Takeaways
- The average 401(k) balance for Vanguard plan participants was $134,128 in 2023.
- 401(k) plans are one of the most popular retirement savings vehicles.
- Maximizing company benefits, such as a matching contribution, increases savings.
- Super savers aim to reach the annual 401(k) contribution limit set each.
- Slowly increasing your saving percentage helps keep your lifestyle while saving more.
What Is a 401(k) Plan?
A 401(k) plan is a tax-advantaged way to save for retirement. These employer-sponsored retirement plans provide the ability to defer part of your income into a retirement account, where you can select from a menu of investment options. For younger savers, this can be an excellent way to start saving for early retirement.
One of the advantages of a 401(k) plan is that your company will work with an investment firm to select a menu of high-quality investments for you to park your funds. Many investment options for 401(k) plans offer access to top-tier mutual funds, exchange-traded funds, target date funds, and other investments packaged to give you immediate and broad diversification in your retirement savings.
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5 Ways to Boost Your 401(k) Balance
Saving for retirement can be one of those financial goals that get lost in the shuffle of other financial goals. If you are trying to play catch up or want to know how to start contributing more earlier in your career, here are five avenues for maximizing your 401(k) balance.
1. Contribute to Your Company Match
One of the fastest ways to increase your 401(k) balance is to take advantage of your employer’s matching contribution program. According to a recent analysis of Vanguard plans, 50% of 401(k) plans had matching contributions programs.[1] Matching contributions plans supplement your 401(k) contributions by adding funds based on a distinct match formula set by your company.
An example of a match formula is a single-tier match formula that matches $0.50 per dollar on the first 6% of your pay. This means that if you earn a six-figure salary of $100,000 and contribute up to $6,000 (100,000 X 6%), your employer will contribute an additional $3,000 into your 401(k) plan for a total savings of $9,000. There are other matching formulas, such as the multi-tier approach. Consult your 401(k)-plan administrator or Human Resources department for more information on your company match.
2. Increase Contributions 1% Annually
Smart money habits are not built overnight. Instead, they can take months (sometimes years) of patient attention and practice. This concept of a slow boil can be applied to increase your 401(k)-contribution percentage each year. Today, you might only be able to meet the base percentage to reach your contribution matching program, but by slowly increasing your contrition percentage by a percentage point each year, you can enhance your retirement savings while maintaining your lifestyle.
Increasing your income is another effective way to increase your contribution rate without feeling the effect of increased savings. This could mean applying for a new job, getting promoted, or asking for a raise. Alternatively, you could get a side hustle to earn more money or start your own online business.
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3. Budget for 401(k) Contributions
One of the most important things beginner investors can do is financially prepare to begin saving for retirement. This starts with creating a budget that allocates a certain percentage of your income for retirement savings. A 50/30/20 budget specifically gives beginner budgeters and savers a target savings bucket. The 20% of your budget for savings and debt repayment can be allocated to any retirement account.
While this could be for 401(k) contributions, depending on your financial situation, it might also make sense to consider a Traditional IRA or a Roth IRA. Either way, planning to have a portion of your income go towards retirement savings is critical to long-term success.
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4. Reach the Annual Contribution Limit
Should you max out your 401(k) contributions? It depends. When it comes to retirement savings, more isn’t always better. You need to ensure you have appropriately planned to save to your 401(k), and if you are planning to save the annual contribution limit, you need to prepare your finances accordingly. Super savers, like the FIRE community, have created a culture of maximizing their retirement savings.
The 2025 401(k) annual contribution limits for an employee-sponsored 401(k) plan are $23,500 for those younger than 50 and $31,000 (including $7,500 in catch-up contributions) for those over 50.
Reaching the annual contribution limit year after year and receiving your employer matching contribution will put you in rarified air. Only 15% of Vanguard plan participants saved the statutory maximum amount. Saving the maximum contributions is highly correlated with income and age. As those two factors increase, so does the probability of maximizing contributions. Maximizing your contribution can help you achieve financial independence.
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5. Increase Automatically Opt-In Rates
Over the last several decades, there has been a significant push to increase employee participation rates in 401(k) plans to address discrepancies between demographics and to encourage reluctant savers to save for retirement.
Federal legislation since the Pension Protection Act (PPA) of 2006 has made it easier for employers to automatically enroll new employees in their 401(k) plans.[2] In fact, about 77% of the Vanguard 401(k) plans with 1000 employees or more use this feature.
However, if you are automatically enrolled, you may want to increase your contribution rate because the savings rate traditionally hovers around 3%. To get the benefits of your company’s matching contributions, consider increasing your contribution to meet the matching formula because this is free money.
Smart Summary
Not sure how you stack up against your peers? Consider checking out the average 401(k) balance for your professional working group or income level. Again, 401(k) balances are not the only way to analyze the health of your retirement savings, and there is a strong rationale for not putting all your retirement eggs into one basket. Maxing out your 401(k) is not for everyone and should be considering the context of your overarching financial goals.
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(1) Vanguard. How America Saves 2024. Last Accessed January 20, 2025.
(2) U.S. Department of Labor. Pension Protection Act. Last Accessed January 20, 2025.
