Give your retirement plan a check-up

There are four key elements to a retirement planning strategy — time, contributions, diversification, and taxes. Take a look at each one to ensure you are maximizing your retirement saving opportunity.

Time

Have you started saving? The sooner you do, the better. That’s because of the power of compounding returns over time. Regularly contributing to retirement savings from a young age is a proven strategy for achieving greater financial security for your future self. So, if you are not already contributing (or have paused your contributions), make it a goal to get going this year. Then, try to increase how much you contribute each year, keeping the IRS contribution limits in mind. When you reach age 50, you can contribute even more, thanks to catch-up contribution rules.

Contributions

Are you contributing enough? That’s a tough question to answer, but here are some guidelines to make it easier:

• Meet the match – Company matching contributions offer free money to help you build a bigger nest egg for the future, so don’t pass any of it up! Be sure to contribute enough to get the full match offered by your plan.
• Review your budget – See if you can tighten up your everyday spending just a little bit, so you can contribute more toward retirement. And whenever you receive a raise or have access to more money, think about putting a little more into your retirement plan, too.
• Know the limits – The IRS sets limits on how much you can contribute on a tax-advantaged basis (before-tax and/or Roth after-tax) to your employer-sponsored retirement plan each year. In 2026, the annual contribution limit is $24,500 for individuals under age 50.
• Catch up – If you will be age 50 or older this year, the IRS allows you to contribute even more toward retirement. This extra allowance is known as a “catch-up contribution.” Those 50 and older can contribute an additional $8,000 in 2026. And, between the ages of 60 and 63, your catch-up amount increases to $11,250 through the new “super catch-up” provision.

Diversification

Does your portfolio include an appropriate mix of investments? Diversification is an essential strategy for lowering investment risk. Spreading your money around into multiple baskets reduces the overall impact if one asset suffers significant losses. Although, keep in mind that diversified portfolios can still decline in value. Experts also say you should invest more conservatively the closer you get to retirement. The easiest way to create a diversified portfolio that is aligned with your retirement timeframe is to choose a target date fund that matches your expected retirement year. You also have the opportunity to create a custom portfolio if you’re a do-it-yourself investor.

Taxes

Are you thinking ahead to the tax impact of your retirement plan withdrawals?

• Many people invest in their retirement plan on a before-tax basis, which offers the benefit of reducing your taxable income now. Your money grows tax-free until you withdraw it in retirement, when your tax rate may be lower.
• Most plans also offer a Roth after-tax option, which means your contributions come from after-tax income. Your money grows tax-free and can be withdrawn tax-free in retirement.



You can choose one approach or invest some money both ways to diversify your tax liability. Factors in your decision may include:

• Can you afford to contribute on an after-tax basis now? (Contributing before-tax lessens the impact to your paycheck.)
• Do you expect your income tax rate to increase or decrease in retirement? (It’s better to pay taxes when your tax rate is lower. With Roth after-tax contributions, you pay taxes now; with before-tax contributions, you pay taxes when you withdraw money in retirement.)
• Do you want access to a more valuable pot of money in retirement? (For example, $100,000 withdrawn from a Roth 401(k) is $100,000 in your pocket; $100,000 withdrawn from a before-tax 401(k) will be less after you pay the taxes owed.)
• Also, keep in mind that any investment gain within a Roth 401(k) is never taxed,* while all of your before-tax 401(k) investment will be taxed upon withdrawal (contributions and investment gain).



One other point to be aware of is that starting January 1, 2026, if your income exceeds $150,000 in the previous year, any catch-up contributions to your 401(k) must be made as Roth after-tax contributions.

* Withdrawals of Roth 401(k) earnings are not taxed as long as the distribution is considered qualified by the IRS: The account has been held for five years or more and the distribution occurs on or after age 59 ½ or is due to disability or death.