loss harvesting benefit.

Another attractive option to balance tax efficiency and liquidity needs is municipal bonds or muni market funds, which are exempt from federal income tax. Sometimes they may also be exempt from state or local taxes if they are for in-state bonds.

Assets that belong in an accessible bank account

Retirees are often advised to maintain a hefty cash cushion to cover emergency expenses or buy themselves the flexibility to leave their investment portfolios untapped during periods of market decline. This helps avoid locking in permanent portfolio losses.

Garrett says that from a tax-efficiency perspective, cash and money market funds are best suited for traditional retirement accounts since interest is taxed at ordinary income rates.

"That said, many retirees still prefer to maintain one to two years of liquidity in checking, savings, and other taxable accounts, sacrificing tax optimization for peace of mind," Garrett explains.

Your strategy may shift over time

It's good to go into retirement with a general framework of where to house your various assets. But Sanaiha says that just as your asset allocation might change over time, so too might some of your asset location decisions.

For example, since our reader is 66 years old, their RMDs will start at age 75 under the SECURE Act 2.0. They will have nine years to plan Roth conversions to reduce the risk that RMDs will force them into higher tax brackets.

Moreover, a retiree's asset locations will need to shift as asset allocations change. As you spend down your accounts, using the bucket or other retirement withdrawal strategies, your overall asset allocation will shift. If you spend all your taxable cash first, you may need to rebalance other accounts, which could trigger taxes.

"Asset location decisions should always be made in the context of your overall tax situation, RMDs, Social Security timing, and legacy goals," he says. "What's optimal at 66 may shift significantly by the time RMDs begin."

An evolving strategy, Sanaiha insists, could help you generate retirement income more efficiently while keeping the most money away from the IRS.

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our writers and experts, in this advice column, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial adviser regarding any questions you may have in relation to the matters discussed in this article.

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Dear Wealth Wise: My husband just retired from his job due to early-onset dementia. I have heart failure and collect disability benefits. We owe $255,000 on our home and pay $8,500 a year in property taxes and homeowners insurance. Our mortgage rate is 5.34%. Utilities are around $399 per month. My husband wants to use his $300k 401(k) to pay down the mortgage. I want to move to a more affordable location. But we're in a very walkable neighborhood close to a beautiful lake, and I hate to give it up. We argue about this every day. Help!
— Love My Lake Home

Dear "Love My Lake Home": When you retire in a home and neighborhood you know and love, it can make your post-working years that much more rewarding. But what if it's a struggle to keep up with your housing costs?

The Urban Institute says that over the past 20 years, the share of senior households considered severely cost-burdened — meaning spending more than half of their income on housing — has nearly doubled. And that burden isn't limited to rent or mortgage payments. Rising homeowners insurance premiums and property taxes are also big drivers.

Here, we have a couple struggling to afford their home. They have a moderate mortgage interest rate and high property taxes.

The husband is willing to empty his 401(k) to pay off the mortgage, while the wife thinks moving to a more affordable place is the smarter choice. At the same time, both would clearly rather stay put.

It's a tough situation, especially since it's compounded by the couple's health problems. Here's how the experts suggest navigating it.

Raiding your 401(k) may not solve your problem

If you're carrying a mortgage with a moderate interest rate, you might assume that tapping your 401(k) to pay it off is a smart move. The sooner you eliminate that loan, the more money on interest you can save.

But John Davis, Financial Planner at JKD Financial, warns that the math may not work out.

"One thing people often miss when they look at a 401(k) balance is that the IRS essentially owns a big chunk of it," he says. "If you were to pull out the full $300,000 in a single year to pay off that $255,000 mortgage, you’d likely trigger a tax bill of $60,000 to $70,000, assuming you’re in a moderate bracket."

Davis also cautions that 401(k) providers are legally required to withhold 20% of distributions for federal taxes immediately.

"That means you’d only actually get $240,000 in your hand, which wouldn't even be enough to pay off the $255,000 mortgage," he says. "You’d end up with a huge tax bill next April and still have a mortgage balance."

Then there are tax penalties to consider. We assume that our reader and her husband are over age 59½, since she hasn't expressed concern about 10% penalty for early withdrawals from a 401(k). However, if they are younger than 59½, they may possibly qualify for an exemption due to their significant health issues, though they would still have to pay ordinary income tax on the withdrawal.

Emptying your 401(k) means losing flexibility

Taxes aside, there's a real danger to using your 401(k) to pay off a mortgage. As Chad Gammon, CFP and owner of Custom Fit Financial, says, "With the 401(k), you have liquidity and flexibility to use that money for needs that come up, such as medical. Paying off the mortgage opens up some cash flow, but not to the extent of having the 401(k)."

Gammon agrees, noting that while it's possible to borrow against home equity, that doesn't offer the same level of flexibility as having money in a 401(k).

"Money that is in a 401(k) is easier to use than money that is tied into a personal residence," he insists. "If they pay off the mortgage, they may be forced to get a home equity loan on the home they thought they just paid off. That very well could be at a higher interest rate and they'd be worse off than where they are today."

If you're going to move or downsize, do it carefully

In a situation like this, moving to a more affordable location or downsizing might seem like a logical money-saving choice. But Davis says it's important to do your research first to make sure that's actually the case.

"For many people in your shoes, downsizing is a much cleaner way to free up cash, but only if you're careful," he warns. "With today's housing prices, downsizing can sometimes cost just as much as staying put once you factor in moving costs and higher interest rates on a new place."

Keep in mind that if you're buying a home in a retirement community, you may be subject to expensive HOA fees that can rise over time. This isn't to say that a new place definitely won't save you money, but you'll need to get a solid handle on all of the costs involved before making a move.

One strong argument for downsizing: She and her husband may exclude up to $500,000 in capital gains when selling their primary residence as a couple. Their equity profit from selling the house would likely be tax-free, whereas the traditional 401(k) withdrawal would probably incur significant taxes.

Consider a middle-ground solution

Raiding your 401(k) to pay off your mortgage leaves you fairly illiquid. A better option, says Davis, may be to accelerate mortgage payments but carry that loan a while longer.

"If you really want to stay in that walkable neighborhood you love," Davis explains, "pay the mortgage down faster but over a longer period — say five to 10 years. Instead of one big withdrawal, take smaller monthly or annual distributions."

This approach, adds Davis, satisfies the urge to get rid of debt and could result in interest savings. But importantly, it spreads out the tax hit so you aren't jumping into a much higher tax bracket all at once.

"Plus," says Davis, "it keeps your 401(k) assets available to generate income for your other needs if the house becomes too much to handle later on."

A final word from Wealth Wise — healthcare should come first

One of the most concerning elements of this reader's question is the double burden of her own health issues and her husband's early-onset dementia (defined as dementia starting before age 65). Unfortunately, it's hard to predict the trajectory of this type of dementia, but our reader may face several years when her husband needs extensive care that she may not be physically able to provide.

As she balances staying in the home she loves versus downsizing, she should also consider how to pay for long-term care. Tapping the 401(k) for healthcare may prove a smarter move than focusing on the house. Moreover, staying in the home may be untenable if it is not adapted for aging in place.

Working with a financial adviser may help her untangle the emotional and financial pressures she'll face in the next few years. We wish her all the best.

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Wealth Wise is Kiplinger's advice column on navigating retirement-related dilemmas. Questions from real people, for real people.

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Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our writers and experts, in this advice column, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial adviser regarding any questions you may have in relation to the matters discussed in this article.

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For decades, the 401(k) was hailed as the cornerstone of the American retirement dream. However, a quiet revolution has taken place, resulting in a monumental shift in the U.S. retirement landscape: assets in traditional individual retirement accounts (IRAs) now exceed those in 401(k) plans by approximately $9.1 trillion.

As of Q4 of 2025, employees held $10.1 trillion in employer-sponsored 401(k)s and $19.2 trillion in IRAs, according to the Investment Company Institute. This massive migration of wealth, fueled by a lifetime of job changes and rollovers, has fundamentally altered the safety net for millions. While IRAs offer unparalleled freedom, they also strip away the institutional 'guardrails' that once protected savers from high fees, legal risks and their own worst impulses.

It's an issue that impacts more than half of traditional IRA owners. By mid-2024, 59% of traditional IRA–owning households indicated that their traditional IRAs held rollovers from employer-sponsored retirement plans.

Retirement Assets by Type- billions of dollars, end-of-period, 2025: Q3 – 2025: Q4

Rollovers and retirement saving

The primary driver of this shift is rollovers. While 401(k) plans are the primary vehicle for active workers to save, many people roll their balances into traditional IRAs when they change jobs or retire. Over decades, this has moved trillions of dollars out of employer-sponsored plans and into the retail IRA market. Rollovers are projected to grow to over $1 trillion in 2030 from $907 billion in 2026.

The Investment Company Institute’s (ICI) latest research shows that as of mid-2024, 44% of US households owned IRAs. And, traditional IRAs were the most common type of IRA owned. A whopping 59% of traditional IRA-owning households indicated that their traditional IRAs contained rollovers from employer-sponsored retirement plans; 85% had rolled over the entire retirement account balance in their most recent rollover.

This movement of money from 401(k)s to IRAs leaves workers more vulnerable because IRAs lack the protections provided by the Employee Retirement Income Security Act of 1974, or ERISA.

Roth and traditional IRA balances are exempted from the bankruptcy estate up to $1,711,975 under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The $1,711,975 does not include funds rolled into the IRA. Former employer plan dollars remain 100% protected from bankruptcy within the IRA and do not reduce the cap. However, in non-bankruptcy situations, state laws apply to IRA assets, including rollover IRAs.

401(k) Plan Assets- billions of dollars, end-of-period, selected periods

Risks intrinsic to rolling over a federally-protected 401(k) into an IRA include:

• Lower fiduciary standards: 401(k) plans are strictly governed by ERISA, which requires plan sponsors to act as fiduciaries — the highest legal standard of care. In contrast, the standards for broker-dealers selling IRA investments are often less protective, potentially leading to suboptimal investment choices that benefit the provider more than the saver.
• Increased "leakage": 401(k)s are designed to keep money locked away until retirement; withdrawals are generally only permitted for specific hardships or as rollovers after a job change. IRAs allow withdrawals at any time for any reason and have more tax-favored exceptions, making it easier to deplete their accounts.
• Weakened creditor protections: Assets in 401(k) plans are robustly protected from bankruptcy and legal judgments. IRA protections are not as comprehensive and vary significantly by state, leaving these assets more exposed to creditors.
• Higher fees and less transparency: ERISA mandates clear, understandable fee disclosures for 401(k)s. IRAs often have more complex fee structures and less transparency.
• Spousal protections: With a 401(k), a spouse is the default beneficiary by law and must sign a notarized waiver for the participant to name someone else. IRAs have no such federal requirement, allowing owners to change beneficiaries without their spouse's knowledge or consent.

Job mobility and retirement savings

Gone are the days when you worked at one job the majority of your adulthood and retired with a pension and a gold watch. While late baby boomers and Gen Xers were 401(k) pioneers, millennials and Gen Z are natives of the gig economy. The average American worker changes jobs 12 times over their career. Having more than one employer before you retire is expected and a reality of the modern economy.

“Active retirement management is more important than ever," Romi Savova, founder and CEO of PensionBee, told Kiplinger. "In many cases, it can be helpful to find an IRA home. Having a trusted destination for your 401(k)s makes sense, as you may need to roll over more than once throughout your career. 401(k) rollovers are notoriously difficult, so ensure you are working with a provider that offers hands-on support."

Traditional IRA-owning households with rollovers cite three main reasons for rolling over their retirement plan assets into traditional IRAs: not wanting to leave assets behind at the former employer (23%), wanting to consolidate assets (19%), and wanting more investment options (14%), according to the ICI.

Approximately 14.8 million defined-contribution plan participants change jobs each year, per the Employee Benefit Research Institute. Over 6 million of these participants have less than $7,000 in their accounts when they change jobs, and are subject to a mandatory distribution from their former retirement plan into a Safe Harbor IRA. Over 75% of these accounts will cash out by year seven. This is an example of 'leakage' — the early withdrawal of retirement funds that erodes long-term growth.

Another important aspect of having multiple jobs and, by extension, multiple retirement accounts, is the loss of momentum. A hidden danger in switching jobs is the reduction in retirement plan contributions. The median job switcher saw a 10% increase in pay, but a 0.7% decline in their retirement saving rate when they switched employers, according to Vanguard.

Five ways to protect your money in an IRA

While IRAs offer more flexibility and investment choices, the loss of institutional oversight and legal protection can't be ignored or left unaddressed. "IRAs can be acquired from a variety of different institutions, including banks, wealth management companies, and financial technology companies," Savova said.

She notes that although many advisors can assist with the transition, it's important to pick one who operates under a strict fiduciary mandate.

Although IRAs lack the same fiduciary guardrails and legal shields as employer-sponsored plans, that doesn't mean you don't have options for protecting your money. However, that does mean you'll need to be more proactive and disciplined about protecting it than if you had a plan administrator and a raft of regulations that come with an employer-sponsored retirement plan.

While the Biden administration sought to extend ERISA fiduciary status to securities brokers and insurance agents, the rule was halted by court challenges and stay orders. The Trump administration ultimately declined to defend the policy, leading the Employee Benefits Security Administration (EBSA) to issue a formal vacatur notice invalidating the rule.

IRA Market Assets- billions of dollars, end-of-period, selected periods

Here are five ways to protect your money in an IRA:

1. Work with a fiduciary advisor

IRA providers (often broker-dealers) are not always held to the same high fiduciary standards as 401(k) plan sponsors. To mimic the protection of a 401(k), ensure that any financial professional you work with is a Certified Financial Planner (CFP) or a Registered Investment Advisor (RIA) who is legally obligated to act in your best interest.

2. Implement self-imposed "leakage" barriers

IRAs make it easier to withdraw money than 401(k)s do, often leading to "leakages" that deplete retirement savings. To protect your future balance:

• Automate your mindset: Treat the IRA as "untouchable" by not linking it directly to your primary checking account for easy transfers.
• Avoid the "exceptions": While IRAs allow penalty-free withdrawals for things like first-time home purchases or education, using these can severely derail your compound interest.

3. Review and update beneficiary designations

In a 401(k), the law automatically designates a spouse as the beneficiary unless they sign a waiver. IRAs do not have this federal requirement. To protect your family's inheritance, you must manually ensure your beneficiary forms are up to date. This is especially important after major life events like marriage, divorce or the birth of a child.

4. Understand your state's creditor protections

IRAs generally offer less protection than 401(k)s in the event of litigation or bankruptcy. While 401(k)s have broad federal protection under ERISA, IRA protection often varies by state.

Research your state laws regarding IRA exemptions from creditors. If you live in a state with weak protections, you may want to consider additional liability insurance (like an umbrella policy) to protect your assets from potential lawsuits.

5. Scrutinize Fees and Disclosures

Because IRAs lack the standardized fee disclosure requirements of 401(k)s, high administrative costs and investment fees can silently eat away at your savings. "Many providers hide their fees through 'zero-fee' claims, but a closer look may reveal hidden transaction costs and investment costs. The average 401(k) cost ranges from 0.3% to 1.3%, so ensure your IRA fees are within an appropriate and similar range," said Savova.

• Compare expense ratios: Look for low-cost index funds or ETFs within your IRA.
• Check for hidden costs: Be wary of 12b-1 fees or high commissions on products like annuities or actively managed funds that a broker might recommend.

Vigilance is your friend

The shift toward IRAs is likely irreversible, but the vulnerability it creates doesn't have to be. By understanding the guardrails that disappear when leaving a 401(k), savers can take deliberate steps to rebuild them.

“Former employers can charge additional fees for left-behind accounts and, in some cases, move assets to a new provider without your knowledge or consent," cautioned Savova of Pension Bee. That's why you need to be an active participant in planning your retirement.

"Rollovers are now an established part of the retirement saving process, so IRAs and 401(k)s should really be thought of as complementary accounts," she said. "They are both established tools for navigating a fragmented system, and both support wealth building in different ways."

Whether it is seeking out true fiduciary advice, self-regulating early withdrawals, or checking state-specific creditor laws, the burden of protection has moved from the employer to the individual. In this new era of retirement, being a "wise saver" is no longer enough; one must also become a vigilant protector of one's own legacy.

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Data show that roughly 70 million workers participate in an employer-sponsored 401(k) plan as a key retirement savings vehicle, and 401(k) matches offered by many employers help boost those savings each year.

A Vanguard How America Saves report estimates the average employer match in the United States at about 4.6% of pay, in addition to employees' own contributions.

For someone earning $75,000 a year, that amounts to roughly $3,450 in additional tax-advantaged retirement savings annually. Some workers consider this effectively "free money" on top of their regular pay.

But…some employers have begun pausing or reducing matching contributions as they review benefit costs and overall spending.

For example, $2 billion customer experience company TTEC reportedly told employees it would suspend its discretionary 401(k) match through the end of 2026. Sherwin-Williams previously paused its match during a cost-cutting period and has since resumed it. In recent years, IBM has moved away from a traditional matching structure to a Retirement Benefit Account (RBA) defined-benefit plan, while still reportedly allowing employees to contribute to their 401(k)s.

The details surrounding these and other similar situations vary, but the outcome for workers is generally the same. There's less money going into their retirement accounts from their employers.

That leads to a key question for those affected: What, if anything, changes for your taxes and savings when the 401(k) match goes away?

Why some companies are suspending 401(k) matches

Employer 401(k) matches have long been a core part of workplace compensation, even though they do not appear on a paycheck.

A study by the Employee Research Benefit Institute (ERBI) found that a majority of employees are more likely to participate in a retirement savings plan if there's a company match. Other data from an American Century Investments survey suggest that more than a third of respondents would take a 401(k) match over a salary increase.

But recently, some companies have begun scaling back or pausing these contributions as part of broader cost reviews.

Data from the U.S. Bureau of Labor Statistics show that benefits make up a significant share of total compensation costs. As a result, retirement contributions are sometimes adjusted alongside other expenses.

Should you still contribute to a 401(k) if there is no employer match?

Traditional 401(k) contributions still reduce taxable income in the year they’re made, and investments continue to grow tax-deferred until withdrawal. So even without an employer match, you still get the same tax deduction on your contributions, but you lose the additional tax-deferred dollars your employer would have added.

Even so, some workers continue contributing to capture the tax break.

For example, someone in the 22% federal tax bracket who contributes $15,000 without a match could potentially lower their federal tax bill by about $3,300 before factoring in state taxes.

At the same time, the loss of an employer match is prompting some workers to reassess their strategy. One approach is to maintain their contribution rate to stay on track with retirement savings. Another is to scale back to preserve take-home pay or prioritize other financial goals.

In some cases, a shift in the employer match pushes employees to consider savings options aside from a 401(k). For example:

• A Roth IRA doesn't offer an upfront deduction but may provide tax-free income later in retirement.
• Some may also pay closer attention to Health Savings Accounts (HSAs) if they are available through employer health plans.
• A key benefit of HSAs is that they allow eligible workers to contribute pre-tax money toward medical expenses. Additionally, investments can grow tax-free, and withdrawals used for qualified healthcare costs are also generally tax-free.

HSAs aren't a replacement for retirement accounts, are subject to contribution limits and sometimes involve "hidden costs", but they can provide another way for some households to lower taxable income and build longer-term savings.

401(k) tax benefits: Bottom line for retirement planning

When employer matches disappear or shrink, some workers may need to contribute more of their own money to stay on track for retirement. And while the changes might look relatively small year to year, losing thousands of dollars in annual employer contributions can affect long-term retirement balances.

For example, for a $75,000 earner losing a 4.6% match (~$3,450/year), that gap over 20 years at a 6% average rate of return could compound to $135,000 less at retirement.

So, what can you do? If your employer suspends or reduces its 401(k) match, your approach to saving might need to shift.

• If you were only contributing enough to get the match, you might want to revisit your contribution rate.
• If you can afford it, increasing contributions could potentially help keep you on track.
• However, if your cash flow is tight, it may make more sense to hold steady while prioritizing emergency savings or high-interest debt.

Overall, though, it's important to keep in mind that without an employer match, there is no one-size-fits-all answer when it comes to next steps.

Saving decisions depend, as always, on your personal budget, tax considerations, and long-term financial goals.

Note: Because everyone’s financial and tax situation is different, keep in mind that this is general information, not personal advice. Consult a tax professional or financial adviser to determine the best course of action for your individual circumstances.

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The baby boomer generation exploded onto the American cultural and economic landscape in 1946, becoming the wealthiest generation in American history. Like the rule-breaking characters of "Easy Rider," boomers claimed the right to more freedom to shape their lives than their parents had enjoyed. In the same vein, they have had to reinvent what it means to have leisure time, to work and retire. But though boomers (born in 1946 to 1964) haven't gloriously burned out, as Neil Young's anthem extolled, they also haven't "faded away."

Their fate has got to be better than that of Easy Riders' Billy, Wayne and George.

The older boomers of the Woodstock era now worry about the long-term viability of their retirement, while younger boomers (who identify more with Star Wars than Woodstock) are sweating over their retirement readiness.

Of course, retirement wasn't a top priority for the boomers at Woodstock (heck, the 401(k) wasn't invented until nine years after the last chords faded away from Hendrix's "Hey Joe" at the legendary music festival). But the size of their nest egg, nearly 60 years later, is a prime concern.

With the average boomer 401(k) account balance clocking in at $270,800 at the end of 2025, according to Fidelity's Q4 2025 Retirement analysis — falling well short of the $1.46 million 'magic number' that American workers think they'll need to retire comfortably, according to Northwestern Mutual — there's reason for concern. In fact, four of 10 Boomers think it's likely that they will outlive their savings, according to Northwestern Mutual's 2026 Planning & Progress Study.

But there's good news about boomer 401(k) balances, too

A review of Fidelity data highlighting 401(k) balances for boomers who have contributed to the same workplace retirement plan for 5, 10, or 15 consecutive years casts a more positive light on their retirement readiness. Boomers, for example, who have socked away money in their 401(k)s starting in 2010, have an average balance of roughly $600,000, just shy of the $617,600 average for all 401(k) savers, according to Fidelity. Boomers in their 60s have an average balance of $269,100, and retirees 70 and older have an average balance of $273,100, according to Fidelity data.

"The long-term savings data is perhaps more accurate," says Jonathan Lee, a wealth management advisor at U.S. Bancorp Advisors. In his work with clients, he says it's not uncommon for workers who have been at one job for a long time to also have other retirement savings balances from prior jobs that they've kept at their old employer or rolled into an individual retirement account (IRA).

His point is backed up by data. A review of Fidelity's fourth-quarter 2025 data shows that boomers, on average, have $287,600 in IRA savings, too. And Boomers 70 and older have $332,784 saved in their IRA. That extra savings brightens the picture for boomers, especially for those who also have 401(k)s. Looking at all the different sources of retirement savings, Lee says, paints a more realistic picture of total savings.

Lee also stresses that looking at average balances through the lens of an entire generation may offer less insight than you think regarding your own retirement readiness. "Don't be so fast to compare yourself to your whole generation," says Lee. "Your situation, your goals, and your lifestyle are different."

Boomer savings trends, on average, tend to be pretty solid. The average boomer who is still working saves 17.1% of their salary (including their employer's matching contribution), which tops Fidelity's recommended 15% savings rate. And nearly one in 10 boomers increased their contribution rate last year.

Boomers' savings versus the recommended amount by age

When it comes to Fidelity's savings guidelines that measure savings targets by one's age and salary, boomers are doing just OK. Fidelity recommends that savers have 8 times their salary saved by age 60. But just 37% of boomers have that much saved (even though they are older than 60), according to Northwestern Mutual's 2026 study. And only 29% of boomers have more than 10 times their salary saved, which Fidelity says is a benchmark for savers by age 67.

But the fact that the average Boomer 401(k) balance is roughly $271,000, far from the seven-figure balance most people think they'll need, suggests that many members of the nation's oldest generation have a savings gap that must be filled.

The good news is that the youngest Boomers are just 62 years old, giving them at least five more years to work and save before they reach age 67, a common retirement date as it coincides with full retirement age (for workers born in 1961 or later) in the eyes of the Social Security Administration.

How boomers with 401(k) shortfalls can play catch-up

Creating a nest egg that's built to last is not just about poring every available dollar into a tax-deferred retirement account. Blake Smith, an investment advisor at Financial Partners, Inc., says every worker and retirement saver should ask themselves: "Where are those retirement dollars located?" Is all your money in a traditional pre-tax 401(k) or a Roth account that's taxed upfront but offers tax-free withdrawals?

The answer is key, as it will impact how long your money will last once you start taking distributions, Smith says. "Not all money is taxed the same," says Smith. "A million dollars sitting in a traditional 401(k) (that is taxed as ordinary income) is very different from $1 million in a tax-free Roth."

Just like a paycheck in the working world, a retirement account balance must be viewed in the context of what you can bring home after taxes. "A huge part of the planning conversation is not only what a client's account balance is, but what is the future tax nature of those account balances," says Smith.

Consider this example. Let's say you need to net $50,000 from a retirement account to pay for your daughter's wedding. If you have the cash sitting in a tax-free Roth account, you only need to withdraw $50,000. However, if all your money is in a traditional 401(k), which treats withdrawal amounts as regular income, and you are in the 22% tax bracket, you will have to withdraw $64,103 to meet your $14,103 tax obligation to the IRS.

That's why Smith says so-called "tax diversification" of your retirement savings is just as important to portfolio diversification.

Retirement challenge for Boomers: unwinding years of tax-deferred savings

Unlike younger generations like millennials and Gen Z, boomers did not grow up with tax-free Roth retirement accounts as their primary retirement savings options. While they have had ample time to convert from traditional retirement plans to Roth accounts, the bulk of boomers' retirement savings remains in tax-deferred accounts. And that poses a tax time bomb in the future, unless those savings (which will be taxed as regular income when withdrawn) are converted to tax-free Roth accounts.

As a result, the game plan for many boomers nearing retirement is to "unwind many years of tax-deferred savings" to avoid a so-called tax torpedo later when required minimum distributions (RMDs) start at age 73 and result in large tax bills because the withdrawals are taxed at ordinary income rates, which can go as high as 37%, says Smith.

Why Roth conversions make financial sense

Smith recommends that boomers take advantage of the low tax rates that were made permanent by the passage of the One Big Beautiful Bill in July 2025. "We don't want to let this current window of low tax rates close," says Smith. "We get to keep these historically low tax years for years to come."

Doing Roth conversions when taxes are low allows you to pay less to the IRS on the amount of assets you convert. For younger boomers with years to go before retirement and Social Security kicks in, a good strategy is to move money from traditional pre-tax 401(k)s and IRAs into Roths over a number of years to minimize your annual tax hit and to lower your balances before RMDs kick in at age 73.

Another way to unwind higher-tax savings sitting in traditional retirement accounts is to withdraw more money than you need from these accounts to tactically lower your balance in the years before RMDs start, says Smith.

Take advantage of catch-up contributions

If you're facing a retirement savings shortfall, play catch-up. The IRS offers a number of opportunities for retirement savers ages 50 and older, as well as those between 60 and 63, to save more in their accounts. "Take advantage of these higher catch-up contribution limits," says Smith.

The regular contribution limit for 401(k)s in 2026 is $24,500. But workers 50 or older can sock away an additional $8,000 in catch-up contributions. And workers ages 60 through 63 can save an additional $3,250 in a "super" catch-up. That's a maximum savings of $35,750 in 2026.

A new Roth catch-up mandate created in the One Big Beautiful Bill forces high-income earners aged 50 and up with prior-year FICA wages over $150,000 to designate all catch-up contributions to a Roth 401(k) using after-tax dollars. While the new rule does away with an up-front tax deduction, it's a way for savers to begin to diversify their retirement dollars from a tax perspective by funneling more funds into tax-free Roths. "It's an opportunity to accelerate savings into the future and take advantage of these low brackets," says Smith, adding that it also gives savers who have no Roth accounts a way to open an account and start the five-year timeframe before they're able to access the Roth money penalty-free. "The quicker that clock starts counting, the quicker you can satisfy the five-year rule."

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We are already halfway done with the 2020s and on the road to 2030. Yet some aspects of our country's robust 401(k) system are stuck in the 20^th century.

In the last century, it was much more common to spend your entire working life at a single employer and retire with a secure pension.

However, today's American workforce is more mobile than ever. According to the U.S. Bureau of Labor Statistics, the average American worker will hold about 12 jobs during their career, with most of their job changes occurring before the age of 40.

That translates to an estimated 15 million to 20 million Americans who participate in their employers' sponsored retirement plans changing jobs in a typical year. Every job change can involve an address update, along with new plan enrollment.

Americans also move homes frequently. American Community Survey (ACS) data indicates that the average American changes residences about 11 times over their lifetime. This translates to 15 million to 25 million retirement accountholders moving to new addresses every year, according to U.S. Census Bureau estimates.

On top of that, Retirement Income Institute data indicates that about 4 million to 6 million Americans retire annually, with 60% to 70% of them participating in some type of retirement savings plan.

All of this mobility — changes in employment, mailing address and labor force status — increases the likelihood that people will accumulate retirement savings across multiple accounts.

Friction and fragmentation in the 401(k) system

Despite an increase in workforce mobility, service providers across the U.S. retirement system — including plan recordkeepers, custodians and government agencies — run on different technology systems that do not natively "talk" to each other.

Our nation's retirement system involves interactions among millions of savers, hundreds of thousands of employer-sponsored retirement plans and many different service providers.

Unfortunately, among all the bustling activity across disparate systems, the easiest course of action for job changers is to leave their 401(k) accounts in their prior employers' plans when they move on.

Moving data and money between plans is often cumbersome and error-prone, especially if recordkeepers, IRA providers and others rely on legacy technology systems that are long overdue for upgrades to digitized, automated workflows.

Even if recordkeepers and other service providers do invest in modernizing their legacy systems, they can never fully digitize their operations — they still must exchange data, instructions and documentation for mobile workers with counterparties that are stuck with legacy or partially digitized systems.

This fragmentation has created persistent friction within the retirement system, making it easier for workers to leave 401(k) balances behind in former employers' plans when they change jobs, or worse, cash them out completely.

The U.S. Department of Labor reports that the percentage of inactive accounts in defined contribution plans increased from 21.1% in 2010 to 29.2% in 2023. That means nearly a third of accounts with balances in our country's defined contribution plans are inactive, because the accountholders are no longer employed by the plan's sponsor.

But "inactive" does not mean "abandoned." Many former employees intentionally leave savings in a prior employer's plan, particularly if fees are reasonable or investment options are competitive. Labeling all inactive accounts as "forgotten" risks overstating the scale of the problem.

A more meaningful indicator of a truly lost 401(k) is returned mail, when plan communications are sent back as undeliverable because the participant's address of record is no longer valid.

Research conducted by Boston Research Technologies and Retirement Clearinghouse in 2018 found that returned mail is a stronger signal of participant disconnection than inactive status alone.

Even then, returned mail does not necessarily mean a participant is unaware of their account — only that communication channels have broken down.

Under current rules, inactive 401(k) accounts with balances under $1,000 may be automatically cashed out, while balances under $7,000 can be rolled into safe-harbor accounts if the participant does not take action.

These provisions were designed to simplify plan administration, but they also introduce additional steps for workers who might later want to consolidate accounts.

If contact information is outdated, notices about these transactions may not reach the participant, underscoring why accurate address records remain critical.

Even an automatic cash-out of a 401(k) account with up to $1,000 can have a detrimental effect on the income a worker can enjoy in retirement.

Our research at Retirement Clearinghouse finds that a 25-year-old with a $750 401(k) account balance that is automatically cashed out today could wind up forgoing $9,312 in retirement savings that the $750 would have grown to by age 65 — had the sum remained invested in the retirement system and earned an annual rate of return of 6.5%.

The cash-out conundrum

The lack of communication between service provider systems and seamless plan-to-plan account portability has tempted too many workers to prematurely cash out their 401(k) accounts after they change jobs.

The decision to cash out can be costly, which not only subjects retirement savings account balances to taxes and penalties, but also depletes an accountholder's overall retirement saving outcomes.

Cashing out just one 401(k) account on the road to retirement can seriously deplete someone's retirement income. Our research at Retirement Clearinghouse indicates that preserving one 401(k) account with $7,000 in the U.S. retirement system at age 25 can add $86,912 in extra savings by age 65.

Similarly, preserving three 401(k) accounts with $7,000 after switching jobs across a hypothetical worker's entire career can eventually generate $157,878 in savings for retirement.

Despite the clear benefits of not cashing out 401(k) savings after switching jobs, too many Americans do so.

According to data from the Savings Preservation Working Group, at least 33% of plan participants withdraw part or all of their retirement plan assets following a job change. However, minorities and younger, low-income workers cash out at rates above the national average.

That 33% rises to 44% for plan participants aged between 20 and 29, and 50% for those earning annual income of between $20,000 and $30,000, according to a Fidelity Investments study.

Hispanic and Black participants cash out at even higher rates — 57% of Hispanic participants and 63% of Black participants cash out within a year of switching jobs, according to a study from Ariel Investments and Aon Hewitt.

Simplifying the consolidation and transfer of 401(k) assets

Industry-led efforts are now attempting to address this fragmentation by building digital infrastructure that allows recordkeepers to exchange data and move assets more efficiently when workers change jobs.

One approach that has taken hold is auto portability, an automated process designed to move certain small retirement account balances from a worker's former-employer plan into their new employer's plan, unless the worker opts out. The objective is to reduce unnecessary cash-outs and prevent small balances from being left behind.

In recent years, an industry-led utility known as the Portability Services Network was launched to support broader adoption of auto portability among recordkeepers.

Workers have more options today than in the past to avoid abandoning or cashing out 401(k) balances when they change jobs. To maximize the income they can enjoy in retirement, workers changing jobs should ask their plan administrators how small balances are handled, and what options exist for consolidating accounts to avoid unnecessary cash-outs.

While the system remains imperfect, incremental improvements in digital portability and standardized data exchange could meaningfully reduce friction for future job-changers.

The real forgotten 401(k) problem is less about millions of Americans losing track of their savings, and more about whether the system makes it unnecessarily difficult to keep those savings consolidated.

Clarifying what is truly at risk, and modernizing how assets move between plans, may ultimately matter more than the headline numbers suggest.

Spencer Williams is president and CEO of Retirement Clearinghouse, a specialized provider of retirement savings portability and account consolidation services, and Portability Services Network, a retirement industry-led utility dedicated to nationwide adoption of auto portability.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Millennials are a scrappy lot, having to adjust to major tech advances and financial shocks early in their lives.

They came of age during the Great Recession of 2008-2009; they're perhaps best known as the generation mired in so much student debt that they've often delayed key life milestones such as buying a house and getting married.

The lousy economic timing has also set millennials back when saving for their retirement.

Born from 1981 to 1996, millennials now range in age from 30 to 45. The average 401(k) balance for millennials is $83,700, compared with $146,400 for all generations, according to Fidelity Investments' 4Q 2025 Retirement analysis.

That less-than-six-figure nest egg also pales compared with the $1.46 million that Americans consider the "magic number" to retire comfortably in 2026, according to Northwestern Mutual's 2026 Planning & Progress Study.

It's no wonder that more than half (55%) of Millennials — the most of any generation — think they're likely to outlive their savings. But it's not all gloom and doom for their futures.

What is the average millennial 401(k) balance?

Weighed down by debt and an era of sky-high housing prices that crimp savings, millennials are contributing just 8.9% of their salaries to their 401(k)s. Only the younger Gen Z generation, just starting out in their careers, saves less, Fidelity data show.

If you add in employer matching contributions, millennials are saving 13.5% of their salary, which falls short of the 15% savings rate Fidelity recommends.

Source: Fidelity 2025 Q4 Retirement Analysis.

Millennials' poor financial health has also forced them to tap into their retirement accounts to take out loans. Nearly one in five Millennials (19.7%) have an outstanding 401(k) loan balance, above the 19.4% of all generations.

A retirement savings general rule from Fidelity is to have one time your salary saved by age 30 and three times your salary by age 40. A 30-year-old millennial earning $50,000 a year should have a nest egg of $50,000, and a 40-year-old earning the same salary should have $150,000 socked away.

Currently, only 19% of millennials say they've saved three times their salary, according to Northwestern Mutual.

Source: Northwestern Mutual.

Millennials — Don't be 'Clueless' — you have time to save for retirement

If there's a silver lining in the financial vortex that millennials are caught up in, it's this: They still have 20 to 35 years before they retire, a long enough time horizon to play catch-up.

It's often said that time in the market is more important than timing the market. Fidelity statistics demonstrate that the average 401(k) account balance of millennials who have been continuously saving in their 401(k)s for five, 10 and 15 years still have ample time to make a run at a seven-figure nest egg.

Millennials who've been socking money away in their 401(k)s for 10 straight years have balances of roughly $300,000, and older millennials who've been saving for 15 years or more have average balances of around $400,000.

Since millennials are still 20 to 35 years from age 65 and the full retirement age for Social Security, workers with a current account balance shortfall can ramp up savings, invest in the stock market, and benefit from compounding in the next two to four decades.

"Millennials are well-positioned to put themselves on a good path for the years ahead," says Blake Smith, investment adviser at Financial Partners.

But millennials, most of whom are entering the sweet spot of their careers and earning years, must act now to put themselves on a better trajectory for a secure retirement, adds Smith. "Be proactive — now," says Smith. "Don't defer (saving any longer)."

Millennials must start building nest eggs to protect themselves from rising inflation, the increasing cost of health care and the likelihood of higher tax rates in the future.

Blissful ignorance, or facing reality? Millennials can boost their 401(k) balances

Millennials are in a good position now to take advantage of low income tax rates, which were made permanent in July 2025 with the passage of the One Big Beautiful Bill.

Smith says a great way for millennials to build wealth and boost their after-tax income streams in retirement is to take advantage of Roth 401(k)s (and IRAs) that allow tax-free withdrawals after age 59½, provided the account has been open at least five years.

It's important, says Smith, to not only have a diversified portfolio with a mix of stocks, bonds, cash and other assets, but also to diversify retirement savings from a tax standpoint.

Here are concrete ways to boost your retirement savings.

Take advantage of Roth accounts. To build up the tax-free portion of retirement holdings, Jonathan Lee, a wealth management adviser at U.S. Bancorp Advisors, recommends that millennials, especially those not at the peak of their earnings years, contribute to a Roth 401(k) if their workplace plan offers it.

"If you are early in your career and you are not in a high tax bracket, it makes sense to use a Roth vehicle (as you won't miss out on a big upfront tax break with a small salary)," says Lee.

While contributions to Roth accounts (which grow tax-free) are made with after-tax dollars (which means you won't get an upfront tax deduction as you would with a traditional 401(k) funded with pre-tax dollars), withdrawals are tax-free.

The upside is that when you take out money in retirement, you'll reap more dollars on an after-tax basis than a traditional 401(k).

For example, if you need to withdraw $48,000 each year, or $4,000 a month, from your Roth 401(k), the total size of the withdrawal will be just $48,000 because none of the income is taxable.

In contrast, if you're in the 22% tax bracket, you'd need to pull out $61,538 from a traditional 401(k) to net $48,000, or $13,538 more than your Roth distribution.

Over a 10-year period, you'd be able to shield $135,000 of your retirement savings balance if your money is in a Roth.

"Millennials have a great chance right now to take advantage of (low tax rates)," said Smith.

One in five millennials is doing just that, as 19.5% say they're contributing to a Roth 401(k), above the 18% of all 401(k) savers, according to Fidelity. Many millennials are saving more, too. Fidelity reports that 11.2% of millennials increased their 401(k) contribution rates in the final three months of 2025.

Millennials with high-deductible health savings plans at work can also take advantage of low tax rates by signing up for a health savings account (HSA). This type of health plan is triple-tax advantaged, as contributions are tax-deductible, your money grows tax-free, and withdrawals are tax-free, too.

Building a financial plan that grows your money while keeping taxes low is a winning formula. "It's not always about the biggest account balance; it's about having an optimized and tax-efficient plan in the years ahead," said Smith.

Employ a savings bucket strategy. Millennials can boost their odds of a successful retirement by using the savings bucket strategy, Smith says. That means separating your money into accounts that provide money you need "now" (to pay bills), money you need "soon" (to pay for a new car, your kid's braces or college tuition) and money you'll need "later" (to fund your retirement).

• Fill the "now" bucket with liquid, cash-like investments that you can tap easily.
• Fill the "soon" bucket with a taxable brokerage account that lets you benefit from the lower long-term capital gains rates (which range from 0% to 20%).
• Finally, fill the "later" bucket with tax-advantaged retirement accounts such as 401(k)s.

If you're participating in a workplace retirement plan, make sure you contribute enough to get your employer match so you don't leave any money on the table.

Don't treat your 401(k) like a piggy bank. It's harder to grow your wealth if you're raiding your 401(k) from time to time to meet some type of financial obligation. Two of 10 (19.7%) millennials currently have an outstanding 401(k) loan, according to Fidelity's fourth-quarter 2025 retirement analysis.

While borrowing money from your 401(k) can help ease short-term cash-flow problems, it hurts your retirement account in the long run in a number of ways.

The money you withdraw loses its ability to benefit from market gains, and the money you use to pay back the loan will be in after-tax dollars; those dollars will be taxed again when you take withdrawals in retirement.

Another downside of borrowing from your 401(k) is that if you lose your job or switch jobs, you might be forced to pay back the outstanding loan balance within 60 days.

"That long-term savings bucket is not something that we necessarily want to access ahead of time," said Smith.

Millennials savings tip: Put your 401(k) on autopilot

The more you automate your retirement savings, the better. The beauty of a 401(k) is that money comes directly out of your paycheck every pay period and goes straight into your 401(k).

But since not every plumber, advertising salesperson, or computer programmer is fluent in finance, investing in a professionally managed target-date fund that determines the assets you own, and how much of each asset, such as stocks and bonds, you own, and rebalances your account for you as you get closer to retirement, is the way to go, says Lee.

"These funds help you achieve more of an autopilot experience," says Lee. "(Saving for retirement) doesn't become as heavy of a lift."

At the end of 2025, 70.2% of millennials had all their savings in a target-date fund, according to Fidelity.

Read More

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• Average Retirement Savings by Age
• The Average Gen X 401(k) Balance Kind of Bites

While the market is improving, millennials and Gen-Zers have faced a difficult path to homeownership.

For the first time in modern history, these two generations are among the first to be financially worse off than their parents at the same stage of life. Factors such as record-high home prices, lingering inflation and mounting debt, specifically from student loans and credit cards, have created significant challenges for first-time buyers.

In 2025, nearly 27% of Gen-Zers nationwide owned their homes, according to a report from Axios. That rate nearly doubled for millennials with slightly more than 55% owning their homes. However, both generations are still trailing their parents with nearly 73% of Gen Xers and 80% of baby boomers owning their homes.

As housing affordability continues to be a challenge for many, especially for those who are younger, tapping into a 401(k) retirement plan might seem like a practical option, but there are trade-offs. What needs to be considered before a withdrawal is made?

The hidden cost of limiting compounding growth

Pulling from your retirement account to make a down payment seems logical in theory: You're not retiring for several more years, yet you need a roof over your head today.

However, this thought process doesn't account for the power of compounding growth. When money is withdrawn early, it's not just the principal that disappears. It's also the decades of potential growth that money could have generated by remaining in the account. Assuming a modest average annual return of around 7%, withdrawing around $20,000 from a retirement account at age 30 could mean missing out on more than $130,000 by age 65. That's a significant amount of money that could otherwise be used to supplement medical costs, pay for long-term care or used for additional real estate or traveling.

Once money leaves your retirement account, it no longer has the ability to grow with the rest of your investments.

As a result, retirement savings are often seen as one of the most important "protected" accounts in a portfolio. While the funds can be used to solve a short-term problem, withdrawing them early could create future challenges.

Penalties might be waived, but taxes still apply

Another factor that's easily overlooked is the tax implications of withdrawing retirement funds. Even when early withdrawal penalties are waived, money taken from a 401(k) or IRA will be taxed as part of your income. For the average working American, that tax rate can fall from 18% to 32%. A withdrawal of $20,000 could lead to thousands of dollars owed in taxes.

In addition to a hefty tax bill, money withdrawn from a retirement account loses the benefit of tax-deferred growth, significantly reducing the value of those savings long-term.

Evaluating retirement security vs homeownership

Making the decision to use retirement savings to purchase a home typically comes down to balancing two major financial goals: Retirement security and homeownership.

Becoming a homeowner provides stability and gives you the opportunity to build equity over time. For many Americans, it's also viewed as a significant milestone financially and emotionally.

Simultaneously, retirement savings rely largely on time spent in the market and consistent contributions. As a result of compounding, younger Americans in their 20s and 30s generally benefit the most by starting early and saving consistently.

Using retirement funds prematurely eliminates that chance, which can make it much more difficult to build enough savings long term.

Costs of homeownership extend beyond the mortgage

It's common for first-time homebuyers to focus primarily on saving for a down payment, but homeownership costs much more than the price of the home. Beyond your monthly mortgage payment, you'll also have to pay property taxes, insurance, utilities and maintenance, not to mention any unexpected repairs that are needed such as a new roof, HVAC system or appliance.

Many financial experts recommend running a full financial "stress test." The test calculates the total expected monthly costs, including mortgage payments, taxes, insurance premiums and a maintenance reserve, which allows you to see if homeownership is manageable in your current financial situation.

Other options to consider

Before targeting retirement accounts, first-time buyers should explore other lower-risk alternatives.

One option is to build a dedicated down payment fund by regularly setting aside money from each paycheck. Automating contributions to a separate account can help accelerate the process, while keeping you disciplined. Utilizing tax refunds, bonuses or scaling back discretionary spending can also help grow savings.

Family gifting might also be a possibility. Current tax laws allow a person to give significant amounts each year without triggering gift taxes. This can help supplement any gaps in savings.

Depending on where you live, many states, organizations and housing agencies might offer down-payment assistance through programs such as FHA, VA or USDA. These programs are designed to help buyers break into the housing market without sacrificing long-term savings.

What to consider before making an early retirement-savings withdrawal

For first-time buyers considering pulling retirement funds to help purchase a home, it's worth asking: Does this withdrawal create a gap in my retirement savings that might be difficult to recover from later?

IRAs, 401(k)s and other retirement accounts are specifically designed to grow over decades of time. Once money is taken out, its ability to compound stops.

While buying a home might feel urgent and the benefits can be rewarding, protecting long-term financial security might be the better option.

Most of the time, it's better to borrow for a home instead of taking from your future retirement.

Related Content

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• I Am 55 With a $1.5 Million 401(k). Should I Take a 401(k) Loan to Pay for a Home Improvement Project?
• Considering a 401(k) Loan? What You Can Do Instead
• I'm 61 and need $50,000 for home repairs. Should I borrow, given today's rates, or take a withdrawal from my $950,000 401(k)?
• Applying for a Mortgage Loan? Here's What to Expect

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Reality does kind of bite for Gen X, the generation that grew up watching music videos on MTV. Now nearing retirement, they are closely monitoring their 401(k) balances to see if they're on track to retire.

Born between 1965 and 1980 and ranging in age from 46 to 61, Gen Xers are the first generation of American workers to rely on their own 401(k) savings to fund the bulk of their retirement, rather than on traditional pensions.

Gen X, dubbed the "sandwich generation" due to the pressure of supporting their kids while also caring for aging parents, has faced financial challenges along the way. They lived through the 2000 dot-com stock bust, the 2008-2009 financial crisis, the COVID pandemic in 2020, and the 2022 inflation scare. Today, Gen Xers' 401(k) balances are being pushed lower by soaring energy prices and economic uncertainty caused by the U.S. war with Iran.

Now, with Gen Xers nearing retirement, the size of their nest eggs is growing in importance, and they are falling short of the mark. Americans think the "magic number" for a comfortable retirement is $1.46 million, up $200,000 from 2025, according to Northwestern Mutual's "2026 Planning & Progress Study" released on April 1, 2026.

"The new 'magic number' reflects a convergence of factors — from persistent inflation and longer life expectancies to uncertainty about the future of Social Security," said John Roberts, chief field officer at Northwestern Mutual.

What is the average 401(k) balance for Gen X?

So, has the sandwich generation saved anything close to the magic number? The average Gen X 401(k) balance is $222,100, according to Fidelity Investments' fourth-quarter 2025 analysis of its 24.8 million plan participants. Only Baby Boomers, who've been saving much longer, have larger balances ($270,800). Similarly, the average account balance of someone in their 50s — which constitutes the largest cohort of Gen X savers — is $246,700, Fidelity data show.

Source: Fidelity 2025 Q4 Retirement Analysis.

While the average Gen Xer has nearly a quarter of a million dollars saved, that's far less than the $1.46 million Americans say they'll need to retire comfortably.

There is some good news and not-so-good news for Gen X in the latest account balance data.

On the plus side, Gen X workers, on average, are socking away 15.4% of their pay annually (including their company's matching contribution), topping Fidelity's suggested 15% annual savings rate. In the final quarter of 2025, Gen X increased their 401(k) contributions by 10.7%.

Gen Xers who have been saving in the same retirement account for the past five, 10, and 15 years have also accumulated more money in their 401(k)s than any other generation, according to Fidelity's 4Q25 data.

For example, Gen X savers who invested in the same 401(k) for 15 years have balances of nearly $700,000, roughly $80,000 more than the average 401(k) balance across all generations, at $617,600.

"The consistency so many Americans show in maintaining responsible savings behaviors and keeping a long-term perspective will serve them well in retirement," said Sharon Brovelli, president of workplace investing at Fidelity.

Why many Gen Xers face a retirement savings shortfall

While there is no universal retirement number, Northwestern Mutual recommends following the "80% rule," or aiming to replace about 80% of pre-retirement income.

That high hurdle is likely one reason why Gen Xers nearing retirement are the "least confident" of all generations in their retirement preparedness, according to Northwestern Mutual. In fact, one in five Gen Xers say financial challenges or concerns have already caused them to delay retirement, the insurer's study found.

Source: Northwestern Mutual.

In another sign of financial stress, one in four (25.8%) Gen Xers has an outstanding 401(k) loan, the highest rate of any generation and well above the 19.4% average, according to Fidelity's 4Q25 analysis of its 401(k) plans.

To estimate the size of the retirement shortfall the average Gen X saver faces, let's see how they are faring using Fidelity Investments' savings rule of thumb. Fidelity says savers should have six times their salary saved by age 50 and eight times their salary socked away by age 60.

The analysis by Northwestern Mutual found that only 29% of Gen Xers have saved six times or more of their salary. And just 19% have saved eight times or more of their salary.

Source: Northwestern Mutual.

One reason why Gen X is behind in their retirement savings is that they got a late start. They didn't start saving until age 32, on average, which is 4 years later than Millennials and 10 years later than Gen Z, according to Northwestern Mutual. The late start means they have had fewer years to save and benefit from the power of compounding.

Moreover, with life expectancies on the rise, half of Gen X savers say it is likely that they will outlive their savings. "The prospect of a longer retirement comes with additional financial pressures," said Bruce Palmieri, partner and wealth management advisor at Northwestern Mutual.

Those savings figures suggest that most Gen Xers are facing a retirement funding shortfall. Still, the fact that half (49%) of Gen Xers have saved at least four times their current annual salary is reassuring, as that is an improvement over last year, when only 41% said they had four times their salary saved. "They have made some progress," the Northwestern Mutual study noted.

How Gen X can catch up on retirement savings

If you're a Gen Xer reading this, there's still likely time to get better prepared for retirement.

• Boost your savings rate. Beefing up a 401(k) plan starts with saving more, says Palmieri. To bolster your 401(k), spend less and funnel any extra cash you get via a raise or bonus to your nest egg. Younger Gen Xers still have 20 years until retirement, so there's ample time for their contributions to grow. "The power of compounding interest will work on your side," said Palmieri. "We recommend workers increase their savings every year."
• Save enough to get your company match. Don't leave a single penny on the table. Make sure you contribute enough to your 401(k) to receive your employer's matching contribution.
• Take advantage of catch-up contributions. Gen Xers over age 50 should not only try to max out their regular 2026 401(k) contribution limit ($24,500), but also take advantage of the $8,000 catch-up contribution the IRS allows, Palmieri advises. And if you are a Gen X saver aged 60 or 61, try to also fund the additional "super catch-up contribution" of $3,250, which is available to Americans ages 60 through 63, thanks to a change in the SECURE 2.0 Act.
• Invest for growth. You won't be able to fill the savings gap by putting your money into a low-interest savings account. You'll need to invest in growth-oriented assets like stocks, which are more volatile but have historically generated higher returns. "Be as aggressive as you can be with every dollar," said Palmieri. Younger Gen X savers, such as those with two decades until retirement, should have roughly 80% of their assets invested in stocks, says Palmieri. Those closer to retirement should allocate about 65% of their portfolio to equities.
• Downsize. If the savings gap is too big to close with 401(k) contributions, consider downsizing to a smaller home or moving to a less-expensive area of the country, adds Palmieri. "You can invest any freed-up home equity to help boost your retirement assets," said Palmieri.

Finally, you could always delay retirement a year or two. That will allow you to avoid tapping your 401(k) for a few more years and enable your money to continue to compound. Earning a salary for a few more years and continuing to contribute to your 401(k) is another plus. "This strategy could make a several hundred thousand dollar difference over a number of years," said Palmieri.

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Question: I’m 55 and married with a $1.5 million 401(k) balance. I earn about $150,000 a year and expect to remain in my job until I retire. I’m planning a major home improvement project, but I lack the immediate cash to cover it.

Since the interest rate on most credit cards is astronomically high, I’m considering a 401(k) loan instead. Is this a sound strategy for someone of my age, or will it harm my future retirement?

Answer: When it comes to borrowing against your traditional 401(k) or Roth 401(k), the conventional wisdom is to avoid it at all costs. After all, it's less money in your account that can grow and compound.

But in some circumstances, borrowing against your 401(k) may not be a bad move, especially if you have a sizable retirement savings, are planning to remain in your job for a while and can afford to pay it back.

"Generally speaking, we advise clients to allow it to grow tax-free, at least while you are employed, but from time to time, it makes sense to take out a 401(k) loan," says Stephanie Williams, senior wealth advisor at AlphaCore Wealth Advisors.

"If you have an urgent home repair that needs to be done right away, a medical expense or funeral costs, it can make sense to take a loan provided you have strong job stability and plan to repay it quickly."

Start by asking three key questions.

1. Are your savings on track?

Take your retirement savings balance for starters. With $1.5 million already saved, you are ahead of many Americans.

According to JPMorgan Chase, a 65-year-old making $150,000 should have $1.34 million saved to live comfortably, and you already exceeded that amount, 10 years early. That means you have ample time to save even more for your golden years.

2. Is your job secure?

Then there is your job stability. When you borrow against your 401(k), you can spread out repayments over five years if you want to, but if you leave your job, you typically have until the tax filing deadline, including any extensions, to pay it back.

If you don't, that loan will be treated as ordinary income and taxed at your marginal rate, which, for your income level, would be 22% in 2026. That's why financial advisers say it makes sense only if you have high job security.

3. What is the 401(k) loan's interest rate?

Finally, there is the interest rate to consider. With a 401(k) loan, the interest rate tends to be much lower than if you used a typical credit card. At last check, the average APR on a credit card is 19.58%, according to Bankrate, while the average interest charged on a 401(k) loan is currently around 7.75%.

Most 401(k) loans set their interest rate at the Prime Rate plus 1%, which tends to fluctuate. As of March 2026, the Prime Rate, the base interest rate that commercial banks charge their most creditworthy corporate customers, is 6.75%, resulting in a loan rate of around 7.75%.

Plus, with a 401(k) loan, that interest isn't going to a bank or credit card issuer; it's paid back to your own 401(k). You are paying yourself interest, but using it with after-tax dollars.

Keep in mind that every retirement plan will differ. Check with your plan administrator to determine the terms and interest rate before you take out a loan.

It's worth noting that 401(k) loans are usually capped at $50,000. If your home improvement needs are greater, you will have to find the balance elsewhere.

Advantages of a 401(k) loan

There are other benefits to borrowing against your 401(k) instead of charging the cost of the home improvement.

For starters, it won't impact your credit score because it doesn't show up in your credit report. If you plan to finance a big-ticket item in the future, you won't have to worry about paying more in interest.

It can also be quick and easy to take out a loan. You can often have the money in your bank account within three to five days without filling out paperwork or explaining the purpose of the loan.

Since you are using the loan for home improvement, the outcome will be to increase your home's value and build equity. (Some home improvement projects have a higher return on investment than others, so do your research first.) Certain renovations can be added to your home's cost basis or the total amount invested in your home, which could reduce your capital gains taxes if and when you sell the home, provided the gain exceeds the $500,000 exclusion for married couples.

It's also better than a 401(k) withdrawal because of your age. You won't have to pay the 10% penalty that is associated with withdrawals when you are under 59½. (However, since you are 55, you might not have to pay the 10% penalty for a 401(k) withdrawal under the "rule of 55," but only if you decide to leave your job.)

One caveat: Make sure your plan doesn't suspend the ability to receive the company match while the loan is outstanding. If it does, you are walking away from free money. In that case, you'll have to do the calculations to see if the lower interest rate from a 401(k) loan is worth it.

Options other than a 401(k) loan

Judging from your question, your options may be limited when it comes to borrowing money for your home improvement project, but if you have a home, a good credit score and equity built up, there could be cheaper ways to access capital.

For instance, a Home Equity Line of Credit (HELOC) allows you to borrow against a portion of your home’s equity. You pay interest only on the amount you withdraw.

Keep in mind that HELOCs typically have a variable interest rate during the draw period, which means the interest can fluctuate. Since your home is used as collateral, you could face foreclosure if you can't pay it back.

If you have a good credit score, you could take out a credit card with a 0% introductory rate to finance part of your loan, but only if you are certain you can repay the loan within the time frame allotted. (And there's no guarantee you can get a credit limit high enough to cover the cost of your project.) Otherwise, the rate will reset and could be much higher than the 401(k) loan interest rate.

When a 401(k) loan doesn't make sense

A 401(k) loan may work for you, but there are instances when it isn't worth it.

If you borrow from your tax-advantaged retirement plan and stop making contributions to pay back the loan, it will be a double hit. There is no new money coming in, and the amount you borrowed is no longer growing. If you're doing this to consolidate debt, which you aren't, and rack up more, you could end up with a 401(k) loan plus new credit card balances.

"Borrowing from your 401(K) is an option that we educate all clients on," says Williams. "It depends on the rate and your personal situation. Consult with a financial adviser who can guide you through the process."

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There's nothing like a paycheck. Steady income pays the bills. Not to mention fun stuff like dinners out or a European getaway. But when you retire, the paychecks stop. The challenge, of course, is to turn your retirement nest egg into a steady paycheck that lasts a lifetime.

Let's say you’ve socked away $1 million. How do you turn that seven-figure account balance into a lifetime income machine that is able to fund the lifestyle you envision in retirement?

It starts with a game plan, says Nilay Gandhi, senior wealth adviser at Vanguard. "A lot of clients want to know whether what they have saved will be enough," says Gandhi. "But retirement security doesn't come in the form of a number. There needs to be a plan in place to help determine if they'll have sufficient funds."

The starting line: know your number

Before building your income machine, you must figure out how much income you'll need after your working days are over.

If you've already done this exercise (as many Kiplinger readers have), jump to the next section on the "Five Ds."

Gandhi suggests a simple three-step audit.

First, add up your monthly must-pay expenses in retirement (housing, healthcare, car payments, etc.).

Next, build a realistic budget for "mad money" (travel, entertainment). Develop a budget and spending plan that is doable and allows you to withdraw what you need without outliving your money.

Finally, figure out where you will get the income to cover your expenses, such as Social Security, investments, rental income and the like. "You must layer all of those income pieces together and coordinate it so that you're able to turn those savings streams into a dream retirement," says Gandhi.

Once you know how much your portfolio needs to bridge, you can apply the "Five Ds" strategy.

The 'Five Ds' to turn your 401(k) into retirement income

When building a retirement income plan, there are five things that go into the decision and that you should think about, says Lindsay Theodore, a thought leadership senior manager at T. Rowe Price specializing in retirement and personal finance.

You want to make sure you have all the key bases covered so your income-generation plan holds up even in times of market stress.

Theodore refers to this income stream framework as the "Five Ds":

1. Diversification

The more diversified your income sources are, the better. "Social Security plays a big role," says Theodore. These government benefits are guaranteed, adjusted for inflation, and last for as long as you live. That's why waiting as long as possible to turn on Social Security and boosting your monthly benefit is a key plank in a retiree's income plan. Waiting until age 70 to take benefits provides 77% more in monthly income compared to claiming at age 62, according to the Social Security Administration.

But relying on Social Security alone will result in a sizable income gap. "You need a mix of income sources," says Theodore. You can also generate income from, say, your target-date fund in your 401(k) that holds a mix of stocks and bonds. Or equity and fixed-income funds you own in a taxable brokerage account. Traditional pensions can also provide a steady stream of income. Finally, an annuity that turns a lump-sum payment you make to an insurer into a guaranteed income stream also falls into this category. If you own rental properties, that income stream can be added to the pot, too.

2. Duration

You need your money to last, ideally through your entire lifespan. That's why income sources need to fill short-, medium-, and long-term buckets.

Your short-term bucket should be sitting in low-volatility assets that are not impacted by market swings and that you can access easily. Examples include high-yield savings accounts, money market accounts, short-term U.S. Treasury bonds, or CDs.

The medium bucket looks out three to 10 years and includes assets such as high-quality bonds and bond funds that can deliver some income while also dampening volatility.

Your long-term bucket, or growth bucket, should consist of well-diversified stock funds and exchange-traded funds (ETFs) that deliver long-term growth and inflation protection.

3. Downside protection

If you want to generate consistent income and not prematurely drain your account balance, make sure you don't have all the assets you can pull from invested in stocks or other assets that are susceptible to steep price declines. You want plenty of money in a so-called rainy-day type of fund that holds its value in down markets and can be withdrawn easily. Having this cash handy means you won't have to sell assets in a declining market to raise money to pay the bills.

"You need guaranteed income from conservative assets," says Theodore. "We recommend retirees have 13 months to 24 months of cash (or cash-like equivalents) on hand."

Having that amount of cash available will help retirees ride out most stock bear markets without having to tap their stock holdings when prices are depressed. That unfortunate effect is known as the sequence of returns risk.

Going back to 1929, the 12 "garden-variety" bear markets, or downdrafts between 20% and 39.99%, have averaged total declines of 27.6% for the S&P 500 stock market, according to S&P Capital IQ. The good news? The market recovered all its losses in 13 months, on average.

4. Discretion

The ability to access assets at a moment's notice to pay for a non-budgeted expense or other type of financial emergency is also key to a sound retirement income plan. Discretion refers to how liquid a retirement account balance really is. Retirees need to easily access their savings when they need to.

"Having withdrawal flexibility is important," says Theodore. "With these types of withdrawals in mind, it could help you determine how much you want to allocate to each of your sources of income in retirement." For example, you don't want 100% of your assets in stocks, which are volatile and can suffer sharp drops from time to time.

5. Drag

You want to avoid so-called tax drag and high fees that eat into your account balance. "You especially want to minimize taxes," says Theodore. That's why it's important that you are mindful of the tax impact of any withdrawals you make in retirement.

A withdrawal from a traditional 401(k) funded with pre-tax dollars, for example, will be taxed at your ordinary tax rate. In contrast, a withdrawal from a Roth IRA or Roth 401(k), is tax-free as your initial contributions were made with post-tax dollars. The less you pay in taxes, the more money that stays in your accounts. "(Smart) withdrawals can help your money last longer," says Theodore.

This is where tactical withdrawals come in. You might consider, for example, drawing down your tax-deferred retirement accounts and delaying taking Social Security. The benefit is two-fold. First, by drawing down on your 401(k) assets that are taxed as ordinary income, you will reduce the amount of required minimum distributions (RMDs) you will have to take at 73 and, therefore, the amount of income you’ll have to pay taxes on. The second benefit is that you can potentially wait until age 70 to start taking Social Security benefits, which will ensure that you will have a much higher monthly benefit than if you turn on benefits at age 62 or even at full retirement age.

How much should you withdraw from your nest egg in retirement?

The rule of thumb is to take 4% from your retirement savings each year to supplement your guaranteed income streams and ensure your money lasts at least 30 years. So, if your retirement account balance is $1 million, a 4% withdrawal rate will net $40,000 in income annually.

Here's an example of how you can create a paycheck from your $1 million savings.

Let's say you need $80,000 in annual income and expect to receive $40,000 in guaranteed Social Security income. That leaves you with a $40,000 savings gap.

The rest of the money will come from your own savings. Here's how it might work.

Let's say you follow the advice of personal finance experts and have a variety of income streams to pull from. You have 60%, or $600,000, of your $1 million nest egg invested in a target-date retirement fund; 10%, or $100,000, in an annuity earning 6.5%; 10% in a core bond fund yielding 5%; 10% in a money market paying 3.5% interest; and 10% in growth investments that earn 10%.

This diversified approach of pulling income from different buckets will generate $49,000 in income, or $9,000 more than you need. That extra $9,000 could fund a fun vacation but also serve as a cushion against inflation or a health care emergency.

The key is to make use of all the different income streams you have and to coordinate the withdrawals from the buckets in a way that will make your money last as long as possible, says Vanguard's Gandhi.

What's the biggest mistake retirees make that puts their revenue stream at risk over time?

"(They lack) withdrawal discipline," says Gandhi. In other words, they spend too much, which forces them to take much larger distributions than their plan calls for.

"You need to stick to spending rules," says Gandhi. "Money can be emotional. But you can't let your emotions rule."

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Imagine looking into your 401(k) and seeing something new in which to invest — a target-date fund promising "alternative exposure" and higher long-term returns. The fine print says part of your savings will be invested in private capital.

Private what?

It sounds sophisticated, exclusive — the kind of strategy used by Yale’s endowment or a Wall Street billionaire. If the regulators get their way, you might soon have the chance to own a slice of it, too.

Federal officials are preparing to make it easier for private capital — a catch-all term for loans and investments in private equity, private credit and other non-traded assets — to enter ordinary retirement accounts.

The move is being hailed by some as the "democratization" of Wall Street’s most lucrative playground. Others see it as a dangerous experiment that could expose retirees to high fees, murky valuations and money they can’t touch when they need it most.

Recently, I spoke with an executive at one of the biggest retirement and pension managers, and adding private capital to regular retirement accounts was top of mind. A game changer, he called it — but not necessarily for the better.

What exactly is private capital?

Private capital has grown from $1 trillion to nearly $3 trillion in a decade with investments in companies, loans or projects that don’t trade on an exchange. It includes private equity (buying and selling stakes in unlisted firms), private credit (lending directly to businesses) and sometimes real estate or infrastructure — all mostly outside traditional banking oversight.

The pitch is simple: By avoiding Wall Street’s daily volatility, investors can earn an illiquidity premium — higher returns in exchange for locking up their cash. Institutional investors such as pensions, endowments and sovereign wealth funds have been doing it for decades, often with strong results.

Wealthy individual investors have had access, too — through private banks, family offices and alternative-investment platforms that market private equity and private credit as portfolio enhancers for clients who can meet high minimums and tolerate long lockups.

For individuals, however, the model doesn’t translate as well. Retirees need liquidity, transparency and predictable income — exactly what private capital lacks.

The policy door cracks open

For years, private capital was off-limits to 401(k) participants. That changed in 2020, when the Department of Labor issued an information letter allowing plan fiduciaries to use diversified funds with small allocations to private equity, provided they performed thorough due diligence.

In 2021, the department urged caution, noting that most retirement plans lacked the expertise to vet such complex investments. In August 2025, the department rescinded that warning, signaling a green light for broader access. Around the same time, the Trump White House issued an executive order directing regulators to "democratize" alternative assets in retirement plans.

The financial industry got the message. Firms such as BlackRock, Blackstone and Goldman Sachs are designing collective investment trusts (CITs) and interval funds — semi-liquid vehicles meant to fit neatly into 401(k) structures. These funds promise the best of both worlds: exposure to private markets with "managed" liquidity.

Translation: You’ll be able to own a piece of Wall Street’s high-stakes game, but only on Wall Street’s terms.

The case for and against

Supporters argue that giving everyday investors access to private markets is long overdue. Private companies now account for a growing share of corporate America’s profits. If retirement savers are confined to public stocks, they’re missing out.

A Vanguard report last fall said limited exposure could potentially increase returns if investments are managed prudently. A 2025 analysis by the Wharton School suggested that, in professionally run target-date funds, private assets might enhance long-term outcomes for young workers with decades to invest.

Critics say the risks overwhelm the promise. The Center for Retirement Research at Boston College warned that private-equity performance is highly variable and often overstated. "Private equity is not a transparent investment," says senior adviser Alicia Munnell. "It adds unnecessary risk to retirement saving."

The CFA Institute, which certifies financial analysts, is blunter: "Private markets remain inappropriate for most retail investors due to illiquidity, high costs and limited transparency."

What could possibly go wrong? The risks aren’t theoretical.

• Illiquidity. Private funds typically lock up money for 5 to 10 years. Even the new interval funds can “gate” redemptions — capping or suspending withdrawals during stress periods. Retirees who need income often can’t wait.

• Opaque valuations. Private assets are priced quarterly, based on appraisals or manager estimates. When markets turn, those valuations lag — often until after investors have taken the hit elsewhere.

• High fees. Between management charges, performance fees and fund-of-funds expenses, total costs can reach 3% to 5% annually — 10 times what a basic index fund costs.

• Manager dispersion. The gap between top-quartile and bottom-quartile private funds is enormous. Institutions spend millions identifying the best managers. Retirement investors get what’s left.

Strategy: What savers should do

If private capital does find its way into your retirement plan, treat it as an experiment — not an invitation.

• Keep allocations small. Any private-asset exposure in a target-date or balanced fund should stay below 5%. If you’re within five years of retirement, less is better.

• Read the liquidity fine print. Quarterly redemption windows can close during downturns. Make sure you understand how — and when — you can get your money back.

• Watch the fees. Ask your plan sponsor to disclose the total expense ratio, including performance fees and sub-adviser costs. If you can’t get a straight answer, that’s a red flag.

• Don’t chase prestige. Endowments hold private equity, but that doesn’t mean you should. They have teams of analysts; you have bills.

• Demand transparency. Ask your employer or plan provider what fiduciary protections are in place. The DOL’s rules might allow private assets, but they don’t reduce your plan’s duty of prudence.

The risk beneath the surface

The stakes go beyond individual investors. A 2025 Equitable Growth report warned that embedding private credit into retirement accounts could amplify systemic risk.

If loans sour and redemptions freeze, a wave of gated funds could hit millions of savers at once. This isn’t paranoia. In a downturn, those hidden exposures could surface fast.

That’s the irony: Wall Street sells private capital as diversification. In reality, it can concentrate risk in ways regulators and retirees are only now beginning to understand.

Our take: We've seen this before

If you’ve covered markets long enough, you recognize the pattern. When traditional products mature and margins thin, finance finds a shiny new frontier — and sells it as inclusion. In the 1980s, it was mutual funds; in the 2000s, hedge funds; in the 2010s, crypto.

Now it’s private capital. The rhetoric of “democratization” makes it sound noble, but the motivation is profit. Wall Street doesn’t want to share its best deals; it wants to scale them.

The real test isn’t whether private capital can fit into your 401(k) — it’s whether it should. Retirement investing works precisely because it’s simple, liquid and disciplined. Mixing in opaque, high-fee assets undermines that foundation.

What to do now

• Stick to what you can understand. If you can’t explain an investment to your spouse in two sentences, it doesn’t belong in your retirement plan.

• Favor liquidity. Access to cash isn’t a luxury; it’s protection.

• Be patient. Wait and see how these new products perform in real market conditions. Private capital has its place — just not in the nest egg that you need to finance the rest of your life. When it comes to retirement investing, “exclusive” doesn’t always mean “safe.” Sometimes, it just means you’re the last one to know when the door locks.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

Read more

• The 401(k) Shakeup: Private Equity's Role and Risks
• Average Net Worth by Age: How Do You Measure Up?
• Roth 401(k) Contribution Limits for 2026
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In the world of gray divorce, few documents are as critical as the Qualified Domestic Relations Order (QDRO). While your divorce decree officially ends the marriage, it is the QDRO that actually moves the money, acting as the legal bridge between a court’s ruling and your share of a 401(k) or pension.

For those over 50, this document is often the only thing standing between a comfortable retirement and a major financial setback, ensuring that decades of shared savings are legally and safely transferred to your name.

What exactly is a QDRO?

A QDRO, or Qualified Domestic Relations Order, is a court order used to divide qualified employer-sponsored retirement plans during a divorce. It ensures the division complies with federal ERISA (Employee Retirement Income Security Act) regulations and protects both parties from early withdrawal penalties and tax consequences.

While a divorce decree says you are entitled to half of an account, the plan administrator cannot legally disburse that money without a QDRO, which serves as the "key" to unlocking those employer-sponsored funds. Its sole purpose is to instruct a retirement plan administrator on dividing a pension or 401(k) account between two former spouses.

A QDRO can cover more than one retirement account. It can assign rights to retirement benefits under more than one retirement plan of the same or different employers, as long as each plan and the assignment of benefit rights are clearly specified.

Here are the types of retirement accounts it covers:

• Defined-contribution plans- 401(k)s, 403(b)s, SARSEP plans, SEP-IRA plans and SIMPLE IRA plans.
• Pensions: Defined-benefit plans that provide a monthly income.
• Profit-sharing plans: Employer-sponsored sharing schemes.  

QDROs are not used for IRAs

Traditional and Roth IRAs (individual retirement accounts), unlike 401(k)s or pensions, aren’t sponsored by employers. Because they are individually owned, IRAs don’t typically require a QDRO for division in divorce. However, this often creates confusion because it differs from employer-based plans.

IRAs are split using a simpler "transfer incident to divorce" process. Why? IRAs are governed by the Internal Revenue Code (IRC), not ERISA. Therefore, a traditional QDRO doesn’t apply to IRAs in the strictest sense.

Why QDROs are vital in gray divorces

In a gray divorce, the "nest egg" is usually the largest asset after the family home. Here is why the QDRO is the heavy hitter in these circumstances:

1. Protection of survivor benefits- For older couples, a pension might be the primary source of future income. A properly drafted QDRO can ensure that if the "participant" (the employee spouse) dies first, the "alternate payee" (the non-employee spouse) still receives their portion of the monthly check. Without this specific language, those benefits could vanish upon the ex-spouse's death.

2. Avoiding tax penalties- Normally, taking money out of a 401(k) before age 59-½ results in a 10% early withdrawal penalty. However, if funds are distributed via a QDRO, that 10% penalty is waived. This allows the receiving spouse to access cash for immediate needs (like buying a new home) without being punished by the IRS, though standard income tax still applies.

3. Catch-up potential- By age 55 or 60, most people have reached their peak earning years. A QDRO ensures that the non-earning spouse receives their fair share of the compounded growth that happened over decades of marriage.

Summary of the QDRO process

Because these documents are highly technical and plan-specific, it is almost always worth hiring a specialist to draft them. One wrong word can lead to a rejection and months of delays.

• Agreement: The divorce settlement determines the split of your assets.
• Drafting: A specialist or attorney drafts the QDRO.  
• Pre-approval: The plan administrator reviews the draft to ensure it meets their specific requirements.  
• Judge’s signature: The court signs the order.
• Execution: The signed order is sent back to the plan administrator, who then moves the funds.

Why a divorce decree is not enough

When couples split after 50, the house is often secondary to the pension or the 401(k). At that stage of life, there’s zero time to "earn back" a retirement fund lost to needless delays or a paperwork error.

A divorce decree is not necessarily a QDRO. Many people think that because the judge signed the divorce papers, the money outlined in the decree is automatically theirs. In reality, without a separate QDRO approved by the plan administrator, that money stays with the ex-spouse. It can only pay benefits under the terms of the written plan document — regardless of what the divorce decree may say.

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In a shift that could spur broader adoption of Roth retirement accounts by both employers and workers, higher-income employees who make catch-up contributions to a workplace plan in 2026 will see a big difference in how those extra dollars are taxed.

Under new SECURE 2.0 Act rules taking effect on January 1, employees age 50 and older who earned more than $150,000 in 2025 are now required to use a Roth 401(k), 403(b) or 457(b) account for catch-up deposits instead of a traditional savings plan funded with pretax dollars. "That means they’ll pay taxes on those contributions now but will be able to withdraw them, plus investment earnings, tax-free in retirement," says Dina Caggiula, head of participant experience at Vanguard.

Before this change, the choice of whether to make catch-up contributions via a Roth or a traditional workplace retirement account was yours, no matter how much you earned — and most people picked the traditional, pretax version. With that account, you get a tax deduction for contributions in the year you make them but pay income taxes when you take money out in retirement.

Planning to make catch-up contributions in 2026? Here's what you need to do now.

Know what counts as a catch-up

The new rule applies only to catch-up contributions, which allow workers age 50 and older to save more for retirement than younger colleagues.

In 2026, if you're age 50 to 59 or age 64 or older, you can save an additional $8,000 in your 401(k) above the standard annual limit of $24,500, for a total of $32,500. If you're between 60 and 63, you can kick in an extra $11,250, pushing your max to $35,750.

Even if you earned more than $150,000 in 2025, you can still make regular 401(k) contributions up to the $24,500 limit in a traditional, pretax account and get the up-front deduction, says Ian Berger, a retirement plan expert with Ed Slott and Company, which trains financial advisers. If you earned less, you can continue saving via a Roth or a traditional account, whichever you prefer, for both regular and catch-up contributions.

Determine whether you have access

A potential wrinkle: While higher earners will now be limited to Roth-only catch-up savings, the law does not require employers to offer Roth accounts. That could leave some workers unable to make catch-up contributions at all.

You're likelier to have access if you work for a big company. Vanguard (PDF) reports that 95% of businesses with 1,000 or more employees offer a Roth option, versus 76% of those with fewer than 500 people on staff. To make sure, check with your HR department or plan administrator.

Berger expects the new rule will prompt more firms to add a Roth to their plan lineup. He says companies don't want to upset their highest-paid employees, and often, business owners themselves face the same catch-up restriction.

Playing catch-up

The more you earn, the likelier you are to make catch-up contributions to a 401(k), if eligible.

Source: Vanguard

Consider the value of tax-free retirement income

The change may also nudge more workers to opt for a Roth. Even though usage has been rising recently, only 18% of 401(k) plan participants choose a Roth, Vanguard reports — including just 14% of workers ages 55 to 64 and 21% of savers earning more than $150,000, who are now required to make catch-up contributions in them.

"Roth participation has grown by 50% over the past five years, and we expect to see it continue to grow due to several factors, including the SECURE 2.0 provision and increased general awareness of Roth options among participants," says Caggiula.

No matter what your age and income, Caggiula suggests thinking about a Roth for at least a portion of your future 401(k) contributions to diversify how your savings will be taxed once you retire, particularly given today’s historically low rates.

"Tax-free income in retirement can be a big advantage if tax rates rise in the future or for those who expect to be in a higher bracket later in life," says Caggiula.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Since the early 1980s, 401(k) plans have helped millions of employees, like you, save more for retirement. And this year, the IRS handed you a big bonus with higher contribution limits. Why does this matter? In an era of increased longevity, rising health care costs, and ongoing uncertainty surrounding the future of Social Security, maximizing your 401(k) is more than just a good idea — it is a smart strategy for securing your financial independence, managing retirement costs, and building a lasting legacy for your heirs.

Here are some of the best strategies to Max Out Your 401(k) in 2026 and beyond.

Why maxing out your 401(k) matters more than ever in 2026

During the years leading up to retirement, you’ve probably pictured what life after work will look like for you — traveling the world, spoiling the grandkids or simply sleeping in without worrying about setting the alarm clock. However, these dreams require a strong financial foundation to become a reality.

With the higher 2026 contribution limits, you can stash away more pre-tax dollars, letting your money grow tax-deferred through the magic of compounding.

But it's not just about the numbers. As inflation erodes the value of personal savings, the cost of living continues to rise significantly; for instance, food prices jumped about 25% between 2020 and 2025. And in 2025 alone, food prices rose another 2.3%.

Health care expenses present a similar challenge. According to the latest available data from the Centers for Medicare & Medicaid Services (CMS), annual per-person health spending reached approximately $15,474 in 2024, with projections showing continued increases into 2025 and 2026.

And what about Social Security? In 2026, it might cover basics, but not the lifestyle you want.

Maxing out your 401(k) gives you a buffer against these realities. More savings also means less burden on your kids or grandkids. In short, it's about building a future where you can thrive, not just survive.

2026 401(k) contribution limits

The IRS bumped up the standard employee contribution limit for 401(k)s to $24,500 in 2026 (up $1,000 from last year). That's real money that grows tax-deferred. And, if you’re age 50 or older, add in an $8,000 catch-up for a total of $32,500.

Plus, thanks to SECURE 2.0, if you’re age 60 to 63, you get a super catch-up of $11,250, pushing your max to $35,750. Include your employer match on top of your contributions, and the overall limit can hit $72,000 or more with catch-ups.

A heads-up for high earners making over $150,000 in 2026. Starting this year, your catch-up contributions to a 401(k) must be made on a Roth (after-tax) basis. This means paying taxes upfront, but you’ll benefit from tax-free growth and withdrawals later in retirement.

Read: The 2026 Retirement Catch-Up Curveball: What High Earners Over 50 Need to Know Now.

How to hit the max in 2026

No, you don't need to be rich to hit the max contribution limits in 2026. Discipline beats income. Here’s a few tips to get you started:

Know your plan inside out: Just like you'd familiarize yourself with a savings account or CD, understand the ins and outs of your 401(k). Visit your provider's website or talk with HR to check your company match, fees and investment choices. Understand your investments and consider diversifying for greater flexibility and growth opportunities.

Crunch the numbers: Let's say your salary is $100,000. If that's the case, you'll want to set aside around 24.5% out of each paycheck to maximize your 401(k). That might seem like a lot at first, so you may prefer to start with a lower percentage that feels more doable now. Also, many retirement plans include an auto-escalation feature, which gradually bumps up your contributions by 1-2% each year, making it easier to save more without having to think about it.

Take advantage of free money: If offered by your plan, employer matching is essentially like a raise. Make it a priority to contribute enough to receive your full employer match. For instance, if your employer matches 50% of your contributions up to a certain limit, maximizing your contributions can significantly add to your retirement fund.

Dollar-cost averaging and front-load strategies: When choosing how to best contribute to your 401(k), you may have two primary strategies, depending on your plan: dollar-cost averaging and front-loading. Dollar-cost averaging involves spreading out your 401(k) contributions evenly throughout the year. This makes it easier to budget each month and also helps soften swings in the market. On the other hand, if you receive bonuses or additional income, front-loading your contributions can provide more time in the market for your investments to grow and your money to compound.

A power move for people age 50 and up: If you’re 50 and older or between the ages of 60 and 63, you have the opportunity to maximize your retirement savings significantly through catch-up contributions. This extra amount can have a tremendous impact on your savings, especially if you're nearing retirement age any time soon.

Choose a Roth or Traditional 401(k): If you anticipate being in a higher tax bracket during retirement, opting for a Roth allows you to pay taxes on your contributions now rather than later. On the other hand, if you'd prefer a tax break now, a Traditional 401(k) may be more to your liking. Many individuals choose to have a mix of both account types, which provides a balanced approach as your financial needs evolve.

Stay the course: It goes without saying that staying on top of your retirement goals is important. Checking in on your contributions every quarter can help you stay on the right path. If you receive a year-end bonus, consider increasing your contributions immediately, giving you a head start into the next year. Staying consistent and proactive with your contributions will help you build a strong financial foundation for retirement.

Watch out for these trip ups

Now that you're on track to max out your 401(k) in 2026, here are some common pitfalls to watch out for.

Account for future taxes: Retirement accounts like 401(k)s are tax-advantaged. That means you can deduct your contributions upfront. However, you'll owe income taxes when you retire and start making withdrawals.

Watch out for RMDs: At age 73, you’ll be required to take required minimum distributions or RMDs. So, not only do you need to calculate how much must be withdrawn each year, but you must also pay the tax on the distributions come tax time.

Resist early withdrawals: Early withdrawals from your 401(k) can hurt your retirement plans. While tempting, dipping into your retirement funds can put a serious dent (10% penalty) in the plans long-term growth, even if you eventually pay it back through a loan.

Don’t leave old 401(k)s on the table: If you leave your job, you can take your 401(k) with you or leave it with your current employer. But forgetting it can be costly: According to Capitalize, it is estimated that there are 31.9 million left-behind or forgotten 401(k) accounts holding approximately $2.1 trillion in assets. What's even more alarming: the number of forgotten 401(k)s has almost doubled over the last decade.

Avoid maxing out too quickly: Jeremy Keil with Keil Financial Partners says, “If you max out your 401(k) too early, you'll no longer be putting money in and no longer getting the match.” Keil tells of a time when a friend got a large bonus in January and was bragging that he maxed out his 401(k) in January. Keil said, "I bet you don't get a match through the rest of the year." It turns out that's what happened. The friend missed out on the 4.5% company match for the rest of the year, leaving behind $9,000 (on a $200,000 salary). Ouch.

No time like the present

With the higher limits in 2026, there's zero excuse not to take your 401(k) to the next level. Whether you're just starting out or playing catch-up, maxing your 401(k) is one of the simplest, most powerful moves for building real wealth. If necessary, start small, but start now. Your future self will thank you.

Pro Tip: Kiplinger Tools show exactly what maxing out does for your personal situation.

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Your 401(k) is arguably the single most important tool for achieving long-term financial security, thanks to its powerful tax advantages and the potential for employer matching. This 10-question quiz is designed to test your knowledge on the core mechanisms of these accounts — from understanding pre-tax contributions and Roth benefits to grasping the concept of vesting.

And don't worry if you miss an answer; you can follow the links below the quiz to brush up on your knowledge.

More on 401(k)s, from the Kiplinger team:

• Average 401(k) Balance by Age
• You Could Be a 401(k) Millionaire. Here's How
• Roth 401(k) vs 401(k): Which Is Right for You?
• Roth 401(k) Contribution Limits for 2026
• Convert a Traditional 401(k) into a Roth 401(k): An Ideal Move for High Earners
• How to Protect Your 401(k) in a Down Market
• Nine Ways to Find Your Lost 401(k)
• New SECURE 2.0 Super 401(k) Catch-Up Contribution for Ages 60-63
• 401(k) Super Catch-Ups: Are They Right for You?

If you're a high earner age 50 and older planning for retirement, you likely maximize your 401(k), 403(b), or governmental 457(b) plan with catch-up contributions.

For 2026, the standard annual contribution climbs to $24,500, but those 50 and older can add a standard catch-up of $8,000, while a "super" catch-up of $11,250 is available for taxpayers ages 60 to 63. These extra contributions have long been a favorite tax strategy because they allow you to save more pre-tax dollars while reducing your current taxable income.

But there's a curveball in 2026: Starting January 1, 2026, the rules change for anyone earning more than $150,000 in 2025. Every dollar you allocate in catch-up contributions has to go into the Roth side (not pretax) of your 401(k).

This single curveball wipes out the upfront tax break you used to get on those catch-ups, which can easily add a few thousand dollars to your 2026 tax bill. Keep in mind, only wages from the sponsoring employer plan count. Spousal income, investment income or wages from a side hustle don’t apply.

The good news? Your regular contributions, up to the $24,500 limit in 2026, can still be pre-tax, so you’re not losing everything. The bad news? If you were counting on that catch-up deduction to keep your taxes in check, it’s time to rethink the plan.

The IRS finalized this rule in September 2025, and it’s a hard hit for a lot of higher earners in their 50s and early 60s. If you’re used to getting that big deduction every year, your 2026 tax bill could easily jump by a few thousand dollars unless you're prepared.

Why this feels like a curveball

SECURE 2.0 was all about getting more people to save for retirement, but this one rule quietly pushes higher earners straight into Roth contributions instead. With Roth contributions, you pay tax now but enjoy tax-free withdrawals later, especially useful if you think your taxes rate will be higher in retirement.

The plot twist? You no longer get to choose. If you’re a higher earner, the IRS now forces all catch-up dollars into a Roth, with no more traditional pre-tax option, even if you’re in a high tax bracket now and would rather get the deduction today. If your plan doesn't already offer Roth options, you could be locked out of catch-ups entirely until it's updated.

Even in light of this change, there is good news. Plans get a "good faith" compliance grace period through 2026, with full enforcement in 2027. That gives employers wiggle room to adapt to the change. But for you, the saver, the clock is ticking; 2025 is your last year for unrestricted pre-tax catch-ups, according to the IRS.

Key changes and limits for 2026

The base contribution limit on 401(k)s, 403(b)s and 457s rises to $24,500 (up from $23,500 in 2025), with catch-ups of $8,000 if you’re age 50 or older and a super catch-up of $11,250 if you're ages 60 to 63. SIMPLE IRAs see similar changes, but the Roth rule applies mainly to employer-sponsored plans like 401(k)s.

The bottom line: You're still eligible for the full amount, but the upfront tax treatment just got pricier.

“Keep in mind that the mega backdoor Roth is still allowed under current law, making 2025 an important year to review your strategy, maximize any remaining pre-tax opportunities and consider whether larger Roth moves make sense while the rules remain unchanged," said Brian Colvert, CEO/CFP® at Bonfire Financial.

"Front-loading your planning in 2025 will help you stay ahead of what is coming.”

What this means for your wallet

Typically, you benefit from immediate tax savings by reducing your taxable income when you make catch-up contributions to your retirement account. However, with this new change for 2026, high earners will now have to pay taxes upfront on the full amount of their income instead of enjoying that immediate break.

There is an upside, long-term. Roth catch-ups excel if you anticipate higher taxes in retirement or you want to leave a tax-free inheritance for your kids. There are no required minimum distributions (RMDs) on Roth 401(k)s until you roll them over.

A Plan Sponsor Council of America (PSCA) survey found that 96% of 401(k) plans now include Roth provisions, meaning only about 4% lack them — a big jump from earlier years. If you’re in the 4%, talk to your HR department, or you might forfeit catch-ups.

What to do next

Don't let this new curveball destroy your 2026 retirement strategy. With 2025 winding down, the time to make 2025 contributions is nearly done. Here's what you can do to end the year strong and get started in the new year on the right foot.

• Max out 2025 contributions: If eligible, max out your contribution up to $31,000 ($23,500 plus $7,500 catch-up) this year. The deadline is December 31 for most plans.
• Audit your plan: Confirm Roth availability and super catch-up options with your employer.
• Weigh the impact: Compare the tax impact of a Roth vs putting extra savings into a taxable account. Contributing to a Roth could be a wise decision if you expect to be in a higher tax bracket in the future.
• Get help (if needed): Talk with a financial adviser or reach out to your human resources department at work. Factor in your tax bracket, expected retirement income and state taxes. Kiplinger tools can help.
• Diversify beyond your 401(k): Check out IRAs. They have no Roth requirement for catch-ups. Consider a backdoor Roth IRA if your income phases you out of direct contributions.
• Stay informed: Watch for IRS Notice 2025-67 (PDF) for final tweaks, and bookmark irs.gov for updates.

Plan now to save in the future

Melissa Murphy Pavone CFP®, CDFA® and founder at Mindful Financial Partners summarizes it best. “This 2026 change is a wake-up call for high earners over 50. Catch-up contributions are still valuable, but the tax strategy behind them is changing dramatically.”

She also cautions that not all advisers understand these new rules, nor will they prioritize tax analysis in retirement planning. That’s why it’s important to reach out to a qualified financial adviser with questions. They have the answers.

This curveball isn't quite a strikeout. Instead, it's a chance to rethink your retirement strategy (and 2026 New Year's resolutions). High earners such as you have the resources to adapt, but acting while you still have time could save you a tidy sum in taxes over time.

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Retirement planning is built on projections, but averages shape your financial reality. It’s not enough to know how much you need; you benefit from understanding how your financial picture compares to others.

One way to determine this is by looking at the average retirement income in the United States, categorized by age group and state.

The breakdown by age, from Empower, looking at the 2025 U.S. Census Current Population Survey, shows how the median and mean annual income for retirees change across different age brackets, from the more active 55 to 59 and 60 to 64 age groups to the later-stage 75-plus age group.

We also examined data on average retirement incomes across all 50 states, provided by Wisevoter and based on the U.S. Census Bureau's American Community Survey.

Knowing the average retirement income for your age bracket and state helps you benchmark your savings progress.

If the median household income for retirees in your state is, for example, $65,000, and your projected income is $40,000, you're below the local benchmark.

To maintain a similar standard of living in your area, you might decide you need to increase your savings or reduce your expected spending.

Retirement income by age, median and mean figures

Social Security provides a vital baseline, but it’s not enough to cover living expenses — especially when faced with rising health care costs and inflation. To bridge that gap, you need a realistic savings target.

By looking at data by age groups, you can see how much the average income drops over the course of retirement. The median income for those ages 60 to 64 is $83,770. That figure drops by $35,980 (nearly 43%) for individuals age 75 and older. This decline is attributed to a reduction in work income and the necessary drawdown of retirement accounts.

The median number is probably more representative of the actual average income in the U.S. than the mean number. This is because households with higher incomes tend to skew the mean calculation toward the high side.

Ultimately, the most important lesson derived from viewing average retirement income by age is recognizing the income deceleration that occurs in later years. The consistent decline in median income after age 59 underscores the financial risk posed by inflation and the cessation of work-related income.

This knowledge can be used to focus on creating a sustainable, tax-efficient withdrawal strategy today — one that accounts for the inevitable drop in income and prioritizes managing your future tax liabilities, such as required minimum distributions (RMDs), to protect the longevity of your portfolio. Your goal isn't just to reach the average, but to outlast it.

Average retirement income by state

Where you live is the single largest determinant of your retirement budget. While the national average retirement income serves as a starting point, it masks vast differences in the cost of living.

A detailed, state-by-state perspective can help you move beyond national generalizations, setting a savings goal informed by the real-world earnings of your counterparts in other states.

For instance, many states offer additional tax breaks for retirees. Some states exempt all retirement income from taxation, while other states offer substantial tax credits to retirees living on fixed incomes.

One reality you can't escape is how the federal government taxes your retirement income and estate. Even if you move to a state that doesn't tax Social Security benefits, pensions or has no inheritance/estate taxes, you will still be subject to federal taxes.

If you're considering a move, note that a state with a much higher average retirement income usually has a proportionally higher cost of living as well. Knowing this can help you assess whether your savings will be more durable in an area characterized by a lower average income and subsequently lower costs.

Planning tip. Only nine states tax Social Security benefits. You might want to take note of this as you're considering a move.

Using data to your advantage

The data show that retirement income is far from uniform; it can shift dramatically by age and geography. While median figures provide a powerful benchmark, your ultimate financial success depends on personalizing this information.

Use these age and state-by-state averages not as a final goal, but as a critical reality check. Suppose that your projected income falls below the average for your age or location. In that case, it’s a clear signal to increase savings, optimize your withdrawal strategy to manage taxes or re-evaluate your geographic future.

The time to plan your specific income strategy is now.

Related Content

• The Average Retirement Savings by Age
• Average Cost of Health Care by Age and US State
• Nine Things You Need for a Complete Retirement
• 6 Changes to IRAs, 401(k)s and HSAs in 2026

You’ve probably heard it a million times: Max out your 401(k). That advice ranks right up there with "eat healthy" and "get regular exercise."

No doubt, this retirement savings strategy, which relies on funding your 401(k) up to the contribution limit, can boost the size of your nest egg. But putting every spare penny of savings into a traditional 401(k) is akin to putting on a financial straitjacket.

Just like the downsides of being house rich and cash poor, it’s possible to have a sizable nest egg and still run into liquidity issues or other money-related obstacles that can put stress on your finances.

While there’s no denying that taking advantage of the upfront tax break, tax-deferred growth, a potential employer match and automatic investments that a traditional 401(k) offers, there are also risks to putting all your investable assets in one basket: a 401(k) funded with pre-tax dollars.

Should you max out your 401(k)?

Get the match. No matter what, it’s a given that investors should put enough in a 401(k) to at least earn matching contributions, says Christine Benz, director of personal finance and retirement planning at Morningstar. There’s no reason to leave money on the table.

Know your company plan. The first question you'll need to answer is what the 401(k) match is at your company. Is it generous? (The average match is 4.6% of pay, according to Vanguard.) Do you earn that match from day one, or do you have to work for a few years first? Are you vested right away? If you plan to leave your company before you're eligible for a match, then you might not want to invest in the company's 401(k) plan.

Once you're familiar with your company's 401(k) plan, here's how to determine if you should contribute the maximum allowable amount.

The hidden downsides of maxing out your 401(k)

It’s often said that in life, stuff happens. When financial emergencies strike, or you’re intent on buying a new car or a vacation home, being able to access your money easily and penalty-free is crucial. Having the bulk of your money tied up in a traditional 401(k) can handcuff you.

Before tying up your hard-earned cash, you should understand the drawbacks of traditional 401(k)s (and related accounts such as traditional 403(b)s and 457(b)s). Since distributions are taxed as ordinary income, large 401(k) withdrawals in your retirement years when spending spikes can push you into a higher tax bracket and boost your tax bill.

IRS rules also place restrictions on accessing your money before age 59½. If you do, you'll most likely be hit with a 10% early withdrawal penalty on top of any taxes you incur.

Your traditional 401(k) might also lack a strong lineup of funds to choose from, offer a meager company match or charge hefty fees that bite into your returns.

Financial experts say you should still save as much as you can. The key is to spread your money across different types of accounts to ensure you have the most financial wiggle room for cash flow and taxes, no matter your age.

“One of the biggest downsides is the lack of financial flexibility before you hit your full retirement age,” said retirement expert Roger Young, a thought leadership director at T. Rowe Price.

Many Americans retire early, get laid off late in life or have a large pending purchase or bill. As a result, they might face financial challenges that traditional 401(k)s aren't designed to address. The problem is the inability to withdraw money as needed in a tax-efficient, penalty-free way.

“It is definitely helpful to have money in different places so that you have access to it without penalty,” said Young.

Tax diversification is the winning strategy

Spreading your savings across investment buckets with different tax treatments provides maximum flexibility.

“Having tax diversification is really critical,” said Chris Kampitsis, a financial planner at Barnum Financial Group. “Having some money in a Roth bucket, a brokerage account, and an emergency fund in cash or cash equivalents allows you to call your shots in terms of the tax rate that you’re going to be looking to be in throughout retirement.”

Being able to choose between a tax-free Roth withdrawal, a lower capital gains hit from a brokerage account or cash or a traditional 401(k) withdrawal provides ample options, depending on financial circumstances.

There are plenty of options to better manage your tax hit.

“Having assets in a taxable brokerage account, Roth accounts, as well as traditional tax-deferred accounts, gives you more flexibility to control your tax bills on a year-to-year basis,” said Benz.

What you want to avoid, if possible, is having every saved dollar in a traditional 401(k). The reason: Every dollar you withdraw will be taxed at your ordinary income tax rate.

If you don’t max out your 401(k), where should you save money?

Roth accounts. Contributing to a Roth 401(k) (if your company offers it) or a Roth IRA account funded with after-tax dollars offers a few key benefits that traditional 401(k)s do not.

For one, withdrawals are tax-free. That means even if you yank out $100,000 for a down payment on a home, it won’t boost your income by a single penny or increase the amount you owe to the IRS. Since the money you contribute to a Roth has already been taxed by Uncle Sam, you can withdraw your deposits (not your gains) before age 59½ without paying an early withdrawal penalty or taxes on your earnings.

Once your Roth has been open for five years, you have the freedom to do whatever you wish with the money you’ve put in the account without paying taxes.

“You can spend it as freely as you want when you need it,” said Kampitsis.

With the new IRS rule mandating that high-earners in 401(k) plans that offer a Roth 401(k) invest their employer’s matching contributions into a Roth account starting in 2026, there’s an opportunity for many retirement savers to diversify their retirement savings from a tax perspective.

“If you’re a boomer who’s been doing pre-tax, pre-tax, pre-tax contributions (forever), I would try to focus on building up my Roth bucket as much as possible,” said Kampitsis.

Taxable brokerage accounts. In the age of tax-efficient exchange-traded funds (ETFs), parking money in a taxable brokerage account will allow your money to grow without major interference from big tax bills, said Benz.

“ETFs are just a terrific, tax-efficient way to invest taxable dollars,” said Benz. “These accounts can mimic the tax-sheltering features you get with your 401(k) or IRA.”

So-called “asset location” is another key plank in a financial plan looking to reduce tax drag on returns, adds T. Rowe Price’s Young.

“The tax consequences of having a taxable account are not as potentially negative as in the past,” said Young.

Another perk is that investments in taxable accounts are subject to lower capital gains tax rates, adds Kampitsis.

“Building up your brokerage bucket can be tremendously effective,” said Kampitsis. Depending on your income, you could pay as little as 0% on long-term capital gains for assets held at least one year. The highest rate is 20%. But the IRS says most Americans pay 15%.

There are many upsides to saving in brokerage accounts. There are no contribution limits. There are no age limits when it comes to tapping your money penalty-free, unlike traditional 401(k)s that require you to wait until age 59½ to make penalty-free withdrawals.

The “rule of 55” — an IRS provision that allows workers who leave their job in or after age 55 to withdraw from a qualified plan without a 10% penalty — doesn’t apply, either.

With layoffs on the rise, brokerage accounts can be a lifeline.

“Having that reserve of non-401(k) money is critical now more than ever,” said Kampitsis.

When it doesn’t make sense to max out your 401(k)

If it drains too much liquidity. You need money to pay the monthly bills and cover big expenses. Having assets parked in either Roth products, taxable accounts or a cash emergency fund that you can access easily before full retirement age is critical.

When the interest on debt is higher than account earnings. If the debt you’re carrying on credit cards, personal loans or auto loans is higher than the return you’re getting in your 401(k), it might make sense to reduce your retirement plan contributions to service the high-interest debt, says Kampitsis.

“Say you’re saving money to get a 10% return, but you’re paying 27% in interest on credit card bills and you’re only sending in the minimum payment,” said Kampitsis. “It might make sense to restructure your cash flow to accomplish both goals.”

If you plan to retire early. Many people who want to stop working before full retirement age tend to max out their 401(k)s to amass as much money as possible before they retire, says Kampitsis.

The problem is that if most of their savings are in a traditional 401(k), they likely will have to tap their old workplace retirement account and pay the 10% early-withdrawal penalty. What’s more, piling up so much money in a traditional 401(k) can add up to massive required minimum distributions (RMDs) when they turn 73.

Fund your accounts in this order

If you want to spread your retirement dollars around, the pecking order goes like this: Start with your 401(k) and contribute enough to get the match. A Roth IRA is next in line due to its more favorable withdrawal rules before age 59½ and tax-free withdrawals. Finally, funnel money into a taxable brokerage account to fill the third bucket.

“It’s like building blocks,” said Lisa Featherngill, national director of wealth planning at Comerica Wealth Management. “All of these accounts are going towards your retirement nest egg.”

Read More

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• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA

The coming 2026 changes to IRAs and 401(k)s offer new opportunities to save more for retirement, but you need to understand the new rules. This means keeping track of changes like higher contribution limits and updated requirements for withdrawing money from your accounts.

So, what's on deck for 2026? The major changes coming to retirement plans and accounts in 2026 are primarily driven by the SECURE 2.0 Act and the annual inflation adjustments. The most significant change to be aware of involves catch-up contributions for high earners.

1. Catch-up 401(k) contributions for higher earners over 50 must be made to a Roth

This rule requires that certain high-income earners must make their age 50 and older catch-up contributions to their 401(k), 403(b) or governmental 457(b) plans on a Roth or after-tax basis.

The primary change is a shift from an upfront tax deduction to tax-free withdrawals in retirement. This eliminates a significant pre-tax deduction for high-earners nearing retirement, effectively requiring them to pay income tax on the catch-up portion of their savings now rather than in retirement.

Who is affected? The rule applies to any participant who meets both of the following criteria:

• Age: The participant is age 50 or older or will turn 50 during the year
• Wages: The participant's FICA wages (Social Security wages, typically Box 3 of Form W-2) from the employer sponsoring the plan exceeded $150,000 in the prior calendar year.

If you are a high earner, with over $150,000 in FICA wages in 2025, and are 50 or older, you will no longer be able to deduct your catch-up contributions from your current year's taxable income. That income threshold will be adjusted for inflation in the future.

For affected high-earners, any catch-up contributions — $8,000 in 2026 (up $500 from $7,500 in 2025) —made to their employer-sponsored plan must be designated as Roth or after-tax contributions. High-earners lose the option to make those catch-up contributions on a pre-tax basis.

If your employer's plan does not offer a Roth contribution feature, then all participants who are subject to the high-earner rule will be prohibited from making any catch-up contributions to that plan.

Action to consider now: If you are age 50 or older and your income is close to or over the $150,000 threshold, you should consult with your plan administrator, financial or tax adviser to understand how the mandatory Roth catch-up rule will affect your retirement savings strategy for 2026.

2. 401(k), 403(b), and 457(b) plan contributions go up in 2026

The annual announcement of increased contribution limits for employer-sponsored retirement plans, such as 401(k)s, 403(b)s, and 457 plans, is a critical opportunity for employees to accelerate their savings and secure a stronger financial future.

These higher ceilings allow workers — especially those utilizing catch-up contributions as they approach retirement — to defer more income into tax-advantaged accounts, boosting their potential for long-term compound growth and maximizing their immediate tax benefits.

As the Social Security trust fund is on shaky ground, some experts recommend saving more to cover any potential shortfall. How much more? The experts at Pension Bee suggest people save an additional $138,000 in additional savings to generate the same income if Social Security is reduced, based on the 4% withdrawal rule.

3. Traditional and Roth IRA limits for 2026

While there is no income limit when contributing to a traditional IRA, the ability to deduct that contribution is phased out based on your income and whether you (or your spouse) are covered by a workplace retirement plan.

If you are not covered by a workplace plan but your spouse is, you can still take the deduction, but your joint income will affect it.

If neither you nor your spouse is covered by a retirement plan at work, you are not subject to any income limitations and can take a full deduction for your traditional IRA contributions up to the annual limit, regardless of your Modified Adjusted Gross Income (MAGI).

Here are the contribution limits and MAGI phase-out ranges for making deductible contributions to a traditional IRA for the 2026 tax year:

If only one spouse is covered by a workplace retirement plan, you will have a higher phase-out range. For married couples filing jointly:

• Full deduction if MAGI is: $242,000 or less (up from $236,000 in 2025)
• Partial deduction if MAGI is between: $242,001 and $252,000 (up from a range of $236,001 and $246,000 in 2025)
• No deduction if MAGI is: $252,000 or more (up from $246,001 or more in 2025)

4. Expanded savings for small businesses and the self-employed

For small business owners and the self-employed, the annual increase in retirement plan contribution limits is a powerful development that offers significant opportunities to boost tax-advantaged savings.

The higher contribution ceilings for plans like the SEP IRA, Solo 401(k), and SIMPLE IRA allow business owners to defer greater amounts of income for both themselves and their employees.

This move is key for maximizing retirement readiness, benefiting from larger immediate tax deductions and making their plans more competitive for attracting and retaining talent.

For solo 401(k) accounts. You're also allowed to contribute up to 25% of compensation (after Social Security and Medicare taxes) as the employer profit-sharing contribution. The employer (profit-sharing) contribution limit remains up to 25% of compensation, with an overall compensation cap of $360,000 for 2026.

5. Paper statement requirement

You may find something new in your mailbox in 2026. Defined contribution plans, such as 401(k)s), must provide their participants with at least one paper statement per calendar year, unless the you specifically elect to receive statements electronically. Defined benefit plans must provide one every three years.

6. Health savings accounts (HSAs)

Paying for health care can be challenging before and after retirement. One way to save ahead for medical expenses in retirement is by contributing to a health savings account (HSA) before you enroll in Medicare. These accounts offer a triple tax benefit because contributions are made pre-tax (or are tax-deductible if you contribute after-tax), your contributions grow tax-free, and withdrawals are tax-free when used for qualified medical expenses.

After age 65, you can withdraw funds for any non-medical reason without a penalty; the withdrawals will simply be taxed as ordinary income, similar to a traditional IRA.

The limits below determine if your health plan is eligible to be paired with an HSA.

The catch-up contribution is available to an individual who is age 55 or older by the end of the tax year and is not enrolled in Medicare. If both spouses are 55 or older and not enrolled in Medicare, they can each contribute the $1,000 catch-up amount, but they must do so in separate HSA accounts.

Here are the official contribution limits, minimum deductible and maximum out-of-pocket limits for an HSA-qualified high deductible health plan (HDHP) in 2026:

Tip: You can use HSA distributions to reimburse yourself for your Medicare Part B and D premiums, co-pays, deductibles and coinsurance. However, Medigap premiums aren't considered qualified medical expenses and would be subject to income tax.

2025 year-end deadlines

Take a moment to review your retirement accounts before 2025 ends. See where you still have opportunities to invest or correct some potentially costly errors.

• 401(k) Contribution limits and deadlines. For most 401(k) plans, the deadline to contribute is December 31, 2025. This deadline also applies to participants who are 50 or older at the end of the calendar year 2025.
• IRA Conversion deadline. The deadline for converting a traditional IRA to a Roth IRA is December 31, 2025.
• Excess contributions. If you exceed the 2025 IRA contribution limit, you can withdraw excess contributions from your account by the due date of your tax return (including extensions). If you don't, you must pay a 6% tax each year on the excess amounts left in your account.
• Required minimum distributions (RMDs). Remember that you face an excise tax on any RMD that you fail to take on time. You must calculate the RMD separately for each IRA that you own other than any Roth IRAs, but you can withdraw the total amount from one or more of your non-Roth IRAs.

Related Content

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• 9 Medicare Changes Coming in 2026
• Nine Things You Need For a Complete Retirement Plan
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Question: I'm 57 with a great remote job, but after five years of working from home, my company wants me in the office full-time. I don't have the energy for a daily commute. Help!

Answer: In early 2020, many companies implemented remote work policies in response to the pandemic. And a good number of employees have been enjoying a fully remote schedule ever since.

But companies are increasingly asking workers to return to the office. And many are mandating it. CBRE reports that 77% of companies today across the U.S., Canada and Latin America expect employees to report to the office three days a week or more.

If you're 57 and have been working remotely for the past five years, you may feel that you don’t have the energy to start commuting daily. But if your employer wants you back in the office full-time, you may also feel like you don’t have a choice.

It’s hard to start over at a new employer at age 57, since you may be approaching the tail end of your career with plans to coast until retirement. Plus, it may not be so easy to get hired at 57.

Almost two-thirds of workers ages 50 and over have seen or experienced age discrimination in the workplace, according to AARP. It is especially a problem for older women. And while it’s illegal to pass over a qualified job candidate on the basis of age, it’s also a hard thing to prove.

Also, there’s no saying that if you were to apply for a new job, you’d be able to find one that’s fully remote. So all told, you’re looking at a tough situation. But that doesn’t mean there aren’t solutions.

It pays to have an open mind

After five years of remote work, the idea of a daily commute may be jarring. But Suzanne Hawes, a seasoned human resources consultant, says it’s important to have an open mind. If you like your job and the commute is the one sticking point, there may be ways to make it work.

The most important thing, she says, is to give commuting a chance.

“Often, it takes a few weeks to get used to the old routine again,” says Hawes. “If you were able to balance work and life before, it may be possible to find that balance going forward. If the only negative thing about the job is having to be in the office full-time, you might try it for a few months before deciding to leave.”

Diana Bernal, CEO and Career Strategist at Diana Inc, says you may be able to make the most of a commute.

"Use it as a chance to listen to audio books or podcasts," she suggests. And if you don't have to drive, you could read or watch TV and use the commute as an opportunity to enjoy some downtime.

Bernal also points out that if you can afford to do so, there may be ways to make your commute more comfortable.

"When I got a new job downtown that increased my commute, I leased a comfy Lexus, a nice step up from my Honda Accord," she explains.

Or, you may realize that there are benefits to being in the office, such as family, friends, or activities nearby. All told, it may not be so bad once you get used to it.

There may be some wiggle room

If you’re being asked to return to full-time office life, one thing to consider, says Hawes, is that your employer may be more flexible than you’d think.

“One possibility,” she says, “is to comply with the order and come back full-time for a few months. Then, see if your leadership is open to one or two work-from-home days. People who show they are willing to comply with the return-to-office order may find that buys them some flexibility.”

Hawes also says that the more leverage you have at your job, the more your employer may be willing to negotiate.

“If you’re a high performer or in a role that’s hard to replace, your leaders may be more willing to offer you a hybrid arrangement,” she explains.

Consider a new job or go freelance — if it fits your financial plans

If your employer insists on five days a week in the office and it doesn’t work for you, you could always look for a different job. But Hawes warns that it may be tough going.

“Not only is remote work harder to come by now,” she explains, “but in some locations, all jobs are harder to come by. If you’re going to leave your job because of a return-to-office order, either find your next job before you leave this one, or make sure you have enough savings to support a potentially long job search.”

Hawes says that while taking a lower-paying job with more flexibility may be possible, you should work with a financial adviser to understand how prepared you are for retirement now.

“If your planner says you’re in good shape, a lower-paying job may make sense,” she says. “But be clear about what you’re giving up in return for fully remote work. Are you used to a high level of independence and decision-making? Are you prepared for a role with less authority or visibility than you have today?”

Hawes says you can also consider a shift into freelance work if you can’t find a suitable job that will let you work from home. But there are risks involved.

Freelance income can be inconsistent, and it may take time to build up a steady stream of it.

Before going the freelance route, Hawes says, “Talk to people who are doing it and find out what it takes to get work. Ask how they price their services and, if they are willing to share, what they earn in a typical month.”

You’ll also need to consider the benefits you may be giving up by going freelance, such as employer-subsidized healthcare and access to a workplace retirement plan, like a 401(k).

“Many employers contribute to employee plans, often by matching contributions,” Hawes says. “That’s free money you would be giving up.”

The good news is that, as an independent contractor, you can save for retirement through vehicles such as SEP IRAs, Solo 401(k)s, or SIMPLE IRAs. And in some cases, you can contribute more than you could to a 401(k).

But as Hawes warns, “All of those contributions will be coming from you.”

Don’t rush into a decision

You may be tempted to quit your job if you’re forced to resume a five-day commute you’re dreading. But before you do that, Hawes says, it’s important to have a game plan.

“My recommendation would be to go back and approach it as an experiment,” she says. “Give it at least three months and pay attention to how you feel and how the rest of your life is functioning.”

If, after three months, you’re truly unhappy, you can explore other options. But as Hawes says, “If you still want to quit after that, take the time either to find another job that better fits your needs or to save enough money to give yourself a cushion while you build a freelance or consulting practice.”

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Question: I'm 54 with a $320,000 IRA and am transitioning into self-employment with a projected annual income of $120,000. How much of that can and should I be saving for retirement? What are the best tools for self-employed savers?

Answer: Making the leap from a salaried position to self-employment can be challenging. However, there are also several benefits.

For one thing, being self-employed allows you to work from your location of choice. If you’re 54, you may no longer have the energy to deal with a lengthy commute. As more companies call employees back to the office full-time, transitioning to self-employment could mean getting to work from home and avoiding the hassle of daily commuting.

Or, it may be that you’re moving into self-employment to follow your passion. If you no longer have kids living under your roof and have a solid financial cushion, your mid-50s could be a good time to pursue a line of work you find more rewarding.

If you’re 54 with $320,000 in your IRA, you’re ahead of the game on the retirement savings front compared to the typical American your age. As of the second quarter of 2025, the average IRA balance for savers in their 50s was $129,222.

Still, that doesn’t mean you should necessarily be done saving for retirement. If you were to leave your $320,000 invested at a yearly 8% return until age 67, which is your full retirement age for Social Security, you could end up with around $870,000. That’s a nice-sized nest egg, but you may want more.

Becoming self-employed might make saving for retirement more challenging, at least initially. But it’s important to make it a priority.

Aim to save 15% of your income — once things stabilize

When you’re transitioning into self-employment, you might go through a period of income volatility. It’s okay to pause retirement plan contributions at the onset as long as you commit to starting back up again once your income stabilizes, says Brennan Decima, Founder and Managing Director at Decima Wealth Consulting.

“First, focus on creating six months of cash flow security to give some cushion for your variable income,” he says. “Once that is in place, I suggest to my clients to try and save at least 15% of their income towards retirement.”

Brian Heckert, Founder and Wealth Manager at FSM Wealth, Inc., agrees.

“Having been self-employed for the last 40 years, I have gone from boom to bust with the economy and market cycles,” he says. “Assuming everything is working well, and the $120,000 [annual income] is net of expenses, I would like to see them continue at least as much as they have been saving as an employee — hopefully at least 10-15% of the net income.”

Use the right retirement savings account

Being self-employed gives you more options when it comes to retirement savings plans.

“There are three qualified plan options available for a self-employed person – a Solo 401(k), a SEP IRA, and a SIMPLE IRA,” says Heckert. “All three plans are flexible from year to year, and the contributions can be made up until the tax deadlines.”

If you’re aiming to save 15% of a $120,000 income, or $18,000, all three of these accounts allow for a contribution that large at age 54, Heckert explains.

Decima happens to be a fan of the Solo 401(k) because it gives people “the flexibility of making tax-deductible contributions in years their income is higher, or doing Roth contributions in years where income is low.”

If you’re self-employed and pay yourself a salary, a Solo 401(k) may allow for higher contributions than other retirement plans. However, it’s best to consult a tax professional for advice on your specific situation, as there may be variables to consider outside of your self-employment income.

Make the process automatic

Once you get into a steady income flow, you may want to automate the process of funding a retirement account rather than write your savings a big check at the end of the year.

“It’s really easy to spend money when it comes directly to our bank accounts,” Decima says. “Automating the savings where it goes directly to the 401(k) conditions you to pay yourself first, making it easier to stay on track and reach your future goals."

One thing you may want to consider is automating a baseline contribution each month, and then assessing your net income at the end of each year. If your income allows for more savings, you can always make an additional contribution. But this way, your retirement account will have been funded throughout the year.

Don’t let fear hold you back

If you’ve been a salaried employee for most of your career, giving up the security of a stable paycheck can be daunting. But your 50s are actually a great time to take a chance on yourself, Decima insists.

"I recently left a high-paying job of almost 20 years to start my own company as well,” he explains. “The leap was both revitalizing and intimidating.”

If you end up in a self-employment situation that’s mentally and financially rewarding, it may be something you can continue doing during retirement. That could be a great way to stay busy later in life while boosting your income. In the near term, the key is to give yourself grace with retirement plan contributions initially while you adjust, but then prioritize them as soon as you’re in a good place income-wise.

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• I'm 51 and My Portfolio Is Up. I'm Planning to Retire at 60 and Want to Start Moving out of Stocks. Is That Smart?
• I Want to Retire, but I Have to Keep Working so My Adult Kids Have Insurance

Question: I'm 61 with a $950,000 401(k) and need $50,000 for home repairs. Should I borrow given today's rates or take a 401(k) withdrawal?

Answer: The nice thing about owning a home is getting to build equity in a place that’s yours. Eventually, that could mean cashing in that equity to improve your financial life or simply enjoying the stability of staying put as long as you keep up with your mortgage payments and property taxes.

The downside of owning a home, though, is that expensive repairs can arise when you least expect them.

A home equity line of credit (HELOC) is a common source of funding that many homeowners rely on for large home repairs. However, the average U.S. HELOC interest rate remains high, at 7.82% as of November 5, according to Bankrate. A newer loan option is a home-equity-backed card, which might offer a slightly lower interest rate than a HELOC for borrowers with excellent credit, but still upwards of 6%.

If you’re 61 and need $50,000 to cover home repairs you can’t put off, you might be wondering if it pays to dip into your savings or borrow the money given today’s elevated interest rates. The answer might depend on how much savings you have.

With a $3 million nest egg, taking a $50,000 withdrawal might seem like a no-brainer. With a $950,000 balance in your 401(k), it becomes a much tougher question. It’s important to review your options carefully.

Use the tool below to explore some of today's top rates, powered by Bankrate:

It could be a good time to capitalize on 401(k) gains

Any funds you take out of your 401(k) is money that can no longer continue growing in a tax-advantaged fashion. When you have a pile of available money and borrowing rates are high, it could make more sense to tap your 401(k) rather than take on an expensive loan you might struggle to pay back.

Additionally, if your 401(k) balance is high, now might be an especially good time to take a withdrawal.

"The market’s near an all-time high," says Prudence Zhu, CPA, CFP, and Founder and CEO at Enso Financial. "With borrowing rates outside your 401(k) shooting up, grabbing a slice of those gains today means you can fix that leaky roof or creaky furnace without gambling on a market downturn."

That said, Zhu warns that if you have a traditional 401(k), as opposed to a Roth, your withdrawals aren't tax-free. Rather, they're taxed as ordinary income. If you're still working, says Zhu, the combination of your paycheck and a large 401(k) withdrawal could bump you into a higher tax bracket.

Zhu also points out that while you might not be covered by Medicare if you're only 61, you could have a spouse who's on Medicare, or who will be in a couple of years. If so, your higher income this year could impact their Medicare premium costs in two years and potentially subject them to IRMAAs.

A 401(k) loan could be a better option than a withdrawal

If you're still employed and plan to continue working, Zhu advises considering a 401(k) loan instead of a withdrawal. These loans allow you to pay yourself back with interest instead of an outside lender.

"That interest actually goes right back into your investments, so you’re essentially dollar-cost averaging your repayments," Zhu explains.

The danger of taking out a 401(k) loan is that if you switch jobs and can't repay it, the remaining balance is treated as a withdrawal. That could trigger a big tax bill.

But if taking a withdrawal in the first place is something you’re considering, a loan might be a fairly low-risk option if you’ve accepted the fact that you might be looking at a huge tax bill and are able to plan for it accordingly.

You’ll need to run the numbers carefully

Taking money out of a 401(k) at age 61 isn't necessarily a bad idea. Since you're beyond age 59½, you won't have to worry about facing an early withdrawal penalty on your money.

One thing to keep in mind is that the more money you withdraw from your 401(k) ahead of retirement, the less annual income your nest egg might provide you with. Additionally, as Joseph Patrick Roop, president at Belmont Capital Advisors, points out, depending on your tax bracket, if you need $50,000 to cover home repairs, you'll need to take a larger distribution.

"I will assume they are working and in the 22% federal and 5% state tax brackets," he says. In that case, "to take a distribution and net 50,000, you will need to take a total distribution of approximately $68,500."

Let’s say you don’t tap your 401(k) for home repair money and you retire with $950,000. Using the popular 4% rule, you'd garner an annual income of $38,000, not accounting for inflation-related adjustments.

If you whittle your nest egg down to $881,500, you’re looking at a baseline income of $35,260 instead. You’ll need to decide if you’re OK with that, based on your projected retirement income needs.

Do what’s best for your peace of mind

If you need money for a home repair, you'll either have to come to terms with taking it from your 401(k) or borrowing it and repaying the loan. For this reason, Zhu suggests you might want to choose whichever option sits best with you mentally.

“Given the hassle and uncertainty of job security plus the risks of loan repayment, sometimes the simplest fix is the best fix,” she says. “A direct withdrawal might just buy you the peace of mind you need, especially when it means a safer, happier home.”

Read More

• I'm 63 With an Aging House That Needs Repairs, but I Might Move to a Retirement Community In a Few Years. Is It Worth Making Those Fixes?
• You May Not Want to Downsize in Retirement: Here's Why
• Tax-Deductible Home Improvements in Retirement
• I Claimed Social Security Six Months Ago at 62, but My Checks Are Too Small. What Are my Options?

Question: I'm 52, make $210K a year and heard I may lose a 401(k) tax break in 2026. Should I still max out my 401(k) as I had planned?

Answer: The more money you're able to sock away in your 401(k), the more financial flexibility you might enjoy in retirement. And whether you're on track with your savings or trying to make up for lost time, you may be eager to take advantage of your plan's catch-up contributions, which are available to savers ages 50 and over.

If you’re 52 years old and earning $210,000 a year, you may be in a strong position to max out your 401(k) at the catch-up level. This year, 52-year-olds (and anyone aged 50 and older) can contribute up to $31,000 to a 401(k), and that number is likely to rise in 2026 in line with inflation.

But there’s a new rule that will apply to 401(k) catch-ups for higher earners, taking effect in 2026. And it’s a change that may leave you rethinking your plan to max out your contributions.

Higher earners lose a near-term tax break

For higher earners, traditional 401(k) catch-ups are a great way to not only build stronger nest eggs, but also capture more tax savings up front. The rules are changing in 2026.

As Jim Davis, CFP and Senior Wealth Advisor at Aspen Wealth Management, explains, “Starting in 2026, anyone earning over $145,000 who wants to make 401(k) catch-up contributions will need to put those extra dollars into a Roth account. That means paying taxes up front instead of getting the immediate deduction.”

The $145,000 threshold applies to income earned in the previous year. So if you have a $210,000 salary in 2025, it means you’ll be barred from making a pre-tax 401(k) catch-up in the new year.

It also means that if your company’s 401(k) plan doesn’t offer a Roth component, you may be barred from making catch-up contributions. However, this may only be a problem for a small percentage of savers. As of 2023, 93% of 401(k) plans had a Roth option, according to the Plan Sponsor Council of America.

There are still benefits to making 401(k) catch-ups

As a general rule of thumb, Roth contributions make sense when you expect to be in a higher tax bracket in retirement than you’re in today. It’s for this reason that higher earners often opt out of a Roth and choose to save in traditional retirement plans instead.

But just because the rules are changing with regard to catch-up contributions does not mean higher earners should forgo them. As Davis points out, with a Roth 401(k), “the money grows tax-free and withdrawals in retirement won’t be taxed.”

Brian Harrison, CFP and President at SAVVI Financial, thinks higher earners should recognize the value of getting to grow their money tax-free.

“The power of Roth contributions is something to consider, particularly as retirees are living longer,” he insists. “That tax-free growth decades down the line can make a big impact.”

Sherman Standberry, CPA and Managing Partner at My CPA Coach, agrees.

“I continue to inform high-earning clients that catch-up contributions are still a smart strategy,” he says. “Although this [change] results in higher taxable income, the trade-off is the ability to enjoy tax-free growth and withdrawals during retirement. This can create valuable tax diversification across pre-tax and Roth accounts.”

Standberry also points out that tax rates may increase in the future. Having a portion of savings in a Roth account helps protect against that.

Davis, meanwhile, points out that there may be some less obvious benefits to having money in a Roth.

"You also need to consider other moving parts in your plan," he explains. "Higher income can affect required minimum distributions, Social Security, and Medicare premiums, especially IRMAA."

A change worth embracing

The requirement for higher earners to make 401(k) catch-ups as Roth contributions might initially seem like a penalty of sorts. But Davis says they can still be useful to higher earners.

“The key is to view catch-ups as one piece of your overall plan,” he says. “How do they fit with your tax strategy, retirement income, and long-term cash flow?”

Of course, anyone who’s used to making 401(k) catch-ups on a pre-tax basis should work with a financial adviser or tax professional to adjust to this change. That could mean implementing other strategies to avoid a larger tax bill in the near term.

But that doesn’t mean higher earners should eschew 401(k) catch-ups in 2026 or beyond. At the end of the day, any money that sits and grows in a 401(k) — traditional or otherwise — gets special tax treatment, and there’s a real value in that.

As Davis says, “When used thoughtfully, catch-ups can help you save smarter — not just more — and keep more of what you’ve worked for as you move toward retirement.”

Read More

• The Average 401(k) Balance by Age
• Roth 401(k) vs. 401(k): Which Is Right for You?
• Three Reasons to Skip the 401(k) Super Catch-Up
• I'm 57 With $4.1 Million and Plan to Retire Abroad in a Few Years. Can I Stop Contributing to My 401(k)?

You don't need to be a physicist to know that Sir Isaac Newton's first law of motion is: "Objects at rest tend to stay at rest unless acted upon."

This is Newton's description of inertia — and it's also a law referenced recently at the Center for Retirement Research, by research fellow, Geoffrey T. Sanzenbacher, who is also a professor of economics at Boston College. Sanzenbacher unpacked recent research on how inertia can affect retirement savings efforts.

Ultimately, he found that inertia can both help and hurt your efforts in saving for your future — it all depends on the way you're managing your accounts.

The 'Newton rule' shows that inertia can help you save for retirement

As the Center for Retirement Research explains, inertia can either work for you or against you. Because people tend to stick to the status quo, employers are trying to help workers by automating best practices, detailed below.

The key is for the default, or the easy option, to be the one that sets people up for success in retirement, rather than leaving them to fail.

If your employer has followed these best practices, you can probably sit back and relax. If not, read on, because maybe it's in your interest to stay on the couch.

Inertia might help you avoid investing mistakes

The Center for Retirement Research identified another way that inertia can help bolster your retirement savings. It saves people from their instinct to become overly conservative in their investments as they age and approach retirement.

Becoming more risk-averse as you get nearer to your retirement years can be a good thing. You don't want to have your entire portfolio in stocks (or equities) when you need to start making withdrawals in a year or two. That kind of asset allocation could backfire in the event of a market crash, forcing you to withdraw money at a bad time and lock in losses — a retirement fumble known as the sequence of returns risk.

However, research into how older savers view equity investing and whether they act on their beliefs revealed that retirement savers often failed to properly gauge market risk. In a survey of U.S. adults ages 48 to 78 with $100,000 or more in investable assets, researchers found that these individuals were often overly pessimistic about the stock market. They would choose a far more conservative portfolio than they should.

The chart below shows three commonly recommended glide paths for target date funds for the 20 years before and after retirement: aggressive, moderate and conservative.

"Glide paths" are set formulas for how a portfolio will gradually reduce the percentage of investments in stocks and increase the percentage of safer investments over time. Vertical lines show that people want to invest in a lower percentage of stocks than the glide paths recommend, especially early in their careers.

As Sanzenbacher pointed out, if older investors followed their desired investment asset allocation plan based on their level of risk aversion, their investment mix would be below the most conservative recommended glide path. This is true even among pre-retirees who are relatively aggressive in their preferred investment strategy compared with older investors.

Sanzenbacher said that "If these savers acted like they said that they would like to, their pessimism would be causing them to give up valuable returns."

The good news, however, is that most people don't adjust their asset allocation to reflect their risk tolerance. In fact, while participants on the whole said they wanted 37% of their retirement assets in equities, the average they actually had invested was higher and was much closer to the recommended moderate glide path.

Pre-retirees, in other words, benefited by not adjusting their portfolios to their preferred asset allocation — and that's most likely because of inertia. Since many of the plan participants were invested in target date funds, they stayed in those funds with the appropriate investment mix instead of switching to the more conservative investments they claimed they preferred.

A lack of action saved these investors from their own fear of the market and allowed them to remain appropriately invested.

Can — and should — you make inertia work for you?

Doing nothing can be helpful in many ways in retirement investing.

If you set up large automatic 401(k) contributions early and make auto-increases the default, you'll be more likely to hit your investment goals.

You're also less likely to panic sell if the market starts to decline. Since investing for the long-term is one of the best and most proven strategies for growing wealth, you're probably more likely than very active investors to win in the market.

At the same time, a target date fund does come with higher fees than many other investments and isn't necessarily as effective in helping you to achieve your retirement targets as a personalized plan would be.

Ultimately, it comes down to how confident you are that you can make the right moves, rather than acting based on fear, emotion or short-term thinking.

If you're working with a financial planner or investment adviser to refine your goals, optimize your finances, and select the right investments, being more active in growing your retirement savings could leave you better off. If you're acting on your own and making choices based on emotion, then inertia or inaction could serve you better.

Before you decide whether to act upon your retirement savings, carefully consider whether the moves you're making are better than no moves at all.

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When President Donald Trump signed an executive order aimed at opening a new wave of investment options for 401(k) account holders, he gave retirement savers an opportunity to potentially boost the value of those accounts.

At least, they might have such opportunities if the third-party administrators for their workplace 401(k) plans elect to add these alternatives to the mutual funds and exchange-traded funds (ETFs) that make up most accounts.

It would be advantageous for plan participants if they do.

The alternative investments that fall under the president's order include real estate and cryptocurrencies, as well as private-market assets, such as equity and credit in private firms that aren't publicly traded.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Many participants in 401(k), 403(b) or 457 accounts are intrigued by the idea. For example, according to a survey by Schroders, an asset management firm, 45% of those surveyed say they would invest in private equity and private debt if their plan offered those as options.

Most of the people surveyed don't have high hopes that this will happen, though. Just 30% say they expect their plans to offer these alternatives in the next five years.

That would be disappointing.

Limited options

A 401(k) is one of the most common ways people save for retirement, with about 70% of private-sector employees in the United States having access to such plans.

But one drawback of the plans is the limited investment options many of them give participants. In many cases, those options lean heavily on target-date mutual funds that are tied to the year the employee anticipates retiring.

The idea is that investments within the fund will adjust automatically as the years pass, starting with an aggressive investment mix and becoming more conservative as the target date nears and risk needs to be reduced.

Theoretically, that sounds good. But many people contributing to those accounts could earn greater returns if they had a wider range of investment options — and if they had someone who could offer sound advice on how to get the most out of their accounts.

In too many cases, people with workplace 401(k) accounts act as their own advisers. They're given a list of funds to choose from and make a quick decision without having a good handle on whether it's the best decision.

They shouldn't be faulted. There's no reason to expect that the average person, without any training, will be adept at choosing investments, especially when the goal is to invest for the long term.

Sadly, in too many instances, savers aren't optimizing their portfolios over time and don't realize they could have accumulated much more money than they have.

The rise of cryptocurrency

Now, cryptocurrencies and other investment alternatives could give 401(k) participants the chance to do better — if they're given the opportunity to use them.

In a way, it might not be surprising if some people are hesitant to test the waters with alternatives, preferring to stick with the way things are.

But the way things are hasn't always worked as well as it should have for many people trying to plan a stable and sound retirement.

As fiduciaries, those of us at my firm would not have offered cryptocurrency as an investment option as recently as five years ago. But things change, and the cryptocurrency market has become mainstream. Even so, there are restrictions on how we do it.

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Generally, we prefer to limit cryptocurrency to 5% of a client's portfolio, although clients can request and sign off on increasing the amount up to 10%.

Clients aren't buying actual digital coins. The investment is in crypto ETFs, which allow investors to participate in the cryptocurrency market without directly owning the coins. Instead, they buy and sell ETF shares on the traditional stock exchanges.

Maximizing returns

Many people who feel they're in good shape with their 401(k) contributions and growth aren't in good shape at all, or at least not to the extent they could be. They aren't maximizing their returns. This is one reason so many Americans worry about running out of money in retirement.

If you participate in a 401(k) or similar plan at work, look into whether your plan will offer these alternative investments.

Should the answer be no, there's another option you can consider about which many people aren't aware. Even if you're still working and contributing to a 401(k), you can roll over money from your 401(k) into an IRA and get help managing your investments through a financial professional.

This option is especially advantageous as you near retirement, because you want to make sure you're using the right investment strategies to optimize your portfolio and increase the amount of money you will retire with.

A financial professional can help you understand and implement those strategies.

Your goal is to be able to enjoy the retirement you've always dreamed about, rather than fret about whether your money will last.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As your retirement savings in a traditional 401(k) grow over decades of working, you may feel an increasing sense of financial security. And that is good.

You're doing what you've been told to do: Save as much as possible, ideally in your 401(k) so you can defer tax.

After all, shouldn't you save on taxes today while you're making a bunch of money, and pay it later in retirement while you're in a lower tax bracket? That's what you're told.

And don't forget, you often also get free money in the form of your employer's matching contribution.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Between consistent contributions and wise investing, the compounding growth of a 401(k) can produce a large nest egg for your retirement. It feels great to see that balance.

However, when it's time to start withdrawing money from your 401(k), the tax bills start and your sense of comfort dissipates.

Here's what you need to understand: When you're ready to retire, a 401(k) becomes the highest-taxed asset(s) you own, and the IRS can't wait to get its share. The same goes for other pre-tax accounts, such as a 403(b) or traditional IRA.

What many people don't realize is that when they take money out of their 401(k), they could be taxed multiple times for each distribution. Here are the main reasons why you shouldn't leave your nest egg there, or at least not the majority of it.

Income tax and RMDs

The money you withdraw from a traditional defined contribution plan, such as a 401(k), is taxed as ordinary income at the rate of your tax bracket in the year you take the distribution.

A traditional 401(k) is subject to required minimum distributions (RMDs), which begin at age 73 for most people. If you save a lot of money in your 401(k), your annual RMDs could significantly increase your income, push you into a higher tax bracket and punish you in taxes.

By the time you reach your 80s, RMDs can become so large that they are a real problem, causing a shocking amount of taxation and leading to higher premiums on your Medicare.

Don't assume, as many people do, that you'll be in a lower tax bracket in retirement than the one you were in during your top earnings years. That's a big lie people are told.

If you do a good job saving for your retirement, aren't you going to be able to retire at roughly the same standard of living you enjoyed when you were working?

A similar standard of living equals a similar income, which leads to similar tax rates. Also consider that tax rates are likely to increase by the time you retire.

Social Security

Your 401(k) distributions could also make more of your Social Security benefits taxable. A withdrawal from a pre-tax account raises your combined income, an equation the IRS uses to determine how much of your Social Security may be subject to tax.

Up to 85% of your Social Security benefits may be taxable if you're single and earn more than $34,000 or are married and earn more than $44,000.

Higher Medicare premiums

When 401(k) distributions are added to your taxable income, it increases your modified adjusted gross income (MAGI). If your MAGI exceeds certain income thresholds, you must pay an income-related monthly adjustment amount (IRMAA), which is an additional surcharge on your Medicare Part B and D premiums.

Impact on the surviving spouse

If you're married and taking distributions from your 401(k), the good news is you're getting hit with all these taxes while you're in the most favorable tax bracket of married filing jointly.

But what happens when one of you dies? Then the surviving spouse goes into the higher tax obligation, filing single. The net effect is that the surviving spouse often sees their taxes doubled or more. We like to call this the "spousal tax trap."

The Roth solution

Part of financial fulfillment in retirement often comes down to this decision: Do you want to pay tax on the seed or on the harvest? With a traditional 401(k), you're saving tax on the seed, but you're paying tax on the harvest. That is the exact opposite of what you should be doing.

The 401(k) is a great tax shelter when you are working, but it's the worst place to have your money in retirement.

What can you do about it? The most obvious answer is to speak with a tax planner well in advance of your projected retirement. They can help you put together some type of Roth conversion glide path while using your current tax bracket.

With a Roth conversion, you transfer retirement assets from a 401(k) or other pre-tax accounts into a Roth IRA. You must pay income tax on the money you convert in the year you convert, according to your tax bracket at the time, but the advantages when you retire are well worth it.

Withdrawals are tax-free as long as you are at least 59½ and have had the account for a minimum of five years. And unlike other types of retirement accounts, Roth IRAs are not subject to RMDs.

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Also, if you don't need part or all the money, you can let your Roth IRA keep growing and leave it to your heirs or your spouse. Roth IRAs aren't just tax-free for you; they are also tax-free to your beneficiaries.

There are no IRS limits on the amount of money you can convert from a traditional IRA or other pre-tax retirement account into a Roth IRA, but spreading the conversion over several years can help reduce your tax burden in those conversion years.

Roth misconceptions

Of course, it's far better to start contributing to a Roth IRA, or Roth 401(k), earlier in your work life. But what sometimes happens, if you're a high earner in your 40s and doing a good job saving, is that everyone tells you to make pre-tax contributions to your 401(k).

So here you are, maxing out your 401(k) contributions, putting $25,000 a year into your 401(k) and getting that tax deduction for that amount. It feels like the "smart" move, because that's what everyone tells you to do.

But socking money away in your 401(k) may not actually be the most efficient tax move. You may even want to consider doing the opposite by changing those contributions to Roth. You won't get the tax deduction up front, but you will certainly appreciate tax-free money as you approach retirement.

When it comes to Roth conversions, people often have two misconceptions that make them hesitant to do them.

One is that they mistakenly think they have to pay the tax on the conversion in one lump sum by writing a check to the IRS or withdrawing from their savings or investment account.

However, provided that you are over the age of 59½, you can simply do it by having the tax withheld by whatever financial firm holds your retirement account.

The second misconception: If you do a Roth conversion, you must wait five years before you touch that money. The truth is that you have to wait five years to touch the earnings on that money.

When you're over 59½, just withhold the tax and you can take distributions on the principal from day one.

Take action to avoid 401(k) tax bombs

Beware of building your traditional 401(k) during your working years while ignoring the tax repercussions you'll face in retirement.

Take action now by changing your 401(k) contributions to Roth and strongly consider converting any IRAs you have to a Roth.

Don't wait until you're near retirement. Give yourself a true sense of future financial security and remember: It's far better to pay tax on the seed rather than the harvest.

Dan Dunkin contributed to this article.

Centennial Advisors, LLC is an Investment Adviser registered with the U.S. Securities and Exchange Commission ("SEC"). Registration as an investment adviser does not imply a certain level of skill or training.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Since the pandemic, inflation and higher costs of living have pushed many Americans' wallets to the brink. They've been forced to cut back in several areas, including saving for the future.

A 2025 Morgan Stanley at Work study found about 39% of employees surveyed said they reduced their 401(k) contributions as a result of current economic conditions, and 67% say they're reducing contributions across all savings accounts. That's a 4% increase from 2024.

Some were forced to draw from those retirement savings. A 2025 report from Vanguard found a record 4.8% of 401(k) account holders took a hardship withdrawal in 2024, more than double the 2.3% recorded in 2019.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

While tough economic conditions have forced many Americans to conserve and stretch their dollars — are you putting your future at risk if you reduce or pause your retirement contributions?

Don't forget the benefits of contributing

One of the biggest benefits of contributing to an employer-sponsored retirement plan is taking advantage of the employer's match.

If someone reduces their contributions enough to no longer qualify for their employer's full match or pauses those contributions entirely, they're essentially walking away from free money. They're also preventing that money from compounding over time.

Depending on how long you reduce or pause contributions, you could be missing out on thousands of dollars.

For example, in 2025, the maximum employee contribution to a 401(k) is $23,500, with an additional $7,500 available for catch-up contributions for those age 50 and older.

Depending on their plans, workers ages 60 to 63 might qualify for a special super catch-up contribution of $11,250, for a total of $34,750.

You lose out on compounding growth, too

Aside from losing the match, pausing contributions entirely forces you to lose the benefits of compounding growth. Every dollar you contribute early in your career has decades to grow.

To give you a better perspective, let's say an employee has an annual salary of $50,000 per year and their employer offers a 100% match on contributions up to 5%.

If the employee reduces their contribution so the employer only matches 3%, that's a 2% loss each year. In dollars, that's a $1,000 loss each year.

If that money is growing at 7%, that 2% reduction, or $1,000 loss per year, will add up to $41,000 less in a retirement account after 20 years.

At the surface level, missing out on $1,000 a year might seem minimal, but over decades, it can cost you tens of thousands of dollars at retirement.

The tax implications

Pausing or reducing contributions can also have tax implications. If you have a traditional 401(k), contributing to that account reduces your taxable income in the year the contribution was made.

Pulling back on those contributions increases taxable income, which could potentially push you into a higher tax bracket if you're currently teetering on the edge.

If you have a Roth 401(k), cutting back on contributions forces you to miss out on growing tax-free assets for retirement.

Retirement plans are made with the assumption that you'll be making consistent contributions to your accounts.

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Reducing or pausing those contributions can create a financial gap that could mean working longer than you intended, saving much more aggressively in the future to catch up (which could lead to other sacrifices), or living on less once retirement comes.

What you could do instead

While it might feel like a quick fix, you should seriously consider the long-term tradeoffs. A couple of hundred dollars saved now could mean tens of thousands lost in the future.

If you find yourself struggling with expenses, consider making other adjustments before turning to your retirement account. Look into picking up extra hours at work or search for ways to earn additional income.

We're living in a gig economy, and the opportunities are endless. If you have a budget, revisit it and look for areas in which you can cut back. This could be subscription services, eating out or simply cutting frivolous spending.

If you don't have a budget, make one to ensure you're living within your means. If you feel your only option is to reduce or pause your contributions, meet with a financial adviser to see how that would impact your current retirement plan.

Chris Cohan is a registered representative of and conducts securities transactions through CoreCap Investments, LLC. Chris Cohan is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. NJP Estate Planning is a separate entity and not affiliated with CoreCap Investments or CoreCap Advisors.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you're looking to increase or preserve your retirement savings, this year has been a roller-coaster ride — and that's true whether you're still collecting a paycheck or you've already made your exit from the workforce.

Conflicting signals about the economy and the financial markets abound. Inflation is finally under control — no, wait, it may be ticking up again, the latest data suggests. Tariffs are on, then off, higher, then lower, on a continuous loop.

Stocks nosedived in April, then shot up to record highs. As for a possible recession? Economists keep changing their minds, with the latest forecasts putting the chances of a downturn in the next 12 months at 30% to 40%, down from as high as 60% earlier this year.

Faced with these headwinds, many Americans are increasingly stressed about the potential impact on their financial security.

More than half of people ages 45 to 75 now say they're concerned about outliving their money in retirement — a jump of six percentage points from a year ago, according to a recent survey from the Alliance for Lifetime Income by LIMRA.

Nearly half of the pre-retirees and retirees polled are revisiting their retirement plans as a result, with moves that include postponing their retirement, cutting expenses and revamping their investment strategies.

While "stay the course" is standard advice in periods of economic and market turmoil, financial advisers say that reviewing your retirement plan and portfolio now, and tweaking as needed, is critical to ensure you're prepared for whatever comes.

"If you build in protections as part of the planning process, you're not dependent on the markets and the economy doing well to have a successful retirement," says Wade Pfau, a professor at the American College of Financial Services and author of Retirement Planning Guidebook. "Small adjustments can have a really big impact."

That advice feels particularly relevant in periods of heightened uncertainty such as now, when it's tough to know exactly which danger poses the greatest threat. Being proactive can not only help ensure that your savings last your lifetime but can also alleviate the anxiety that bubbles up for many people in the current environment.

"You can't control what the president will do about tariffs, how the Federal Reserve will act on interest rates or what happens in the Middle East," says Michelle Perry Higgins, a principal with California Financial Advisors in San Ramon, California, and a certified financial therapist. "But you can control the level of risk in your portfolio, how much you're spending and how you plan for life's what-ifs, which not only is good for you financially but helps lower your stress level as well."

Eager to protect your savings from the dangers that seem to be lurking everywhere lately? Financial advisers say that these are your best moves now.

1. Build a strong cash buffer

Your first line of defense in a shaky economic environment is to put together a runway of safe assets that you can tap to fund your living expenses if trouble hits.

That way, if a recession materializes that causes unemployment to jump or there's a prolonged downturn in the stock market, you won't need to pull money from your retirement portfolio at the worst time to pay your bills.

The biggest threat, if you're still working and are several years away from retirement: a lengthy bout of joblessness. That could push you into an early exit from the workforce, cutting years off contributions to a 401(k), or nudge you into taking a hardship withdrawal from your account.

Some 4.8% of 401(k) participants took such a withdrawal last year, up from just 1.7% in 2020, Vanguard reports — and that was when the economy was still robust.

A traditional emergency fund with enough cash to cover at least three months' worth of living expenses — stashed in a safe, liquid vehicle such as a money market account — is a solid starting point. But if the labor market weakens, six to 12 months is better, particularly if you're older.

Recently, according to the Bureau of Labor Statistics, workers ages 55 to 64 have required an average of 26 weeks to find a new job after a layoff, and people 65 and older have needed 32 weeks, compared with 19 weeks for employees ages 25 to 34. And those averages would likely rise in a recession.

But if you're planning to retire in five to 10 years, or you've been retired for a decade or less, the greater danger is a lengthy slump in stock prices.

"If a big bear market clocks your portfolio right at the outset and you don't have safer assets to spend from, you risk not having enough money left to recover when stocks eventually bounce back to sustain you for the rest of your retirement," says Christine Benz, director of personal finance and retirement planning at Morningstar and author of How to Retire.

A Morningstar study last year found that in simulated random trials, about 70% of the portfolios that ran out of money during a 30-year retirement involved retirees who had suffered losses in the first five years of tapping the accounts. The other 30% had gains in those early years but spent too much or experienced big enough losses later on that they ran out of money anyway.

What to do? Benz recommends shifting enough of your portfolio funds to cash to cover your spending needs for two years when combined with your income from other sources, such as a pension, Social Security or wages from part-time work. Keep another five to eight years of spending needs in fixed-income investments.

It's also a good idea to identify other assets outside of your portfolio that you could tap to help cover your bills in a down market, such as a cash-value life insurance policy or a reverse mortgage, Pfau advises.

"These buffer assets can be expensive," he says. "But even with the high fees, their value in helping to extend the life of your retirement investments gives you a better financial planning outcome in the end."

2. Fix your mix — a little

Small tweaks to ensure that you are appropriately diversified and have the right level of risk in your investments for your age and circumstances can go a long way toward extending the longevity of your retirement savings and giving you peace of mind.

"Big, heroic gestures are never the right move," says Benz. "If you build a portfolio plan you know is durable, then make small, periodic adjustments as needed, you don't have to respond to every economic headline, market move or inflationary shock that comes along."

If, for instance, you haven't rebalanced in a while, now is the time to do so, because the big run-up in stocks — not only this year but over the past decade — has probably altered your mix substantially.

Benz calculates that left untouched, a portfolio that was 60% in U.S. stocks and 40% in U.S. bonds 10 years ago would have shifted to 81% in stocks by the end of June.

This exercise is especially important if you're in the critical five- to 10-year period just before or after you stop working because of the damage a market swoon in those years can inflict.

"The biggest mistake I see people make is that they have too much risk in their portfolios when they start needing their money," says certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida. "Don't shoot the lights out trying to make more money in the market at the risk of losing a lot more."

McClanahan often recommends a portfolio split evenly between stocks and bonds for clients at this stage. That allocation historically has generated average gains of 8.2% a year, which is 1.5 percentage points less than the 9.7% annual returns from a more aggressive portfolio of 80% stocks and 20% bonds.

However, the more moderate blend has lost less, too. Its biggest one-year drop: 22.5%, compared with 34.9% for the more aggressive account.

You don't want to swing too far to bonds, though, because of another big risk: inflation. That's especially pertinent now, with many economists concerned that the widespread tariffs imposed by the Trump administration could cause inflation to reignite, although the impact on consumer prices has been muted so far.

"People often think the thing that could really wreck their retirement would be to lose a lot of money in the stock market," says retirement expert Anne Lester, former head of retirement solutions at J.P. Morgan Asset Management and author of Your Best Financial Life. "But inflation eroding how much your money can buy can be worse."

At a recent 2.7% rate, for instance, inflation will cut your purchasing power by half over the course of a typical 25- to 30-year retirement. If, as an analysis by the Federal Reserve Bank of Boston found, tariffs add an estimated one to two percentage points to that rate, it would take just 15 to 18 years to inflict the same damage.

Stocks, the only asset class that historically has beaten inflation by a comfortable margin, are still your best hedge against that outcome, says Peter Lazaroff, chief investment officer at Plancorp, a wealth management firm in St. Louis.

Research shows that all it takes is at least a 30% commitment to stocks in your portfolio to get that long-term protection, he says.

Benz also recommends layering in some inflation-protected securities in the fixed-income portion of your retirement savings.

You might, say, keep anywhere from one-fourth to one-third of your fixed-income holdings in Series I savings bonds and Treasury inflation-protected securities (TIPS), which adjust their rates twice a year to reflect changes in the Consumer Price Index.

This year has also driven home the importance of diversifying more generally, with international assets outpacing U.S. securities by a substantial margin for the first time in many years, notes Lazaroff. He recommends keeping 20% to 30% of your stocks in international holdings and choosing bond funds that include international exposure as well.

"There's a mathematical reason why diversification reduces volatility and returns compound better at lower volatility," Lazaroff says. "But it's also just an exercise in humility, saying we don't know what's going to happen. If you spread your bets, no one thing can topple your entire investment plan."

3. Adapt your spending

In response to growing concerns about the economy, two-thirds of Americans ages 18 to 65 are cutting back on spending, according to a summer survey by Life360, an information technology company. Dining out, online shopping and travel lead the list of expenses on the chopping block.

Meanwhile, 41% of retirees in the Alliance for Lifetime Income survey said they are looking to spend less as well.

It's a smart move, financial advisers say. During your working years, every dollar you don't spend is one you can direct toward saving, either to build up your cash reserves or bulk up retirement accounts. And if you're already retired, every dollar you don't spend is one less you need to pull from savings when stock prices may be down.

McClanahan suggests identifying expenses that you could pare back in advance of another market meltdown or downturn in the economy, even if you're financially comfortable now.

"You don't have to make any changes yet," she says. “But this way, if the world goes crazy and your returns go south, you already have a plan in place."

Conversely, McClanahan also encourages her retired clients to spend more, within reason, when markets are surging.

"Need a new car? Want to take that bucket-list trip? When the market is doing great, it's a good time to take money off the table and do those things," says McClanahan, a former emergency room doctor. "You never know if or when illness or other events will upend your life. So, while you need to plan financially so that your money will last a long time, you also want to make sure you're enjoying your money along the way."

That kind of adaptability to economic and market conditions can greatly extend the life of your retirement portfolio, research shows. Says Benz: "Flexibility is a superpower for retirees."

Among the flexible withdrawal strategies that research has shown to be most effective in helping your money last longer, Pfau says, is installing upper and lower limits on your withdrawals (often called guardrails), depending on how the market is faring.

Rather than following the standard advice to withdraw 4% initially in retirement, then adjust that amount annually for inflation, he says, you might instead take out only, say, 3% from retirement savings in bad years for stocks, but as much as 5% when the market is on an upswing. Another simple option: Give up the inflation raise when stocks are down.

"These small adjustments can have a dramatic impact on the longevity of your assets," says Pfau. "The more flexibility you have to make these adjustments, the easier it is to weather any storm."

4. Don't let fear drive your decisions

Exacerbating the recent stress about the economy is growing anxiety about Social Security. Some 58% of respondents in the Alliance for Lifetime Income survey expressed concern that Social Security benefits will eventually be reduced. As a result, 34% of pre-retirees are considering claiming earlier than planned.

Evidence suggests that's already happening. Initial claims are up 13% so far this year, to nearly 3 million — more than triple the usual rate of increase.

A recent Urban Institute analysis also found that the Social Security Administration has received more early claims in 2025 from higher earners, especially at age 62, than in previous years, concluding that recent staff cuts and policy changes contributed to the numbers by causing fear and confusion among future recipients.

Adding to the concerns: The most recent report on Social Security's financial health indicates that the primary trust fund that pays retiree benefits will run out of money in 2033, failing government action to prevent a shortfall, at which point only 77% of benefits will be paid.

All the worry is understandable, but financial advisers urge that pre-retirees and retirees who have yet to take benefits not act on it.

"If Congress doesn't do something, you're going to get a 23% reduction in benefits, no matter what," says certified financial planner Lee Baker, founder and president of Apex Financial Services in Atlanta. "But if you've claimed early, you'll be facing a double reduction because of the hit you're already taking on Social Security benefits before your full retirement age."

That hit is a hefty one. For every month you collect before your full retirement age, your payments are permanently reduced by a small percentage, which can really add up over time. Depending on when you were born, claiming at age 62 instead of your full retirement age, for instance, will lower your benefits by 20% to 30%, the Social Security Administration reports.

If instead you delay beyond full retirement age, your benefits increase by 8% a year until you turn 70. All told, your monthly payments will be 76% higher if you claim at age 70 instead of age 62, according to Boston University economist Laurence Kotlikoff, founder of Maximize My Social Security, an online tool to help with claiming decisions.

Still, the decision to postpone benefits until 70 is not entirely a slam dunk. Your health, family circumstances and how you would pay your expenses until you begin collecting also affect your timing.

Morningstar research shows, for example, that if you can rely on income from work, a pension or other non-investment sources to cover your bills while you wait, delaying Social Security until age 70 will generally leave you in the strongest financial position over the course of your retirement.

But if you'd need to withdraw money from your portfolio to pay your expenses, the decision is less clear. The study showed that someone who retired and started collecting Social Security at 67 fared slightly better financially during a 30-year retirement than someone who waited until 70 but had to cash in investments until then to make ends meet.

5. Keep your hand in

There are plenty of good reasons to work longer. Besides helping you bridge the years until you collect Social Security without breaking into your nest egg, it gives you more years to save, shortens the number of years those savings have to last and reduces the chances you'll be forced to tap your portfolio during a market downturn. "Your human capital is your safest asset," McClanahan says.

Given all the benefits, it's not exactly a shocker that many people these days are embracing the work-longer approach. Both the average retirement age and the percentage of people 65 and older in the workforce have been steadily creeping up, the Center for Retirement Research at Boston College reports.

And many people plan to keep drawing a paycheck after they've quit their career job: A recent Northwestern Mutual study found that 48% of Gen Xers and 30% of baby boomers plan to work or are already working in retirement.

Of course, keeping a job isn't always in your control; health problems and layoffs often force older workers into retirement earlier than planned. Then, too, after an adult lifetime spent toiling 40 or more hours a week and answering to a boss, you may simply not want to work that much or that hard anymore.

Working longer, though, doesn't have to mean working as hard as you did at the peak of your career. Part-time or occasional freelance work can allow you to postpone withdrawals from savings, take less money out when you do, and provide an income bridge that allows you to delay Social Security.

You may be able to find opportunities at websites such as RetirementJobs.com, SideHusl.com and Upwork.com.

"Find something you're passionate about to supplement your income," says Baker. One of his clients, a pickleball fan, earns extra money by coordinating local championship matches. Another, who is more than comfortable financially, works part-time at Trader Joe's just because he thinks it's a cool place.

"Working some in retirement is not just helpful for the nuts and bolts of financial planning," says Baker. "Staying engaged and interacting with people is incredibly helpful for your physical and mental well-being, too."

6. Consider the what-ifs

What's the worst that could happen if a recession, prolonged bear market or spike in inflation comes to pass?

Although it may seem counterintuitive, thinking about how the economic scenarios that worry you could play out and how you would manage the personal fallout can be an anxiety-reducing exercise, advisers say.

"You want to consider emergency decisions when you're not in an actual emergency and can think strategically, not from a place of heightened emotion or panic," says Lester. "It's why we do fire drills."

Take the market outlook, for example. While stock prices bounced back quickly this year from their April slump, a downturn historically is more likely to last about 18 months, and stock prices were down or sideways for more than a decade in the 1970s and early 1980s.

"That's not a probability now, but it is a possibility, so maybe that belongs on your bingo card," says Lester, noting the point of the exercise is not to scare you but to prepare you.

In this case, she says, in addition to making sure your portfolio doesn't have too much risk and you're well diversified, you might want to think about adding an immediate annuity to your mix so that you have a source of steady income outside of your investment portfolio (you can find options at immediateannuities.com).

Higgins suggests that you also think about the trade-offs you might be willing to make if, as a result of renewed inflation or a bad bear market, you can't cover your spending at current levels.

"Ask yourself what you would be willing to change," she says. "Could you work two more years than you planned? Where could you cut expenses? Are you willing to downsize? You want to go into the storm with a plan."

Realizing you have a variety of options is crucial not just to be prepared financially but for your peace of mind as well. "There are a lot of tools you can use, not just one solution," says Pfau. "The key is to think ahead about how the different tools fit together so they can help you build a stronger foundation for your retirement."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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After a challenging period in which a redesign led to widespread delays in applying for and receiving financial aid, the Free Application for Federal Student Aid (FAFSA) appears to be back on track.

The new and improved form, which includes changes courtesy of the Big Beautiful Bill passed by Congress this summer, will become widely available for the 2026–27 college year on October 1, its traditional release date.

“The government has repaired all the problems from last year’s FAFSA fiasco,” says Mark Kantrowitz, an expert on student financial aid.

That’s good news for families hoping to score merit- or need-based aid for a college-bound student.

You’ll want to move quickly, though, because aid is often awarded on a first-come, first-served basis. Students who file the FAFSA within the first three months of its release get twice as many grants on average as students who file later, Kantrowitz says.

Changes to the FAFSA form

New to the form this year: an easier way for parents to enter financial information via a simple e-mail invitation from the student, rather than a requirement for the parent to establish a unique ID first.

If you create an account using your Social Security number, you will also now get immediate verification, compared with having to wait one to three days previously.

Plus, as a result of the One Big Beautiful Bill Act, you can once again exclude the net worth of a family-owned farm or small business and, for the first time, a family fishing business as well.

Other recent changes include a simplified form with fewer than 40 questions (down from more than 100) and an increase in the number of colleges to which students can send the application (now 20, up from 10).

Distributions from a grandparent-owned 529 plan also no longer affect a student’s aid eligibility, so families might consider rolling a parent-owned 529 plan over to a new 529 plan in the name of the student’s grandparent to boost aid eligibility.

FAFSA and reporting parental income

Another helpful strategy: Because the FAFSA also no longer considers contributions to a 401(k) or 403(b) account, “You can reduce the income you report on the FAFSA by maximizing pretax contributions to your retirement plan,” says Kantrowitz.

This strategy works best, he adds, if you start increasing your retirement contributions two years in advance of filing the FAFSA.

That’s because, while the FAFSA asks for the value of your bank accounts, 529 plans, investments and other assets as of the day you submit the form, it pulls income information from the tax return you filed two years before the academic year for which you’re seeking financial aid.

That means this October’s application, for the school year starting in 2026, will use information from your 2024 return.

What if your income drops after you’ve submitted your aid application? Says Kantrowitz, “You should always appeal for more financial aid if your financial circumstances change.”

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Question: I'm 57 with $4.1 million and looking to retire abroad in a few years. I no longer see the point in contributing to my 401(k). Am I wrong?

Answer: As of 2022, the typical 57-year-old had $185,000 in retirement savings, according to the Federal Reserve.

If you’re 57 with $4.1 million socked away for your later years, you’re in remarkably good shape. This holds true whether your intent is to retire abroad or not, as both have pros and cons from a financial perspective.

However, you might wonder if it pays to continue funding your 401(k) plan at this stage if you plan to retire abroad in a few years. You’ve probably got enough savings that if you were to work a bit longer and let your balance grow, you’d be well-positioned to retire in your early or mid-60s.

Halting those 401(k) contributions, meanwhile, means freeing more money to spend in the near term.

There are some big drawbacks to pulling the plug on 401(k) contributions, even with plenty of savings in your pocket. It’s important to weigh your options carefully.

Hitting stop on your savings means giving up benefits

It’s one thing to retire on $4.1 million at 57 and another thing to stop funding a retirement account at 57.

Although 57 isn’t such a young retirement age, it could mean having to stretch your nest egg further. If you’re thinking of retiring in your 60s and are simply looking to stop funding your 401(k) during your last few years of working, that’s a different story — and a lot less risky.

Still, Brett Bernstein, CEO and co-founder at XML Financial Group, says it’s important to recognize that there’s really no such thing as having too large a 401(k) balance.

“I believe one shouldn’t make a rash decision to pull the plug on contributions to a retirement plan based on their age or account value,” he says. “A well-thought-out, holistic financial plan should be created to determine if you need to continue contributing to a retirement plan to meet your retirement goals.”

Aaron Cirksena, founder & CEO of MDRN Capital, also cautions savers who have accumulated a lot of money at a certain point to consider the downside of halting retirement plan contributions.

“The real question is not ‘Can I stop?’ but ‘What do I lose if I do?’ ” he says. “Every extra [401(k)] dollar stowed away lowers your taxable income today and keeps more of your money working for you. If your employer is still offering a match, that is basically free money you would be missing out on.”

There’s also the fact that 401(k)s impose an early withdrawal penalty to think about. If you’re inclined to tap your savings before age 59½, then you might want to stop contributing to a 401(k) and focus instead on a taxable brokerage account with restrictions.

On the other hand, if you’re already 57 and are still planning to work a few more years, early withdrawal penalties might not be an issue. That makes the argument to continue funding a 401(k) at least up to the point of your employer match.

Retiring abroad changes things — for better and worse

Both Bernstein and Cirksena believe that retiring abroad should factor into the decision of whether to continue funding a 401(k).

As Bernstein says, “Retiring abroad requires some additional planning, including, but not limited to, currency conversions, fluctuations and tax considerations. Once those aspects are taken into consideration, the costs could be less.” However, he says, they might not be.

Cirksena says, “In countries with lower costs of living, your money will go further, and that can make the idea of stopping contributions feel even safer.”

However, Cirksena cautions, "Retiring abroad is never as cheap and simple as it looks. You will most likely face surprise costs like visa requirements, foreign taxes, or you may need to keep some U.S. accounts open for some reason."

He also points out that retiring abroad could mean traveling back and forth to the U.S. frequently to see friends and family, which could result in a big financial strain. That’s why, Cirksena says, “keeping up contributions, even if at a reduced level, can still make sense.”

Bernstein also notes that life can throw retirees many curveballs, regardless of where they live. Home repairs, health issues and family obligations can all eat into retirees’ nest eggs, making the argument that continuing to contribute toward retirement to some degree is a pretty smart choice.

All told, for this situation, Bernstein says the key is to make a smart decision for the future, given the unknowns of retiring abroad (or retiring in general) without denying yourself too much in the near term.

“I believe someone should save as much as they can when they can to be there for the future, but don’t save so much that you cannot enjoy the journey along the way,” he says.

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It's official. President Donald Trump signed an executive order that could transform your 401(k) investment options.

For the first time, complex choices such as private equity, real estate, expanded annuities and even cryptocurrency may be added to your plan's menu.

These aren't the plain-vanilla mutual funds and index funds to which most of us are accustomed. They're bigger, flashier and at least on paper, full of promise.

But promise is one thing; reality is another. These products are generally more complicated, less flexible and often more expensive to own.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

The executive order doesn't require your employer to offer them. But if they do, you'll need to be ready to navigate a very different and potentially riskier set of choices.

Why add these complicated investments to 401(k)s?

You can buy private equity, real estate funds or annuities outside your 401(k). Why the sudden push to add them to workplace retirement plans?

The pitch is simple: These investments promise the potential for higher returns than traditional stocks and bonds.

Private equity and real estate, for example, can offer access to private deals and growth opportunities not found in typical mutual funds.

Annuities, on the other hand, are marketed as a way to guarantee income in retirement — a kind of safety net for those who want steady, predictable cash flow.

However, these offerings are much harder to evaluate and even harder to escape. That makes them risky for the average saver who doesn't have a team of analysts at their side.

It's fair to ask who really benefits. The strongest push is coming from the companies that stand to profit, such as insurance firms, recordkeepers and investment managers.

These are the same entities that can charge higher fees and lock in long-term contracts with plan sponsors once these products are on the menu.

Surveys from these companies claim that savers want more choice. But the reality tells a different story: Fewer than 2% of 401(k) plans currently offer private equity or private credit, and many employers avoid adding annuities because they're complicated to explain, compare and manage over time.

The heightened risk of complexity

More investment options can sound like a win. But in retirement planning, more choice often means more homework and more ways to get tripped up.

Before you even think about investing, you'd need to understand exactly what you're buying, how it fits into your bigger retirement picture and what it's going to cost you.

These aren't mutual funds, which are relatively straightforward and easy to sell if you need cash. Private equity, for example, can be illiquid. You might have to lock up your money for years. The fees are often layered and harder to spot, which can quietly shrink your returns.

Annuities come with their own hurdles. Contracts can lock you in for a decade or more, and the terms are often so dense that even seasoned investors struggle to compare one product to another.

Even if an annuity's promise of lifetime income sounds appealing, that doesn't mean it's the right fit for your retirement goals.

Here's the bigger concern: Are employers equipped to evaluate these products in the first place?

As fiduciaries, 401(k) plan sponsors are supposed to act in participants' best interests. But many lack the expertise to dig into these complex investments, monitor them over time and make sure they truly belong in your plan.

How will you make informed decisions?

It's important to remember that you already have ways to access these investments without complicating your 401(k).

If you have a Roth 401(k), you can take tax-free withdrawals after age 59½.

With a traditional 401(k), you might qualify for an in-service withdrawal after 59½, which lets you roll funds into an IRA.

Even if your employer decides to add these investment options to your 401(k), you're the one who must decide whether to use them.

Plan providers can explain how an option works, but they're not looking at your full financial picture, including your tax situation, your spouse's benefits, your other investments or your retirement goals. Their job is to educate, not advise.

That's why it's worth thinking about how you'll evaluate any new choices that appear in your plan.

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In some cases, you might decide it's better to keep things simple. In others, you might choose to move part of your savings outside the plan through an IRA rollover or in-service withdrawal after age 59½.

An IRA typically offers a broader range of investments, including private equity and annuities, on your terms, not your employer's.

This way, you get more control over your retirement dollars without adding unnecessary complexity to your workplace plan.

The point isn't to say "no" to every new feature. It's to make sure you understand exactly how it fits into your strategy before you say "yes."

Proceed with caution

Just because something shows up on your 401(k) menu doesn't mean it belongs on your plate.

Private equity, real estate and annuities can have a place in some retirement plans, but they're not a free upgrade. They come with trade-offs in cost, flexibility and transparency that you need to weigh carefully.

Saving for retirement is a long game. It's easy to get distracted by what's new and shiny, especially when it's framed as an "opportunity."

But your 401(k) should always be built around your goals, your timeline and your comfort with risk, not whatever product just became available.

If you're unsure, this is the time to get a second opinion. Talk to a fee-only fiduciary adviser. That's someone who works for you, not for the companies selling these products. You get advice without the sales pitch or hidden agenda.

The executive order might expand what's possible in a 401(k). Whether that's good for your retirement depends entirely on how, and if, you choose to use it.

Related Content

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you're saving for retirement, chances are good you're using a 401(k) to do it. These workplace retirement accounts (or the equivalent versions for public sector workers) are the most common retirement plans in America and with good reason.

A 401(k) plan is easy to open — you might even be auto-enrolled when you start work — and easy to contribute to, since funds come right out of your paychecks. You get generous tax breaks, enjoy high contribution limits and might even get a generous employer match depending on the company you work for.

Unfortunately, while there is a lot to love about the good old 401(k), these accounts do have a bad reputation in one regard: Fees. Investment gurus such as Robert Kiyosaki of Rich Dad, Poor Dad fame have criticized these accounts for costing too much, and you'll commonly see warnings about hidden 401(k) fees in financial articles.

Now an Abernathy-Daley report is reaffirming those fears, warning of 401(k) plans that are full of “underperforming, overpriced funds," or "clunker funds." Is this really a major concern that should cause you to rethink your 401(k) contributions? More important, is your 401(k) plan one of the more expensive options relative to the average?

Average 401(k) fund fees might be a bad deal

The Abernathy-Daley report examined more than 58,000 401(k) plans using fund performance data from 2015 to 2025. Based on a careful assessment of available investments within these plans, researchers found:

• More than 99% of all corporate 401(k) plans offered investors at least one fund that had a cheaper alternative that performed better over three, five and 10 years.
• More than 94% of corporate 401(k) plans had at least three funds that underperformed cheaper alternatives during these time periods.
• More than 85% had at least five underperforming funds.
• More than 70% had at least 10 of these clunker funds when narrowing the performance window to a three and five-year period.
• More than 40% had at least 10 underperforming funds over 10 years.

While researchers acknowledged that these underperformers might make up a small portion of the investments available, given that they found the average 401(k) plan has 28 funds, researchers also stated, "the investment fund options within a 401(k) must be foolproof to ensure that plan participants avoid mistakes that could lead to lost investment opportunities."

How big of a concern are these underperforming funds?

While the Abernathy-Daley report indicates that these "employees lose a significant amount in potential retirement savings due to excessive fees and underperformance," researchers don't indicate what that "significant amount" is, nor do they specify how many employees actually participated in these underperforming funds.

There is also plenty of evidence to counteract these concerns. When "Rich Dad" Robert Kiyosaki promoted the idea that a 401(k) was a "horrible" retirement plan, Morningstar researchers pushed back, pointing out that plan costs range from 0.27% for the largest plans with $1 billion in assets or greater to 1.26% for plans with assets under $1 million.

While that 1.26% number might be cause for concern, very few participants are in plans with assets valued at under $1 million — just 8% of all 401(k) participants in total.

Since most people in the U.S. work for larger companies (by definition, this is part of what makes them large), the vast majority of 401(k) plan participants are in plans where fees fall within that 0.27% range, and around 74% of all participants are in plans with average costs below 1.00%.

The 25th edition of the 401(k) Averages Book, released in 2025, also affirmed these numbers, reporting that a $5 million plan has average costs of 1.08% in total, including 0.37% in adviser compensation, while a $50 million plan has total average costs of 0.76% and 0.16% in average adviser fees, respectively.

Average 401(k) fund fees and administrative fees

If you're concerned you might be overpaying, here is what average 401(k) fees look like by plan size, based on Morningstar's analysis of BrightScope/ICI Data from March of 2024.

The study included "the 401(k) account’s expense ratio, considering both the asset-management fees collected by the fund companies and the administrative fee (along with any other charges) paid to the recordkeepers."

However, there is widespread disparity among different plans. For example, the 401(K) Averages Book revealed that total plan costs for a $1 million plan with 100 participants ranged from 0.87% to 3.56%.

That's a very wide range with very serious consequences for your finances.

If you invested $10,000 per year over a 30-year career in a 401(k) with fees of 0.87% vs 3.56%, and you earned an 8% annualized rate of return, the account with the larger fee would be worth around $630,000 while the one with the smaller fee would be worth around $1.035 million.

Steps you can take

The lesson here is that it's up to plan participants to review the fees charged by their 401(k). While management and plan fees are largely out of the control of investors, fund fees are not.

Every 401(k) participant has the opportunity to review the funds in their plan and to compare fees and past performance.

A thorough review of the funds within the account can identify those underperformers, and simply opting out of investing in them can allow you to take advantage of all the benefits a 401(k) offers without losing out on returns you should be earning.

There are circumstances where 401(k)s are more expensive than they should be — especially if you work for a very small company that doesn't have the negotiating leverage to reduce plan expenses. In those circumstances, investing enough to earn your match before diverting retirement contributions to an IRA can be a viable strategy.

However, don't let frightening headlines about high fund fees influence your choices. Review plan expenses for yourself to ensure you're making the very best decision with your retirement dollars.

Get the Full Story: What You're Worth

• The Average Net Worth by Age
• Average Retirement Savings by Age
• The Average 401(k) Balance by Age
• Average IRA Balance by Age
• Average 401(k) Match: Do You Work for a Generous Company?
• The Average Social Security Check by Age

Kerry Hannon is coauthor of Retirement Bites: A Gen X Guide to Securing Your Financial Future. She recently spoke to Kiplinger Personal Finance about the unique challenges facing Gen X — those born between 1965 and 1980 — as they try to save for retirement, as well as the generational strengths that will work in their favor.

Q: What is unique about the challenges that Generation X faces when it comes to retirement compared with other generations?

Hannon: The 64 million people in this generation, who range in age from 45 to 60, entered the workplace when traditional pensions were sliding out of view and 401(k)s were stepping onto the scene. In the early years, nobody really understood what a 401(k) was, and there was little assistance from your employer. And Gen X didn’t have the benefit of automated-participation features that are helping younger workers save earlier for retirement.

They have also lived through a lot of economic upheaval that has dealt a blow to their retirement savings: the dot-com bust, the Great Recession, and then the pandemic. And many of them have a ton of credit card debt, more than any other generation.

Q: That’s a pretty bleak picture. Is there anything that’s working in their financial favor?

Hannon: Absolutely. All that economic upheaval has made them very resilient and self-reliant. We’ve seen them, in recent years, truly buckling down and starting to save more. They’re very entrepreneurial as well. This is a group who’s coming to understand the need to work longer than previous generations, and they’re already thinking about what they might do and what skills they need to add.

Another positive thing is that many Gen Xers have a lot of equity in their homes. It may not be money stashed away in a retirement account, but they have access to financial viability through home equity. And the younger Gen Xers, who are in their forties, may be beneficiaries of the great wealth transfer from the generation above them. That will help augment their retirement savings as well.

Q: What are the key steps Gen Xers need to take now to ensure a comfortable retirement?

Hannon: As they become empty nesters, Gen Xers will have more opportunity to become super savers and take advantage of things like the catch-up contributions that people 50 and older can make to their retirement accounts. It might also be a good time to pull some of that valuable equity out of their homes and relocate to a place where the cost of living is lower, maybe buy a home with cash so they have no mortgage. That would tee them up nicely for a more financially secure retirement.

Q: The oldest Gen Xers are close to being old enough to claim Social Security early, at age 62. Any advice about timing those benefits?

Hannon: We are collectively living longer lives. If you step out of work at age 62 or even age 65, you could have three decades or more to support yourself in retirement, and that is daunting. Of course, none of us knows how long we’ll live, so it’s a bit of a gamble. But if you keep working and hold off collecting benefits until age 70, or at least until full retirement age [age 67 for Gen X], that bigger check could be very helpful moving forward.

Q: Are there any practical or motivational tools you can recommend to help Gen Xers with this last big push toward retirement?

Hannon: One idea is to shift how you frame things. I always tell people, you’re not saving for retirement, you’re saving for your life, which means being able to spend more time with family, pursue hobbies you love, travel. I like the idea of visualization as psychological motivation for saving and managing money, literally creating a vision board about what you want your retirement to look like and letting yourself dream.

There are also so many great digital resources out there to help us run our numbers and make it easier to find a financial adviser — possibilities that weren’t there for previous generations. You do not have to do this alone. But you do have to do it: It is time for Gen X to get clear-eyed and serious about how to make sure their retirement is on track.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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On August 7, President Donald Trump signed an Executive Order allowing 401(k) savers to access alternative assets in their retirement plans.

That means that you could invest in companies that aren't publicly traded, in some private real estate ventures and even in cryptocurrency.

The move was applauded by the Labor Department as a means of expanding investment choices for savers and giving them more autonomy over their money. Many big names in the financial world support the change.

BlackRock, for example, thinks private equity in 401(k)s could help millions of Americans enjoy better returns in their retirement plans. Introducing this option, the giant says, could generate about 15% more money in the typical participant's 401(k) plan over a 40-year period.

However, some lawmakers are sounding alarms about the change. Not only are private assets harder to sell, they warn, but they might not be subject to the same disclosure rules and scrutiny as those that are publicly traded.

Put another way, savers might not know just how much risk they're taking on.

Private equity in 401(k)s — leveling the playing field?

On a basic level, allowing private equity in 401(k)s gives savers more choices. Josh Tolley, CEO at Kingsbridge Brokers, says the change could be a positive one as long as savers know what they’re getting into.

“It could have a major positive impact on investors if they are willing to face the risks. … At the moment, it seems as if the major investment companies are looking at it as a harvesting opportunity, though, which could signal trouble 10 years down the road.”

All told, says Tolley, 401(k) investors need more options than those they typically have today.

“Gone are the days when people thought a 7% to 10% return over a 30-year investment horizon was worth it as inflation and taxation destroy the compounding effect,” he says. The opportunity to generate higher returns is unquestionably appealing, particularly for savers with long investment horizons.

Tolley also says that allowing private equity in 401(k)s helps to level the playing field.

“The fact that the wealthy people have access to private placement vehicles, which 98% of these vehicles are not accessible by non-accredited investors, is forcing a growing wealth gap that can never be fixed with taxes, regulations or social programs,” he says.

“Education and equal access are the only way to bring financial equality and equity. Done right, this could be a great opportunity for more people.”

Better diversification and protection from inflation

A big risk that retirement savers face today is, as Tolley mentions, having inflation erode the value of their nest eggs.

Henry Yoshida, CEO, CFP and co-founder of Rocket Dollar, a fintech platform built for helping investors tap alternative assets as a vehicle for retirement, thinks this change could help protect savers in that regard.

“Private-equity investments that focus on real assets such as real estate, commodities and infrastructure can serve as potential hedges against inflation, since the value of these assets often increases in rising interest rate environments,” he says.

Keep in mind, however, that your 401(k) might be able to offset much of inflation if you have a 401(k) match, depending on how generous your employer is.

Yoshida also feels that private equity could lend to better diversification in 401(k)s.

“With the right guardrails in place, this type of access could help Americans achieve better diversification and better overall risk-adjusted returns,” he explains.

Don't overlook the risks and pitfalls

Though Yoshida thinks expanding investment opportunities to 401(k) savers could yield positive results, there are some risks and pitfalls of which to be mindful.

For one thing, the typical investor might not have the knowledge to assess their risk properly.

Steep learning curve

“Millions of Americans are not knowledgeable enough about complex private and alternative investments and, thus, could make poor decisions with their retirement savings,” he says.

“The introduction of private investments in 401(k)s would also have to be coupled with providing education on the risks and potential pitfalls of private equity and alternative investments.”

Higher fees

Yoshida also warns that savers could face higher investment fees if they opt to dabble in private equity.

"By virtue of being complex, private equity and alternative investments carry higher fees than large-cap stock mutual funds or index funds, which make up a large portion of current 401(k) dollars,” he says.

There’s a twofold concern here. One is that savers will be subjected to higher fees than they’re comfortable with. The second is that investors will run from higher fees without recognizing the potential for higher returns.

Lack of liquidity and transparency

Furthermore, says Yoshida, one of the biggest drawbacks of private equity and alternative investments is that they are illiquid.

“In many cases, investors may not sell their shares as easily as public market securities, and this could pose problems when investors need to liquidate holdings in situations like job transfers or retirement,” he explains.

There's also a lack of transparency to worry about. Financial Advisor quoted Phyllis Borzi, former assistant secretary of the Department of Labor’s Employee Benefits Security Administration, as saying, “You often have no idea exactly what you’re investing in — what funds are inside the fund-of-funds, how they’re valued, and what the underlying risks are."

Your 401(k) could be used as a bailout for lackluster funds

Lastly, as The Lever reports, there’s also the concern that struggling funds could use everyday savers’ money as a bailout of sorts when things get rocky.

Not only could 401(k) dollars help keep flailing funds alive, but there might be nothing to stop fund managers from using 401(k) investors’ money to pay back other investors looking to make an exit.

All told, it’s pretty clear that allowing private equity in 401(k)s is a mixed bag. Savers should recognize that while they might now have more choices for investing their money, it’s important to know what they’re getting into.

Read More

• Your 401(k) Is Changing: Trump Opens the Door to Private Assets, Cryptocurrency
• The Average 401(k) Match: Do You Work for a Generous Company?
• You Too Could Be a 401(k) Millionaire: Here's How
• Want to Retire at 65? See If You Can Answer These Five Questions

Congrats on maxing out your 401(k) in 2025 — that’s a huge win and a major victory for your retirement fund. Keep the momentum going into 2026.

Given your financial discipline, you may now have room and the additional funds to explore other tax-advantaged accounts or investment strategies that align with your goals.

Here are seven ways to utilize your surplus savings once you’ve reached the contribution limit, considering tax advantages, flexibility and long-term wealth-building potential.

What are 2025 401(k) Contribution limits?

For 2025, the maximum contribution limits for 401(k) plans are as follows:

Employee deferrals: $23,500 (up to $24,500 in 2026)

Catch-up contributions (for those age 50 and older): $7,500 (up to $8,000 next year)

Super catch-up contributions (for those ages 60 to 63, per SECURE 2.0 Act): $11,250 (stays the same for 2026)

Total combined employee and employer contributions: $70,000 (or $77,500 for those age 50 and older, $81,250 for those ages 60 to 63) in 2025. These numbers rise to $72,000 (or $80,000 for those age 50 and older, $83,500 for those ages 60 to 63) in 2026.

These limits apply to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. Total contributions can't exceed 100% of the employee’s compensation.

Here’s what to do next

David Dickman, CFP®, Vice President and Partner at Rothschild Wealth Partners, recommends that after maxing out your 401(k), you explore less obvious investment options. Take a holistic view of your financial situation, and consider upcoming life events to make informed decisions.

“Carrying high-interest liabilities or aspirations for near-term life events could dictate your decision beyond standard advice,” he says.

He adds that considering the liquidity and tax benefits or ramifications of certain contributions and withdrawals is important in managing the “life cycle” of your finances. “Additionally, it is usually recommended to retain, on average, six months of living expenses in cash or equivalents.”

What's next for you?

1. Consider a Deferred Compensation Plan

Dalton Richards, CPFA® and Financial Planner at Balefire, says the first step to take to secure your financial future is to capitalize on your company’s deferred compensation plan.

“Many executives, partners and senior professionals have access to non-qualified deferred compensation (NQDC) plans, which allow you to defer a portion of your salary and/or bonus into a tax-deferred account,” he says.

If your employer offers an NQDC plan, you can defer a portion of your income to reduce current taxable income in your highest-earning years. You can choose when to receive payouts and benefit from tax-deferred investment growth beyond 401(k) limits.

Richards adds that this strategy is especially effective if you expect to be in a lower tax bracket in retirement, or you're working toward early retirement and want to spread out your income across multiple years.

2. Choose a Health Savings Account (HSA)

HSAs are the only accounts that offer triple tax savings — tax-deductible contributions, tax-deferred growth and tax-free withdrawals for medical expenses. Dickman explains that HSA accounts are highly underutilized and can be leaned on to help cover unexpected medical expenses, which can arise later in life.

“The government has also recently expanded qualified expense categories to include items such as certain OTC medications, mental health services, weight loss and nutritional programming, and preventative care,” Dickman adds.

As a side note: Three big changes coming to HSA plans in 2026 include: HSA contribution limits increase to $4,400 for individuals and to $8,750 for families. Bronze and Catastrophic ACA plans will qualify for HSA eligibility in 2026 and Direct Primary Care (DPC) memberships and telehealth coverage will be HSA-compatible in 2026.

3. Explore a backdoor Roth IRA

For high earners whose income exceeds the Roth IRA contribution limits — $150,000 to $165,000 in 2025 for single filers ($153,000 to $168,000 in 2026) or $236,000 to $246,000 for married couples filing jointly in 2025 (rising to a range of $242,000 to $252,000 in 2026) — a backdoor Roth IRA offers a path to additional savings.

Your savings grow tax-free and can be withdrawn tax-free in retirement. However, if you already have pre-tax IRA funds, watch out for the pro-rata rule, which could result in unexpected taxes during the conversion.

4. Check out a mega backdoor Roth

Richards also recommends leveraging a mega backdoor Roth if your employer's 401(k) plan allows after-tax contributions above the standard deferral limit — up to $70,000 total for 2025 ($72,000 in 2026), including both employee and employer contributions), as well as in-plan Roth conversions or in-service rollovers. "It is one of the most powerful tools available," he says.

These after-tax contributions can be converted to a Roth 401(k) or rolled over to a Roth IRA, allowing for significantly larger Roth contributions if the plan permits. Your money grows tax-free with no required minimum distributions (RMDs) if in a Roth IRA, and there are no income limits.

5. Take a look at a Donor-Advised Fund (DAF)

A donor-advised fund (DAF) is a dedicated giving and investment account designed to support charities you value. Jennifer Kohlbacher, CPA, director, wealth strategy at Mariner Wealth Advisors, highlights the benefits of donor-advised funds.

“When contributing cash, securities or other assets to a DAF, you can typically claim an immediate tax deduction, and the assets in the DAF can be held, sold without tax liability, invested for tax-free growth, and distributed to your chosen charities over time.”

Additionally, the assets in the DAF are excluded from your estate, shielding them from estate taxes.

6. Look into taxable brokerage accounts

Taxable brokerage accounts offer both long-term growth and flexibility. These accounts don't offer tax deferral, but you’ll pay lower tax rates on long-term capital gains and qualified dividends.

Richards says this is ideal for long-term buy-and-hold strategies, especially for those pursuing early retirement, education funding or big-ticket goals, as funds are accessible without age restrictions or penalties.

“Focus on low-cost, diversified investments like index funds or ETFs, municipal bonds, and tax-loss harvesting to minimize fees.”

7. Size up tax-deferred annuities

Unlike 401(k)s or IRAs, deferred annuities allow unlimited contributions with tax-deferred growth. While variable annuities depend on market performance, fixed annuities offer guaranteed returns.

When you retire, you can convert to an income annuity to spread out tax liability or take withdrawals, which are taxed as ordinary income. Watch for fees and surrender charges, and evaluate if the tax deferral outweighs the costs.

Additional considerations

"The problem with only sheltering money in Roths, HSAs and other tax-advantaged accounts is that those dollars are locked up," said Stephan Shipe, Ph.D., CFA, CFP®, founder and CEO of Scholar Advising.

"We often see high earners become net-worth rich but liquidity-poor," he says. "They have plenty saved, but all in accounts they can't access without penalty. That's a challenge when you want to pay down a mortgage, buy a second home, or make a large purchase."

High earners also often face higher tax brackets, so it's best to prioritize tax-advantaged accounts to reduce current taxable income and secure tax-free growth.

You might also want to consider aligning your portfolio with your risk tolerance and retirement timeline, gradually shifting to more conservative assets as you approach retirement.

Supercharge your financial future

As a "super saver," you’ve got a fantastic opportunity to supercharge your financial future with these strategies.

Consult a financial adviser to tailor these options to your goals, tax situation and risk tolerance, ensuring you make the most of your wealth-building potential.

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Question: I thought I'd be set, but my $3 million isn't buying the retirement I imagined. What should I do?

Answer: The larger a nest egg you have when you kick off retirement, the more comfortable your senior years are likely to be. Recent Northwestern Mutual findings point to $1.26 million as the ideal retirement savings target. However, Vanguard's latest data on retirement savings puts the average 401(k) balance among Americans 65 and over at just $299,442, while the median balance for that age group is only $95,425.

If you’re sitting on a $3 million nest egg, it’s fair to say that you not only have more savings than the typical retiree, but you should also, in theory, have plenty of options for stretching that money. If you use the popular 4% rule to manage withdrawals from your nest egg, that leaves you with an annual income of $120,000, not accounting for inflation adjustments or whatever monthly benefit Social Security pays you.

But what if you can’t help but feel that $3 million isn’t buying you the retirement you want? Maybe the cost of travel is more than you anticipated. Maybe you’re just too scared to spend your money in retirement and you’re limiting yourself because of that.

It’s important to get to the root of the issue and improve your retirement outlook. Here’s how.

Reassess your expenses

When you envision a certain retirement lifestyle, it can be tricky to adapt to a different one. But with a little flexibility, you might manage to not only stretch your nest egg further, but feel better about your financial situation on the whole, says Greg Giardino, CFP, CPWA, vice president and financial adviser at Wealth Enhancement Group.

“If you’re discovering your portfolio isn’t going as far as you would like it to go in retirement, your first place to turn to for reassessment should be your expenses,” he says. Giardino recommends making small, permanent spending cuts to the tune of 3% to 5% rather than a large, temporary cut.

“This is a more sustainable and realistic way to stick to a change in lifestyle,” he says.

Giardino recommends starting with discretionary expenses first, like travel, gifts and home improvements. From there, you can look at your recurring living expenses and see if there’s any wiggle room to lower them.

Get comfortable with spending

Unless you aim to live a truly extravagant lifestyle in retirement, there’s a lot you can do with $3 million. If you feel a nest egg that size isn’t cutting it, it may be that you do have enough money to cover your needs and wants, but you’re afraid to spend it.

As Giardino says, “Breaking the habit of saving for decades to now spending can be a difficult and scary adjustment. Reframe your thinking by focusing on why you saved diligently for all those years — to give yourself permission to spend and live the retirement that you deserve.”

If need be, Giardino says, work with a financial planner to establish a safe withdrawal rate. He also suggests starting with smaller portfolio withdrawals and increasing spending as your comfort level improves.

He also suggests setting intervals to re-evaluate your spending, whether semi-annually or annually. From there, he says, “You can conservatively increase the annual dollar amount you are spending by a few percentage points to encourage further spending.”

Faron Daugs, CFP, wealth adviser, founder and CEO at Harrison Wallace, has similar advice: “While $3 million may feel like more than enough for most retirees, today's economic challenges with inflation and higher interest rates are proving that may not be the case.”

He suggests using a strategy he calls the “retirement paycheck.”

“We set up a fixed monthly withdrawal from investment accounts to replicate the feel of a regular income,” he explains. “In tandem, we create a separate ‘personal dividend’ bucket for discretionary spending like vacations, a second home or hobbies. This structure brings discipline and reassurance but also grants permission to enjoy your wealth.”

Achieve your retirement goals

It’s natural to be worried about running out of money in retirement. But for some retirees, it’s not just a matter of fear — it’s a matter of guilt. Daugs insists it’s important to push those feelings aside so you can enjoy the money you worked hard to save.

“I had a retired client come in wanting to buy a boat,” Daugs shares. “He had more than enough savings but felt guilty about the purchase. We ran the numbers six different ways and eventually, what gave him comfort wasn’t just the math, but realizing he had earned the right to enjoy life. Over 10 years later, he still says it was one of his best decisions.”

You may be eager to not spend all of your money in retirement so you can leave an inheritance or reserve ample funds for your later years, when your health-care costs might increase. But there are ways to achieve these goals without denying yourself the retirement you’ve always wanted, and a qualified financial professional can offer guidance in that regard.

As Daugs says, “Retirement is not just about preserving capital. It’s about using it with intention and joy.”

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A Roth IRA is one of the most powerful tools for building tax-free income in retirement, but getting money into one, especially from a 401(k), takes some thoughtful planning.

If you've recently changed jobs, are nearing retirement or just want more control of your long-term tax picture, rolling at least some of your old 401(k) into a Roth IRA might be worth exploring.

It can come with a tax bill upfront, but for many people, the long-term benefits can far outweigh the short-term cost, especially with today's relatively low tax rates.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Here are five things to keep in mind as you consider rolling some of your old 401(k) into a Roth IRA:

1. What kind of 401(k) do you have?

There are two main types of 401(k)s, and the kind you have will affect how a rollover to a Roth IRA is taxed.

A traditional 401(k) is funded with pre-tax dollars, which means any amount you roll into a Roth IRA will be treated as taxable income in the year you convert it.

A Roth 401(k), on the other hand, is funded with after-tax dollars. That means you can roll it into a Roth IRA without triggering additional taxes.

However, it must stay in a Roth account (you can't roll a Roth 401(k) into a traditional IRA) if you want to preserve its tax-free growth benefits.

If you're not sure which type of account you have, a quick check-in with your human resources team or plan provider can clear things up.

2. Understand the tax impact before you make a move

Rolling over your 401(k) into a Roth IRA isn't free — it comes with a tax bill. When you move pretax dollars into a Roth, you're shifting your money from tax-deferred to tax-free.

That's a powerful long-term move, but it does mean paying income taxes on the amount you convert in the year you do it.

Why would anyone choose to pay taxes now? Because in the right situations, it can pay off later. It might make sense if:

• You're in a lower tax bracket now than you expect to be in retirement
• You have extra cash to cover the tax bill, so you don't need to dip into retirement savings
• You're looking to reduce future required minimum distributions (RMDs)
• You'd like to pass tax-free assets to heirs

We often talk to people about the bigger picture. The focus is not short-term — it's about moving you closer to the kind of retirement you want.

A Roth rollover is one of those moves that requires a little short-term sacrifice for long-term gain.

3. Watch for timing issues with RMDs

If you're age 73 or older and already subject to RMDs, there's an important rule to follow: You must take your RMD before converting a traditional IRA or rolling a traditional 401(k) into a Roth IRA.

RMDs themselves cannot be converted to a Roth, and failing to take one first could lead to IRS penalties.

This rule doesn't apply to Roth 401(k)s, which aren't subject to RMDs during the owner's lifetime.

4. Roth IRAs offer more than just tax-free growth

Aside from the obvious benefit of tax-free growth and withdrawals in retirement, Roth IRAs come with unique advantages that appeal to both retirees and those focused on legacy planning.

For early retirees or those considering a career break, Roth IRAs offer flexibility. While earnings are subject to a five-year rule and the age 59½ threshold, contributions can be withdrawn at any time, tax- and penalty-free.

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Roth IRAs can also help reduce taxable income in retirement, which could lower the amount of Social Security benefits subject to tax and help keep Medicare premiums in check.

5. Consider tax-bracket management strategies

If you're thinking about rolling over a 401(k) into a Roth IRA, consider how much you convert each year to avoid jumping into a higher tax bracket.

Many savers find it advantageous to break a large rollover into smaller, incremental conversions over several years.

This technique is often called "filling the tax bracket," and it allows you to convert just enough each year to stay within your desired marginal tax rate.

Here's how it works in practice: A married couple filing jointly in 2025 can earn up to $96,950 in taxable income and stay in the 12% tax bracket. Partial conversions can help maintain lower taxes now.

The bottom line

Rolling a 401(k) into a Roth IRA isn't the right choice for everyone, but in the right circumstances, it can unlock long-term tax savings and offer valuable flexibility in retirement.

If you expect to be in a higher tax bracket later, have non-retirement assets to cover the tax bill or want to leave a tax-free legacy to your heirs, a Roth IRA rollover deserves serious consideration.

Make sure to understand the timing rules, tax implications and account types involved before making a move.

A well-timed rollover could be one of the smartest retirement decisions you make in 2025.

Investment advisory services offered through Kelly Wealth Management, a SEC-registered investment advisor. Investments involve the risk of loss. Please consult a qualified financial advisor, tax, accounting, or legal professional prior to investing.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If there's one lesson to share with 401(k) investors, it's this: Long-term investing prevails over short-term reactions.

Ignoring the nonstop news notifications is crucial in today's 24/7/365 news cycle. The daily noise — news alerts, market flashes, economic predictions — should rarely, if ever, dictate your retirement strategy.

As an asset manager, our responsibility is to steward clients' assets with diligence.

Over the years, I've witnessed countless market cycles, seen investors experience periods of highs and lows and observed how investor sentiment often swings wildly, influenced by the relentless drumbeat of daily financial headlines.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

The principles of long-term investing in 401(k) and IRA assets apply equally to those still working and contributing to their retirement plans and to those who are retired.

The allure and danger of daily headlines

Every morning, investors wake up to a torrent of headlines — Stocks Plunge on Fed Fears, Markets Rally as Inflation Cools, Global Recession Looms — the verbiage is urgent and, often, anxiety-inducing.

Some news outlets, in their efforts to keep you engaged, are incentivized to dramatize market movements. Social media amplifies this further, with opinions and hot takes outpacing even the fastest breaking news.

For 401(k) investors, this environment creates a powerful temptation to react — to sell when the market sours, to buy when euphoria peaks and to constantly tweak investment allocations based on what's happening right now.

However, history and discipline tell us that such short-term behavior is one of the most consistent destroyers of long-term wealth.

A powerful principle of investing is illustrated here: Investments are like a bar of soap in that the more you touch them, the less you may have.

Understanding the purpose of a 401(k)

A 401(k) account is, by design, a vehicle for long-term, tax-advantaged retirement saving. Its power lies in tax-deferred (or tax-free with a Roth 401(k)) compounding — over decades. The very structure of the 401(k) encourages patience; early withdrawals are penalized.

Many investors get distracted by market noise and lose sight of their long-term goals. Seeing your account balance drop can be distressing. But succumbing to this anxiety by reacting to daily headlines often results in poor decisions.

An easy mistake for a 401(k) investor to make is to equate their investment time horizon with their retirement date. The investor is better served to think of their 401(k) account through retirement.

Viewing this account as meant to last for the rest of their lives will provide the benefit of a longer time horizon.

Volatility: A feature, not a bug

One of the hardest truths for investors to accept is that market volatility is normal and necessary. The equity markets have always been a bumpy ride, with regular corrections and occasional bear markets punctuating decades of overall advances.

Consider the history of the S&P 500: Over the last century, it has weathered world wars, recessions, inflation crises, terrorist attacks, technological revolutions and pandemics. There have been crashes, booms and everything in between.

Yet, for patient investors, the long-term trend has been upward. Those who stayed the course made gains, while those who sold in fear or tried to time the market often missed the strongest rebounds.

The cost of market timing

Perhaps the most compelling argument against reacting to daily headlines is the overwhelming evidence that market timing doesn't work.

For the average 401(k) participant, making frequent portfolio changes based on news headlines is almost guaranteed to reduce long-term returns.

Missing a handful of the market's best days can dramatically impact your wealth.

For example, research from J.P. Morgan Asset Management found that from 2004 to 2024, if an investor missed the 10 best days in the S&P 500, their overall return was cut in half compared with someone who stayed fully invested.

Notably, these best days often occur amid periods of intense volatility, when headlines are most frightening. Selling during downturns means you're likely to miss the subsequent recovery.

Behavioral biases and the media

Human beings are hardwired to seek safety and respond to perceived threats. This tendency, while useful in many areas, often leads to poor outcomes in investing.

Some in the media exploit these biases by highlighting risk and uncertainty, making it feel rational to act in times of turmoil.

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Behavioral finance has identified several cognitive errors that plague investors — loss aversion, recency bias, herd mentality and overconfidence, to name a few. The constant barrage of alarming headlines feeds these biases, making us more likely to make impulsive decisions that derail our long-term plans.

The power of staying the course

What's the alternative? The answer is deceptively simple: Develop a well-thought-out investment plan, aligned with your risk tolerance and time horizon, and stick to it.

The most successful 401(k) investors are those who automate their contributions, diversify their portfolios and resist the urge to tinker in response to the news cycle.

It's wise to periodically review your portfolio, rebalance your allocations and reassess your goals as your life circumstances change. But these adjustments should be made according to a disciplined strategy — not in knee-jerk response to headlines.

Building wealth through consistency and patience

Let's return to the basics: Wealth in a 401(k) comes from regular contributions, prudent asset allocation and the steady accumulation of returns over time. The market will always have its ups and downs; what matters is your ability to remain committed to your plan.

Dollar-cost averaging — investing a fixed amount at regular intervals — allows you to buy more shares when prices are low and fewer when prices are high, smoothing the impact of volatility.

Compounding does the rest, gradually transforming regular contributions into significant wealth.

Guidelines for navigating market noise

• Define your goals. Know why you're investing — retirement, a home, education — and keep your eyes on the prize.
• Understand your risk tolerance. Choose an asset allocation that fits your comfort level so you're less tempted to react during downturns.
• Automate contributions. Take emotion out of the process by setting up automatic deposits into your 401(k).
• Review, don't react. Schedule regular portfolio reviews rather than checking your balance daily.
• Seek professional guidance. If you're unsure, consult a financial adviser who can help you maintain perspective and discipline.

Conclusion: Focusing on what matters

The news cycle shouldn't dictate your financial future. The headlines will always change — sometimes optimistic, sometimes dire — but your 401(k) is a long-term endeavor.

History favors those who invest with patience and discipline, tuning out the short-term noise in favor of long-term growth. By ignoring the distractions and focusing on your future, you empower yourself to build the kind of retirement you deserve.

Remember, volatility is temporary, but your goals are enduring. The path to lasting wealth is paved not with frantic reactions, but with steadfast resolve. Your future is too important to be left at the mercy of today's news.

All investments involve risks, including possible loss of principal.

Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account.

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested.

Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Democratizing access to asset classes isn’t reserved for startups and fintechs only. President Donald Trump is also trying to pave the way for everyday investors to invest in alternative investments through their 401(k)s or other defined-contribution plans.

Trump just signed an executive order directing the Labor Department and the Securities and Exchange Commission to issue guidance allowing employers and plan sponsors to include private assets in 401(k) plans.

That means employees could have access to investments such as private equity, hedge funds, private credit, real estate investment trusts (REITS) and venture capital funds through their 401(k)s. Trump is also making it easier for plan sponsors to include cryptocurrency in 401(k) plans.

It's part of the president’s efforts during his first six months in office to make his mark on retirement accounts in America. Earlier this year, the president’s Department of Labor (DOL) rescinded 2022 Biden-era guidance calling on plan sponsors to use "extreme care" when considering crypto investments.

That change relieves regulatory pressure on plan sponsors. The DOL is scaling back what it says is overreach on the part of government agencies. This move aligns with Trump's strong support for the cryptocurrency industry. Allowing private assets into 401(k)s is another example of Trump’s deregulation penchant.

Under Trump, “there’s going to be more access, fewer limitations, fewer restrictions and more options available for individuals within 401(k) structures,” says Sarah Gaymon, CPA, director of tax services at Berkowitz Pollack Brant Advisors + CPAs. “Within the next couple of months or years, there will be even more exciting options.”

Private assets in 401(k)s: How it might work

The executive order aims to “relieve the regulatory burdens and litigation risk that impede American workers’ retirement accounts from achieving the competitive returns and asset diversification necessary to secure a dignified, comfortable retirement."

While it's unclear how it'll work, private assets are expected to be included in 401(k)s primarily via managed accounts. This means investors would likely access them through structured products, such as specialized funds, rather than owning individual private assets directly.

“These types of vehicles made available inside a 401(k) are best delivered in a professionally managed solution or a target-date fund with advice wrapped around that,” said Matt Radgowski, CEO of Halo Investing. That means investors will pay more for access to private assets than they would for investing in a stock or bond ETF.

Proponents of including private assets in 401(k)s argue it brings much-needed diversification to defined contribution plans beyond stocks and bonds. It's something high-net-worth savers have been asking for.

“Adding diversifying asset classes to a defined contribution portfolio can generate four or more years of additional retirement income,” says Josh Cohen, managing director and head of client solutions at PGIM DC Solutions.

“Many of these could be particularly beneficial to pre-retirees and retirees, given the characteristics of such asset classes intended to protect against downside risk and inflation,” he says.

In addition to providing diversification, it could also provide individuals in higher-income tax brackets who live in high-tax states with tax advantages, granted they understand the risks with these types of investments, says Gaymon.

They would get tax-deferred growth and potential tax deductions on the contributions, depending on whether they were contributing to a traditional or Roth 401(k).

The downsides of private assets in 401(k)s

As with everything in life, there are pros and cons. On the con side, having access to private assets will likely cost more, plus, there are liquidity concerns.

“Some of these investments are not as liquid as regular stocks. Private investments have longer hold periods, and when retirees do need money, will they have the ability to make withdrawals?” says Gaymon. When adding it to the asset mix, it will need to be planned with care, she says.

Then there’s the quality aspect. If private assets become a popular way to invest in 401(k)s, Radgowski worries there will be a dearth of quality vehicles in which to invest. He says there could be a scarcity of quality, which could increase the risk for 401(k) investors.

Leveling the playing field shouldn’t come at a cost

The Trump administration is focused on providing investors with more access, making it easier to invest in private assets and cryptocurrency via defined-contribution plans, which could bring more diversification and potentially better returns.

Like anything else, there are risks and rewards to that approach.

Investors must do their part to ensure they understand those risks, and the industry has to do its part to ensure they have investors' best interests in mind.

“It's really important to couple more access with a firm focus on fiduciary responsibility and the best interest of the client,” says Radgowski. “If those two things are not fully aligned in lock step … it will be massively detrimental to their ability to save and retire comfortably.”

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Having multiple retirement accounts may give you a heightened sense of financial security.

Many people, in fact, end up with multiple 401(k)s, IRAs and other accounts scattered across different institutions.

But having numerous accounts to manage can be difficult, and failing to properly attend to them all can create unnecessary headaches, especially as you get closer to retirement.

Those issues can include hurting your investments' performance — and, ultimately, your retirement plan.

Consolidating your retirement accounts, on the other hand, can simplify your financial life, reduce stress, save you time and help you possibly get more out of your investments.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Types of accounts that can be consolidated include 401(k) plans, IRAs, SEP IRAs and SIMPLE IRAs. They can be rolled into one another, giving you far easier oversight over your retirement savings.

Sure, for some people, managing multiple retirement accounts makes sense. But if you're considering that route or are already doing it without a specific strategy, here are some downsides to consider about holding numerous accounts:

Difficulty with asset allocation. Diversification is key to achieving strong long-term investment performance. But when you have multiple investment accounts, trying to implement an asset allocation strategy for each can lead to over- or under-diversification.

Also, there might be too much overlap in investments. Some people have multiple 401(k)s from past jobs, and that type of retirement plan may be limited in investment options, thus hampering your ability to achieve your ideal asset allocation.

Investment fees. These add up and can be hard to track when you have multiple accounts. Portfolio value can shrink significantly when you're paying fees for several years.

Some accounts may begin charging you a management fee if you're no longer contributing to them or no longer employed at your old company.

Tax time hassles. More accounts mean more tax forms and possibly paying more taxes than you would if you consolidated your accounts.

Plus, tracking down 1099-Rs from multiple institutions can be time-consuming and frustrating. You may receive tax statements at different times. But fewer accounts mean less paperwork and make it easier to track your earnings.

Consolidating can help reduce taxes, allowing you to strategically place investments in tax-advantaged accounts.

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Leaving a burden on a surviving spouse. Many couples have one spouse who handles the finances, while the other isn't as involved. When the financially adept spouse passes, having accounts scattered everywhere can be overwhelming for the surviving spouse.

Consolidating makes managing the money much simpler. And it can make it easier for the surviving spouse and heirs to execute the estate plan.

Missed opportunities to rebalance your portfolio. When holding multiple accounts, especially old ones, there's a tendency to neglect some of them.

A set-it-and-forget-it approach can prove costly, especially if investment choices you made years ago may not align with your current goals.

Tracking required minimum distributions (RMDs). Once you hit age 73 (or 75 if born in 1960 or later), you'll need to take RMDs from each of your 401(k) and IRA accounts separately.

Managing multiple calculations and withdrawals can be frustrating. Consolidating makes it easier to calculate and take the RMD.

Consolidating isn't the best move for everyone, and not all accounts can be transferred, such as certain types of annuities and securities. Check with your financial adviser to see if it makes sense for you.

Whichever route you choose, weigh all your options to ensure that managing your retirement accounts isn't a pain, but rather a streamlined process toward the pleasurable retirement you've earned.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Your 401(k) fund lineup at work may not stack up with the star-studded roster of the World Series champion Los Angeles Dodgers. And some of your funds may not hug market curves like a well-tuned Ferrari. In fact, your 401(k) plan is more likely than not to include overpriced and underperforming funds that could crimp the growth of your retirement nest egg, according to a recent report from Abernathy Daley 401k Consultants.

The analysis of 58,300 U.S. 401(k) plans from 2015 to 2025 found that nearly all (more than 99%) offer at least one overpriced and underperforming fund to plan participants over a period of three, five, and 10 years. And more than 94% contain at least three such funds. Over 85% include at least five such funds. The study notes that this is the case despite there being “cheaper, higher-performing alternatives.”

And the so-called clunker list extends over the long haul, too. More than 70% of 401(k) plans contain at least 10 overpriced and underperforming funds over three- and five-year periods, and 43% of plans have 10 of these expensive laggards over a period of 10 years.

Hot to spot a 401(k) clunker

As part of the analysis, the study identified alternative funds in 401(k) lineups from the same investment category (e.g., large-cap growth), lower expense ratios, and higher returns over three-, five-, and 10-year periods. The expense ratios on the so-called “cheaper alternative” funds in the study was an annual expense ratio of 0.50 or less for passive index funds, and fees of 0.75% or less for active fund strategies.

The report authors blame the weakness in 401(k) fund lineups on the inclusion of actively managed funds, which charge higher expense ratios than passive index funds that mimic a market benchmark like the S&P 500, resulting in so-called “fee drag.” Historical data show funds run by stock pickers also post lower returns than the benchmarks they track over time, in large part due to fees eating into returns. What’s more, academic research shows it is impossible to determine which actively managed fund will outperform an index fund in any given year or period, according to the Abernathy Daley report.

That said, there are actively managed funds with strong track records that have been successful in generating market-beating returns. The problem is that today’s winner may not be tomorrow’s stock market star.

The downside to "suboptimal" fund options, the study notes, is that employees lose a significant amount in potential retirement savings.

"There’s real money at stake," said Matt Daley, president of Abernathey Daley 401k Consultants. "It’s not pennies. It could be hundreds of thousands of dollars" over a 401(k) saver's lifetime.

But since many 401(k) savers often aren’t aware of the impact fees have on returns, many plan participants inadvertently select funds offered in their 401(k) plans that have larger odds of producing returns that are smaller than the gains of the S&P 500 or market benchmark the fund is trying to hurdle.

Consider this example from the Department of Labor that highlights how high fees can curtail the growth of a 401(k) account balance over time.

"Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7% and fees and expenses reduce your average returns by 0.5%, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 %, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent."

Fees matter

"The cost of the funds you’re investing in is very important," said David Schneider, a certified financial planner and president of Schneider Wealth Strategies.

When you consider that American workers had $12.2 trillion invested in defined contribution plans at the end of March 2025, and retirement savings accounted for 34% of all household financial assets, according to the Investment Company Institute (ICI), it’s clear that 401(k) savers should be scrutinizing the funds in their 401(k) plan more closely. Savers need to ensure they are selecting funds that give them the best chance of amassing as big a nest egg as possible and achieving their financial goals.

What to look for in a 401(k) lineup

"Now’s a good time to take a second look at your plan,” said Daley. “Don’t just set it and forget it."

401(k) plan participants can dodge underperforming funds by choosing so-called "foolproof" funds, or low-cost, well-diversified index funds that keep pace with the market and other benchmarks, minus rock-bottom fees, says Steven Abernathy, CEO of Abernathy-Daley.

Passively managed index funds are widely available and cost below 0.10%, according to the Abernathy Daley 401 (k) Consultants’ study.

While investments in index funds won’t ever result in market-beating returns, they ensure that retirement savers don’t lag the market. The index fund option, such as a fund that mimics the S&P 500 stock index or the total U.S. stock market, ensures that "plan participants avoid mistakes that could lead to lost investment opportunities,” said Abernathy.

The key benefit of a 401(k) account, which is designed for a long-term horizon leading up to retirement, is its ability to grow wealth with the help of compounding, or earning interest or capital appreciation on top of earlier principal investments and prior gains.

But high fees, which take a slice out of account balances, mean less money benefits from compounding.

“Compounding fees is the same thing, only in reverse,” said Daley. “Fees can really eat into your savings.”

Here’s an example from the Abernathy Daley study. Consider a $500,000 investment in Fund X that charges a 0.45% fee and earns a 7% annual return versus Fund Y (0.08% fee and 7% gain per year). After 30 years, Fund X is valued at $3,306,813 and Fund Y at $3,806,129, which places the total loss to fees and underperformance at $499,316 (or 13.1% of potential wealth).

When eyeballing a 401(k) fund lineup, plan participants should be on the lookout for funds with "index" in their names, and ones with rock-bottom expense ratios of just a few basis points, says Jamie Cox, a financial advisor and managing partner at Harris Financial Group. Examples include Vanguard S&P 500 Index Fund (VFIAX), which invests in large-cap U.S. stocks and charges 0.03%, and Fidelity Total Market Index Fund (FSKAX), which invests in all sizes of U.S. stocks and carries an expense ratio of 0.015%.

Index funds are solid investments for three reasons. First, low fees. “They’re not cost-free, but they’re close,” said Cox. Second, you get pure exposure to the asset class the index tracks. In the case of the S&P 500, you get exposure to growth-oriented large-company stocks. Finally, you get broad diversification, which keeps you from putting all your eggs in one basket. “It steers investors away from the risk of owning just a single stock,” said Cox. Index funds, he adds, check all the boxes for a successful investment.

Part of Schneider’s advisory business is setting up 401(k) plans for clients who are small business owners. "What we generally try to do is stock the 401(k) with lots of good, low-cost investment options, so that employees aren’t going to be choosing from a rogue’s gallery,” said Schneider. “I tell clients that a good 401(k) is going to offer the essential building blocks for a well-diversified, all-weather portfolio, not just funds that have done well in recent years. A fund, however, does not have to be a pure index fund to be a worthwhile investment, but costs matter. If you look at the expense ratio of the fund, that’s going to tell you a lot."

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Workplace 401(k) accounts have become critical to retirement security, and with good reason.

The majority of private sector workers have access to these plans, which are easy to enroll in and come with generous tax breaks.

A growing number of plans enroll workers by default unless they opt out, making retirement savings the new norm in many workplaces.

A 401(k) offers more than just a simple signup process, automatic contributions from paychecks and a streamlined mix of investment options from which to choose.

Many also come with employer matching contributions, which can be incredibly valuable as companies provide free money to help boost retirement savings with each eligible contribution you make.

Matching contributions refer to money that your employer puts into your 401(k) when you invest your own funds.

"A good matching rate is key in securing your retirement," explained Wheeler Pulliam, CFP® and financial consultant at Xponify Financial. "For many, the only reason to contribute to a 401(k) is because they match. Without a match, it makes more sense to contribute to an outside IRA because you have more investment options and more control over your IRA than you would in the company’s 401(k) plan."

What is a good matching rate?

The reality is that some companies are far more generous with their matching contributions than others, as recent research has shown.

Let's look at some of the U.S. companies doing the most to help their workers achieve retirement success. We'll also examine details about average 401(k) matches so you can see how your own company's offerings compare.

Ten U.S. companies with some of the most generous 401(k) matching contributions

Recent research from SmartAsset revealed the companies in the United States that were most generous in providing employer 401(k) contributions to staff. SmartAsset evaluated companies based on which company offered the maximum match for eligible workers.

SmartAsset included data on:

Match type: Some companies offer a full match or a dollar-for-dollar match, so if you contribute $1,000, they will do the same. Others offer a partial match, for example, providing 50% or 75% of the amount you contribute. Still others make non-elective contributions or simply put money into your account regardless of whether you do the same.

Maximum match: Most companies set a maximum contribution (which may be lower than the annual 401(k) contribution limit set by the IRS). This limit could be a fixed dollar amount or a percentage of your salary (for example, your employer might match 100% of contributions up to 4% of your salary).

The table below ranks the top 10 companies by the matching contributions they offer. "Percent match" represents the amount of an employee's contribution that the company will match. "Percent of salary" refers to the maximum percent of a worker's salary that a company will match.

Source: SmartAsset

A generous 401(k) isn't just about the match

It's also worth noting that the match alone is not the only factor that affects whether a company is generous with its 401(k) contributions. other indicators that a 401(k) plan is a good one include:

Eligibility: Some companies require you to work for the business for a certain period before you become eligible for matching contributions, such as a month or a year. Other companies extend 401(k) match eligibility to part-time employees.

Vesting period: This determines when your matching funds are yours to keep, even if you leave your job. Some companies offer immediate vesting, so if an employer contributes to your 401(k) today, you can keep the money if you leave tomorrow. Others have graded vesting schedules, so your actual ownership stake in your employer's contributions grows over time (your own contributions are always 100% vested from day one).

Some companies also offer additional retirement perks beyond simple matching contributions.

For example, GM matches up to 4% of an employee's pay but also provides an additional automatic contribution of 6% of pay, essentially giving the employee a 10% match. Verizon also matches 401(k) contributions for qualifying student loan payments up to a combined 6% of your salary.

How does your 401(k) match compare?

Every worker would love a dollar-for-dollar match equal to 25% of their compensation, which they become eligible for on day one and which vests immediately!

With this matching structure, if you made $100,000 per year and contributed the maximum $23,500 contribution (the employee contribution limit for those under 50 in 2025), you could effectively earn an extra $23,500 from your employer's matching contributions this year — which would be yours to keep even if you left your job the day your last contribution came in.

Such a generous match is not available to most of us.

"A dollar-for-dollar match up to 5% of an employee's salary is considered a good, and fairly common, employer contribution," explained Brad Clark, investment adviser representative and founder of Solomon Financial.

Vanguard's new How America Saves (PDF) report also reveals more details about what the typical match looks like. According to Vanguard, these are the most common characteristics of 401(k) match programs.

• Half of all Vanguard plans offered only an employer-matching contribution.
• 36% of plans provided a matching and non-matching employer contribution (referred to above as a non-elective contribution).
• 10% of plans offered only a non-matching contribution.

earnedAmong employers offering matching funds, the average match was 4.6% of pay, and the median match was 4%. Among plans with non-elective contributions, the average contribution was 5.3% of pay, while the median was 4.5%.

Our $100,000 earner, who received the average match and no non-elective contributions, would have been able to earn just $4,600 in matching funds from their employer, assuming they contributed enough to earn the full match.

Most employers also did not offer a dollar-for-dollar match. The most common formula used was 50 cents per dollar on the first 6% of pay; the table below shows the matching formulas used across all plans.

Here is how Vanguard characterizes the most common match formulas.

What does this look like in the real world?

Consider our $100,000 worker again. If they earned a match worth just 50 cents per dollar on the first 6% of pay, the total match they'd be eligible for would be $3,000, and they'd have to contribute $6,000 to get it.

Although this is less generous, it can still accumulate over several years. Of course, any match is still worth claiming.

"A good match is huge," Clark said. "The impact of an employer match is colossal. If you contribute 5% and your employer matches it with another 5%, your account is receiving a full 10% contribution annually.

Clark explained that a 30-year-old contributing $5,000 per year to a 401(k) would accumulate $1,490,634, assuming a 10% annual return until age 65. With the employer's $5,000 match, the total yearly contribution doubles to $10,000, and the account's future value doubles to an astonishing $2,981,268.

"The employer match isn't just extra money — it's the difference between a nice retirement and financial freedom," Clark said.

It's also important to note that the amount of the match the worker gets to keep depends on their vesting schedule, as well as how soon they leave work.

Still, this means a substantial number of employees had to wait longer to own their matching funds, with one in four plans using either a five- or six-year graded vesting schedule.

The beauty of a 401(k) match

How does your company's 401(k) match compare to the average and most generous plans? Hopefully, your company is as generous as the ones that made the top ten list.

If not, you should still claim all the matching funds you can, as doing so could make all the difference in your retirement security.

Get the full story: Just how 'average' are your finances?

Want to see how more of your retirement portfolio compares to peers? Read:

• The Average Net Worth by Age,
• Average Retirement Savings by Age,
• The Average IRA Balance by Age and
• Average Social Security Check by Age.

There’s no shortage of things that can knock retirement savers off track. Bear markets. Panic selling. Market timing.

But there’s another less-known landmine: A 401(k) withdrawal rule that automatically redeems some investment funds before others when retirees decide to withdraw money.

The downside? Retirees who own multiple funds in their retirement accounts, such as a large-cap stock fund, a bond fund or an interest-yielding money market, could get hurt when their 401(k) plan pulls money from one of the funds they own that they did not intend to sell.

This built-in, often undisclosed selling protocol can knock a portfolio asset allocation out of whack, potentially causing the portfolio to take on a riskier profile.

It’s called the “hierarchy trap.”

The 401(k) withdrawal snafu — the little-known hierarchy trap

This obscure withdrawal protocol pertains to retirement plan rules that specify the order in which 401(k) plans process withdrawals when retirees place a sell order.

“Rules vary among 401(k) plans, depending on how employers decide to set them up, including rules they may have in place for withdrawals from your plan,” said Marci Stewart, director, client experience, at Charles Schwab Workplace Financial Services.

Often, the 401(k) plan allows account holders to specify which fund or funds from which they want to withdraw and the amount they want to take out. However, retirement plans also have other rules that dictate more stringent selling procedures.

One common practice is for pro-rata, or proportional, withdrawals. This liquidation strategy is relatively benign, as equal amounts are pulled from each fund held in the 401(k), keeping the retiree’s asset allocation intact. Of course, if your goal is to adjust the weightings of your holdings up or down with any sale, even the pro-rata sell rule won’t achieve your goal.

But a recent Wall Street Journal story (I Got Burned by the 401(k) ‘Hierarchy Trap’) uncovered the heretofore relatively unknown hierarchy approach used by some 401(k) plans.

This method of handling 401(k) redemptions hasn’t gotten much attention and is a mystery to many financial advisers with whom we spoke. Often, there is no disclosure of this type of redemption rule in a 401(k) plan summary. The sell rules are often buried in the record keeper’s operating procedures or custodial agreements, rather than spelled out clearly in participant-facing materials.

“The hierarchy method is a fine print and disclosure problem,” said Jonathan Lee, senior portfolio manager at U.S. Bank Private Wealth Management. “At the very least, it is something that investors need to ask about, knowing that it is a possibility.”

No doubt, understanding how your 401(k) handles withdrawals is a key part of a retirement plan.

What is the 'hierarchy trap'?

Conservative investments first

In a hierarchy-based system, the 401(k) plan makes withdrawals in a specific order.

Typically, a hierarchy protocol starts with the sale of the most conservative, or low-risk investments, such as a money market account. If the first fund is fully depleted and more money needs to be withdrawn, the next fund or investment in the predetermined hierarchy is sold, and so on until the full dollar amount is raised from the sale.

While this sell system is designed to preserve the growth portion of a portfolio, it comes with a downside: Money can be withdrawn from funds in a retiree’s portfolio that they had no intention of selling. This can result in a portfolio’s asset mix getting knocked out of whack, potentially altering the risk profile of the portfolio.

Poor disclosure

“Here’s the problem: If you’re intentionally trying to reduce stock exposure, the hierarchy system can work against you, pulling from the very funds you were hoping to leave untouched,” a blog post from investment management firm Hanover Advisors noted. “Even worse, many plans don’t clearly disclose these rules in participant summaries. You might not know how your money will be pulled out until it’s too late.”

Some financial advisers recommend that when retirees want to make a withdrawal from their retirement accounts, they should request specific funds to be sold, not just a specific dollar amount, according to FA (Financial Advisor) magazine. The restrictions on clients’ withdrawals, FA magazine notes, are often imposed by the plans’ record keepers, not the plan sponsors. An employer might not even be aware of them.

Your portfolio risk profile might change without you realizing it.

Often, the unintended consequence of the hierarchy sell protocol is that it runs counter to one of the key pillars of a financial plan, which is to ensure retirees' holdings align with their risk tolerance.

“When you make a request for withdrawals from a retirement plan and you have the option to select where the money comes from — the bond fund or the stock fund or the money market fund — then that's all in your control, (which is fine),” said Lee. The pro-rata selling system isn’t disruptive to a portfolio, as it doesn’t alter the weightings of portfolio holdings.

“If your portfolio is 50% stocks and 50% bonds, half of the withdrawals are going to come from the bond fund and half from the stock fund,” said Lee.

In contrast, if a large distribution is pulled, say, from just the more conservative bond fund via the hierarchy method, the retiree is left with a larger weighting of riskier stock holdings, says Lee.

For example, let’s say a retiree with a $100,000 nest egg and a 50% stock/50% bond asset allocation withdraws $10,000, and the hierarchy sell system kicks in. After the $10,000 withdrawal from the bond fund (the least volatile investment), the asset allocation is now 55.6% stocks and 44.4% bonds.

The risk, of course, is that if the retiree doesn’t rebalance the portfolio to get the asset mix back in line with their financial plan, the risk complexion of the portfolio will undergo a dramatic change.

“If this happens over consecutive years, you could see your risk profile change quite significantly within a retirement account,” said Lee. “That's why it's important to understand the consequences.”

How to avoid the 'hierarchy trap'

Make sure you know the rules.

Before you decide to sell, contact your 401(k) plan administrator to determine how they handle withdrawals and if they use the hierarchy sell protocol. If they do, ask for a copy of the liquidation rule so you understand it and can take proactive steps to avoid any disruption to your portfolio if you need to pull from your retirement account.

"The investor should read the fine print and disclosures if presented," said Lee.

Doing the proper due diligence is key.

"The best approach to be sure withdrawals are conducted the way you want is to specifically request which investment funds you want a withdrawal to come from, or request and confirm that the withdrawal will be pro rata if that’s your preference,” said Schwab’s Stewart.

"Also, be sure to ask about which sources will be tapped if you have investments through multiple sources in your 401(k)," (e.g., if you have both traditional tax-deferred contributions and Roth 401(k) contributions in your plan), she said.

Ways to work around the 'hierarchy trap'

There are ways to withdraw money from your 401(k) without compromising your set asset allocation.

Be proactive. If you want to reduce your exposure to stocks, for example, consider reallocating from equity funds into the fund that sits at the top of the withdrawal hierarchy, before making a redemption, Hanover Advisors recommends.

For example, if you know your plan taps your money market fund first, transfer money from your stock funds to your cash account before withdrawing funds.

When withdrawing 401(k) funds, keep this in mind

The bottom line? “Understand how withdrawals are conducted, and (make sure) that withdrawal or redemption protocol keeps you in alignment with your target asset allocation and risk tolerance,” said Lee.

“Talk to the plan provider about options, and then, based on your options, take an option that puts you in control of your asset allocation. And, if you don't have the option of either pro-rata or pulling from specific funds, then you can ask about the option of a workaround.”

Read More

• The Average 401(k) Balance by Age
• The 4% Rule for Retirement Withdrawals Gets a Second Look
• Early Retirement Withdrawal Strategies for the Long Haul
• You Too Can Be a 401(k) Millionaire. Here's How

One provision in President Donald Trump’s major tax cuts and spending bill would have led hundreds of thousands of U.S. citizens to lose their jobs, and it’s now it’s dead.

It’s the so-called “revenge tax” drafted by U.S. House of Representatives Republicans for Trump’s One Big Beautiful Bill Act (OBBBA), a provision which aimed to impose extra taxes on foreign individuals and businesses earning income in the U.S. if they’re from countries that levy “discriminatory or unfair taxes” against the U.S.

The measure, tucked within Section 899, was a retaliatory tax that would have targeted nations like Canada and about half of all European countries that have digital services taxes (DSTs) or other taxes the Trump administration determined were unfair.

While the tax would initially penalize foreign investors and businesses, experts warned that it could cause international companies and investors to pull back from the U.S., leading to significant job losses over the next decade in every state.

That’s not all, some experts say the provision stood to threaten retirees' portfolios.

Now the controversial revenge tax is likely to be axed from the bill. The United States reached a deal with its G7 partners to abandon the section 899 retaliatory tax, known as the revenge tax, on June 26. In exchange, G7 countries will exclude U.S. companies from OECD pillar 2 taxes, U.S. Treasury Secretary Scott Bessent wrote on a social media post.

“The Trump administration remains vigilant against all discriminatory and extraterritorial foreign taxes applied against Americans,” Bessent added. “We will defend our tax sovereignty and resist efforts to create an unlevel playing field for our citizens and companies.”

Democrats, alongside lobbyists on Capitol Hill, had pushed to scrap the revenge tax entirely as concerns brewed on Wall Street. The parliamentarian ruling is expected to be released in the coming days.

Here’s what the revenge tax would have meant for you, and why it matters.

What is the 'revenge tax'?

The so-called revenge tax, known as Section 899, would allow the U.S. to apply higher taxes on foreign individuals, businesses, foundations, and governments connected to jurisdictions that impose “unfair or discriminatory taxes” on American companies and individuals.

According to the provision, the punitive tax would target countries like Canada or the United Kingdom that levy “unfair” corporate taxes, which include digital services taxes (DSTs), diverted profits taxes (DPTs), and undertaxed profits rules (UTPRs) on the U.S.

The measure, now poised to be eliminated from Trump’s megabill, would impose a 5% additional tax rate each year, above statutory rates, capped at 15%. That’s down from the 20% cap the House Republicans had drafted originally.

The Joint Committee on Taxation (JCT) suggests that the House version of the revenge tax would raise $116 billion over the next decade.

Senate Republicans also planned to delay the start date of the revenge tax by one year in their version of the bill. That means if the provision were kept in OBBBA and the legislation was passed into law, the new tax would be effective as of 2027.

Revenge tax would cause job loss

A key goal of proposed Section 899 would be to sway countries to change their tax laws and lessen the “unfair tax” burden on U.S. firms and businesses.

Still, the proposed legislation threatened to shake up job security in the U.S.

For one, it could reduce the incentives for foreign foundations, businesses, or individuals to invest in the U.S. According to the Tax Foundation, it would be a “step backward” from the Trump administration’s goal to attract investment and jobs in the U.S.

In fact, as many as 700,000 American jobs could be lost over a decade as a result of the retaliatory tax, per estimates by the Global Business Alliance (GBA), a trade group representing international companies like Honda, IKEA, and LEGO. That would amount to the erosion of $100 billion annually in GDP.

The revenge tax would cause every state to suffer job losses:

• In Tennessee, as many as 16,500 jobs could be lost
• California could lose as many as 77,500 jobs
• Florida could lose an estimated 44,200 jobs
• In Texas, as many as 61,700 jobs could be cut

What would that look like? The GBA suggests this would mean fewer job opportunities, canceled expansions, or abandoned research as international companies react to the retaliatory tax.

“The immediate effect of these taxes is to raise the cost of investment in the United States for foreign-resident individuals or corporations,” wrote Kyle Pomerleau and Stan Veuger with the American Enterprise Institute (AEI). “A higher cost of capital would reduce inbound investment, shrink the U.S. capital stock, reduce labor productivity, and reduce wages.”

Risks to retirement savings

If adopted, the revenge tax may have persuaded some countries to lower their own taxes, or prompted others to retaliate, leading to market instability. We’ve seen that already play out with Trump’s sweeping global tariffs, as other countries have retaliated in kind.

That said, experts warn that the retaliatory taxes in Section 899 could cause foreign investors to pull away from U.S. equities. The latest government data shows that foreign investors own about 18% of the U.S. corporate stock, a record high.

According to the Global Business Alliance, this would cause downward pressure on share prices and impact the portfolios of millions of U.S. retirees — including those in 401(k) and pension funds.

As reported by Kiplinger, a market downturn won’t necessarily crush your retirement. There are often ways you can strategize to offset the impact to your savings.

“When foreign capital flees, financing costs for U.S. companies rise, growth slows, and stock valuations decline,” GBA analysts said. “That affects not only business expansion and hiring, but also the value of 401(k)s, pensions, and taxable portfolios held by retired and hard-working Americans.”

One Big Beautiful Bill Act: Bottom line

The One Big Beautiful Bill Act was passed by the U.S. House of Representatives last month and is facing revisions by the Senate with a target date of July 4.

Some provisions, like the so-called “revenge tax” may be aimed at penalizing foreign businesses and investors, but can ultimately have ripple effects that impact U.S. citizens' jobs and economic stability.

Now, the proposal known as Section 899 or the revenge tax is likely to be axed from the megabill after the United States reached a deal on global corporate taxes with its G7 partners, according to Treasury Secretary Scott Bessent.

A controversial tax is dead: Wall Street and global investors heavily disputed Trump’s revenge tax. Organizations like the Global Business Alliance lobbied against the proposed Section 899 retaliatory tax provision. Executives said the measure may cause investors to withdraw investment from the U.S., leading to job losses and economic instability.

Implementing a revenge tax would have also exposed the U.S. to be on the receiving end of retaliatory taxes from penalized countries, similar to growing tensions linked to Trump’s tariffs.

“Establishing a new taxing authority with open-ended definitions would heighten global investment uncertainty and further erode trust in the U.S. market,” wrote Adam Michel, director of tax policy studies at the Cato Institute.

Stay tuned for more changes to Trump’s megabill, as some can come to impact your finances directly.

Related Content:

• Trump’s ‘One Big, Beautiful Bill’ With Trillions in Tax Cuts: What to Know
• What’s Happening With Trump Tariffs?
• Five Surprising GOP Senate Bill Tax Changes to Know

Professionally managed accounts within 401(k)s are having a moment. As of the end of 2024, nearly all participants in Vanguard plans had access to target-date funds, and almost 80% had access to accounts that financial advisers managed. But that advice comes at a cost.

Retirement savers pay annual fees of between 0.4% and 0.6% of the account balance, on average, for a managed account. That’s on top of the underlying expenses of the fund.

Let's say you have $250,000 in your 401(k). It will cost you between $1,000 and $1,500 extra to get the help of a financial adviser.

But whether or not you should pay for that extra hand-holding depends on your temperament, investment acumen and financial needs.

After all, while research shows people with a managed account within a 401(k) tend to save more, no data indicates these funds outperform other self-directed funds offered within 401(k) plans.

401(k) managed accounts: what do they give you?

401(k) managed accounts can help you decide how much money you should contribute to your retirement savings account. They also provide other services, including:

Customized asset allocation: Many pre-retirees choose to invest in target-date funds. But such funds lack the personalization of managed accounts.

A target-date fund is a one-size-fits-all approach to retirement savings that creates a portfolio based on your age and time horizon. It's a mutual fund or ETF that adjusts its asset allocation from a growth-oriented (such as stocks) approach to a more conservative (or bond-focused) makeup as you get closer to your retirement date.

With a managed account, you get a customized asset allocation that accounts for your personal goals, risk tolerance, the different types of income you may have in retirement and when you plan to retire.

"It's a more personalized approach to investing than what’s available with a target-date fund," says Wei-Yin Hu, head of financial research and strategy at Edelman Financial Engines. “It takes into account your risk preference and tailors the portfolio to the individual’s circumstances.”

Access to a professional financial adviser: If this year has taught us anything, it's that markets can change on a dime. With tariffs on and off again, global unrest growing and subsiding, the stock markets have been whipsawing between up and down days. A passive target-date fund can’t react to that, but a managed account run by a professional financial adviser can.

That’s not to say it will outperform, but the account is being professionally managed, which may give you more peace of mind in tumultuous times.

“We’re solving the behavioral challenge of staying invested," says Wei. “Our staff of licensed advisers takes thousands of phone calls on peak days when the market is doing something wild and helps them understand what's happening."

Take COVID as an example. In roughly the first month of the pandemic, the market dropped about 34%, causing investors to panic. Yet, during that time, only 0.3% of people in 401(k) managed accounts made investment changes, said David Montgomery, Managing Director of Retirement Plan Services at Concurrent Investment Advisors. Meanwhile, about 2.3% of people in target-date funds made changes, he says.

“Investors are less likely to make knee-jerk reactions if they know they have someone they can rely on,” says Montgomery.

Extra bells and whistles: With a managed account, a financial adviser will make sure your asset allocation matches your unique situation and adjust it during tumultuous times. The adviser can also help you determine strategies to save more or less in your 401(k), when to start drawing down in retirement and even when it makes sense to do a Roth conversion, says Montgomery.

While the financial advisers aren’t supposed to give you tax and estate planning advice, they will try to help or point you in the right direction.

“There’s no question that we won’t touch. We realize people need a lot of help, but that doesn’t mean we will give detailed tax advice,” says Wei. “We will address their needs with the abilities we have.”

401(k) managed accounts aren’t for everyone

There are retirement savers who like the idea of having help with their 401(k) plans and don’t mind paying for it, but a managed account isn’t for everyone.

Target-date funds do a good job of keeping retirement savers invested and weathering downturns and could be enough, especially if you don’t have a lot of assets or your situation isn’t too complex. It’s why target-date funds reached $4 trillion in assets in 2024.

Plus, during recent market turmoil, target-date funds proved their mettle. Between February 19, the market’s 2025 peak, and April 8, the S&P 500 lost 18.6%, while target-date funds covered by Morningstar lost 7.6%.

Another consideration: If you are savvy and knowledgeable about investing, you could choose your asset allocation yourself and avoid paying the extra fees associated with a managed account. Ultimately, it comes down to your comfort level and if your plan sponsor offers the extra hand-holding.

“If we lived in a perfect world where people were highly educated about financial advice, we wouldn’t need it, but that is far from the world we live in,” says Wei. “The reality is people are left on their own, and they need more than investment products.”

Related content

• Are Investment Fees Putting Your Retirement at Risk?
• Target-Date Funds Aren’t for Everyone
• The 401(k) Mistake That Could Cost You Millions in Retirement Savings
• The Average 401(k) Balance by Age

With more opportunities to access 401(k) funds penalty-free, workers are increasingly dipping into their retirement savings. But those withdrawals could jeopardize their retirement security.

A recent T. Rowe Price study of more than 2 million participants in workplace retirement plans found a notable rise in the number of workers who are taking hardship withdrawals. Plan providers may permit these withdrawals for an immediate, significant financial need, such as unreimbursed medical expenses, costs related to the purchase of a principal residence (excluding mortgage payments), tuition payments, or funeral costs.

Last year, 2.5% of participants took a hardship distribution, up more than a percentage point from the historical average of the past decade, according to the T. Rowe Price report. The average hardship distribution grew to more than $11,000.

The uptick may stem from a provision in the SECURE Act 2.0 of 2022 that streamlines the process. Plan administrators are no longer required to collect documentation from participants verifying the hardship.

The IRS prohibits you from repaying a hardship distribution. The withdrawal is taxable as income, but the 10% early-withdrawal penalty is waived if the circumstances meet the IRS’s list of exceptions.

Under another SECURE Act 2.0 provision, plan administrators may let participants withdraw up to $1,000 a year to meet emergency expenses. If you take an emergency withdrawal, you’ll pay taxes but avoid the extra 10% penalty.

However, unless you repay the money within three years, you are prohibited from taking another emergency withdrawal for the following three-year period. Only 1.3% of workers had taken an emergency withdrawal of $1,000 or less in 2024, according to the T. Rowe Price study.

A greater portion of plan participants — 20% — opted for a 401(k) loan last year, with an average loan balance of more than $10,000.

While fewer Americans are taking loans from their 401(k)s than the highs of 2015 to 2019, the average loan size increased across all age groups.

Generally, if you don’t repay a loan to your account within five years, it’s treated as a distribution and is subject to federal taxes, plus a 10% penalty for individuals younger than 59½ (though there are exceptions if you leave or lose your job at age 55 or older). You may also owe state taxes.

Loan payments, which include the principal and interest (typically the prime rate plus one percentage point), must be made at least quarterly if they’re not automatically deducted from your paycheck.

In addition, payments aren’t considered plan contributions, so you must make separate contributions to be eligible for an employer match, and some employers prohibit match contributions while a loan is in repayment.

Alternatives to tapping your 401(k)

Dipping into your retirement funds may be tempting if you have high-interest debt or face a large expense. But taking money out of your 401(k) early can put a serious dent in its long-term growth, even if you eventually pay it back through a loan.

T. Rowe Price found that workers with more than two loans totaling less than $2,000 from their 401(k) annually had retirement account balances that were 60% smaller than workers of the same age and seniority who had never borrowed from their plan.

The best alternative is to have rainy-day savings on hand. Aim to stash away at least three to six months’ worth of living expenses in a safe, accessible place, such as a high-yield savings account.

If you don’t have enough emergency savings to cover an unexpected expense, a personal loan or a home equity loan, or a line of credit may be a wiser choice than a 401(k) loan or withdrawal.

Lenders will evaluate your credit history when you apply for one of these loans, which may be an obstacle if you don’t have a clean credit profile. And you may pay a higher interest rate than you would on a 401(k) loan. But your retirement account balance will remain untouched, benefiting from long-term, tax-deferred growth.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Related

• The 401(k) Mistake That Could Cost You Millions in Retirement Savings
• Six 401(k) Perks You May Not Know About
• As the Market Seesaws, Should You Touch Your 401(K)?

In your 20s, it’s easy to make retirement planning a “future you” problem.

With housing costs, student loans and entry-level salaries, a 401(k) can feel more like a nice-to-have, rather than a need-to-have. But the truth may be surprising: Your first retirement account matters more than any other for your future wealth.

Retirement planning is a long-term game where timing changes everything. Starting just a few years earlier can amount to thousands of dollars more in your accounts by retirement.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Here’s why your first job's 401(k) (or starting an IRA yourself) deserves your attention now:

Time is more valuable than money

When it comes to your retirement, time is your greatest asset.

Consider two college graduates with different approaches: Alyssa and Jamie. Both contribute to 401(k) accounts throughout different points in their career. In both scenarios, the market returns an illustrative 5% yearly (note that an investment can go down as well as up):

Alyssa starts early and contributes $300 a month immediately after graduation at age 22. She stops contributing at age 37 and keeps her money invested until retirement at 67.

• Total contributions: $54,000 (over 15 years)
• Retirement balance: $346,562

Jamie starts later and begins contributing $300 a month at age 37 and continues until age 67.

• Total contributions: $108,000 (over 30 years)
• Retirement balance: $249,678

By the time they retire, there’s a roughly 32% difference in their balances. Despite contributing twice as much money, Jamie ends up with nearly $100,000 less than Alyssa at retirement.

The power of compound interest

While Jamie contributes twice as much over twice as long a time frame, it’s Alyssa who ends up better off. It all comes down to two words: compound interest.

Compound interest is like a snowball rolling down a hill. As your investments generate returns, those returns generate additional returns. Over time, this creates an accelerating growth cycle. That’s the secret power of your first 401(k).

Save today to save less

The dollars saved in your 20s have the potential to be the most valuable retirement dollars you'll ever save. Yet a growing number of Gen Z feel they may never retire, and only 1 in 5 are actively saving for retirement. It’s not hard to see why, but the reality is that starting to save early may make saving for retirement more affordable.

In the Jamie and Alyssa example, delaying contributions by just 15 years cost Jamie roughly $150,000. She ended up saving an extra $54,000, but still retired with $100,000 less than Alyssa.

Taking control of your retirement early allows your money to work harder for longer.

How to start: Your first 401(k) or IRA

Opting into your first employer-sponsored 401(k) plan is one of the easiest ways to leverage the time value of money. If your employer offers matching contributions, make sure to take advantage. It's essentially extra money that will continue to grow in your retirement account.

For example, an employer might match 100% of your contributions up to a certain percentage of your annual income. On a $50,000 salary, a 4% contribution is an extra $2,000 toward your retirement each year.

While 401(k) accounts are the most popular retirement benefit, you may find yourself in an internship, fellowship or part-time work directly out of college. If you don’t get access to an employer-sponsored plan, you can still open an IRA.

Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.

Unlike a 401(k), which is managed by your employer, an IRA offers certain tax advantages and is tied directly to you, no matter where you go next.

There are two kinds of IRAs:

• Traditional IRAs offer tax-deductible contributions now, with taxes paid when you withdraw in retirement
• Roth IRAs use after-tax dollars but allow tax-free growth and withdrawals in retirement

Take control

Most Americans wait until mid to late career to prioritize saving for retirement. That delay can be costly. With less time to grow, contributions in your 40s and 50s may never go as far as those invested in your 20s.

Time in the market is one of the most important factors in building your nest egg. And once you're behind, catching up can feel nearly impossible. Starting early, even with small contributions, can put you significantly ahead.

Your first job's 401(k) isn't just another benefit. It's a financial opportunity no young investor should overlook.

This theoretic analysis is provided solely for informational and educational purposes. PensionBee Inc. does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to PensionBee Inc.’s website or incorporated herein, and takes no responsibility therefore. Nothing presented here constitutes tax, legal, financial or investment advice. This theoretic analysis does not take into account the specific financial, legal or tax situation, objectives, risk tolerance, or investment needs of any individual investor. All information provided is based on publicly available data and research at the time of posting. Any data, statistics, or third-party sources referenced are for educational purposes only and should not be relied upon as sole decision-making tools. This information, and any associated customer testimonial or third party endorsement does not constitute an offer, solicitation, or recommendation to buy or sell any securities or investments. Your investment is at risk. Past performance is no guarantee of future results.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.