How to Maximize Your 401(k) Contribution

Author: / Reviewer: Siân Killingsworth
9 Jun 2023 / 401(k) Plan Information, Personal Finance

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Saving for retirement is a top concern for many individuals, including small business owners. Maximizing your 401(k) contribution limits is crucial to ensure a comfortable retirement. Read on to learn about contribution limits, catch-up contributions, employer contributions, and strategies for maximizing your contributions. 

Contribution Limits 

Understanding the contribution limits for 401(k) plans is essential, as they can change annually. In 2023, the maximum individual contribution limit is $22,500. This means that you can contribute up to this amount from your salary to your 401(k) plan.  

For more details on retirement contribution limits, read more here. 

Catch-Up Contributions 

If you are 50 or older, you are eligible to make catch-up contributions to your 401(k) plan. Catch-up contributions allow you to contribute an extra $7,500 on top of the regular contribution limit. This is a valuable opportunity for individuals who may have fallen behind on their retirement savings. 

It brings the total contribution limit for individuals aged 50 or older to $30,000. By taking advantage of catch-up contributions, you can accelerate the growth of your retirement nest egg. 

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Employer Contributions 

As a small business owner, you have the option to offer matching contributions to your employees’ 401(k) plans. Matching contributions are when your business matches a portion of your employees’ contributions, up to a specified limit. This is a valuable benefit that can help your employees save for retirement.  

As the business owner, you may also make contributions to your own retirement savings as the employer. This benefit can seriously boost your annual savings: by contributing as both business owner and employee, you can save up to the IRS maximum amount of $66,000 in 2023!  

Additionally, employer contributions can also provide tax advantages1 for your business. Contributions made by employers to employees’ 401(k) plans are tax-deductible, which can help reduce your business’s taxable income. 

How to Calculate Your Contributions 

Calculating your 401(k) contributions can be complex, especially when factoring in employer matching contributions. Use 401(k) calculators to put in the most money allowed and get all the benefits from your employer’s matching.  

These calculators take into account your salary, contribution percentage, and employer match to provide an estimate of your annual contributions. By using these tools, you can avoid surprises and plan effectively for your retirement. 

Benefits of Contributing the Maximum Amount 

Contributing the maximum amount to your 401(k) plan offers several advantages: 

  • Tax Savings: By making pre-tax contributions, you can lower your taxable income2. This means you will pay less in taxes each year. As a small business owner, you can also benefit from tax-deductible contributions to your employees’ 401(k) plans. It’s a win-win situation that reduces your tax liability while helping your employees save for retirement. 
  • Compound Interest: The earlier you start putting money away for retirement — and the more you save — the more time your money has to grow. Over time, the interest on your investments can compound, meaning that your earnings generate even more earnings. This can potentially grow your retirement savings significantly. 
  • Retirement Security: By contributing the maximum amount to your 401(k) plan, you’ll be building a substantial retirement nest egg. This can provide you with greater financial security and peace of mind when it comes time to retire. Knowing that you have diligently saved and maximized your contributions can alleviate concerns about your future financial well-being. 

Strategies for Maximizing 401(k) Contributions 

To make the most of your retirement savings options, consider the following strategies: 

  • Increase Your Contribution Percentage: One of the easiest ways to maximize your contributions is to increase your contribution percentage. Even a small increase can make a big difference over time. Gradually increasing your contribution percentage whenever possible will help you reach the maximum limit and boost your retirement savings. 
  • Consider a Roth 401(k): In addition to traditional 401(k) plans, many employers now offer Roth 401(k) options. A Roth 401(k) allows you to contribute after-tax dollars. While these contributions won’t lower your taxable income, the withdrawals you make in retirement will be tax-free. If you expect to be in a higher tax bracket in retirement, a Roth 401(k) may be a good option for you.

Common Mistakes to Avoid 

To ensure you maximize your 401(k) contributions, it’s important to avoid common mistakes that can hinder your progress: 

  • Missing Out on Employer Contributions: If your employer offers a matching contribution, it’s crucial to contribute enough to receive the full match. Failing to do so is essentially leaving free money on the table. Take advantage of this benefit to maximize your retirement savings potential. 
  • Waiting Too Long to Start Contributing: The earlier you start contributing to your 401(k) plan, the more time your money has to grow. Waiting too long to start can significantly impact your retirement savings. Don’t delay; start contributing as soon as possible to take full advantage of the benefits of compound interest. 
  • Not Taking Advantage of Catch-Up Contributions: If you’re 50 or older, failing to utilize catch-up contributions can significantly impact your retirement savings. Take advantage of this opportunity to boost your savings and make up for any previous shortfalls. 

Maximizing your 401(k) contributions is vital for a secure retirement. Understanding contribution limits, catch-up contributions, employer contributions, and implementing effective strategies will help you make the most of your retirement savings.  

Avoiding common mistakes ensures you capitalize on all available opportunities. By taking proactive steps to maximize your contributions, you can set yourself up for a financially comfortable retirement. Start today and reap the benefits in the future. 



1 Employers with 50 or fewer employees can receive a tax credit for contributing to their employees’ retirement plans. The credit is a percentage of the amount contributed by the employer, up to a per-employee cap of $1,000. The credit percentage is reduced over five years, with 100% in the first and second years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year. No credit for subsequent tax years, thereafter.  

2 Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

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© 2023 Ubiquity Retirement + Savings
Privacy Policy
Do not sell my info
44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357

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