Retirement planning looks different today than it did a few decades ago. With pensions fading, the 401(k) plan has become the go-to way for employees in San Diego and beyond to save for retirement.
Think of a 401(K) as a retirement savings account that works in the background, turning steady contributions into long-term gains. When you know how to use it, your 401(k) can help you retire with more options and less stress.
This guide breaks down what a 401(k) is, why it’s worth prioritizing, and how to use it to its full potential.
What Is a 401(k)?
At its core, a 401(k) is a retirement account you set up through your employer. You choose a percentage of your earnings to contribute, and that money gets invested. Over time, your dollars have the chance to grow—and if your employer adds contributions on top of yours, the benefits multiply.
There are two main types:
- Traditional 401(k): Your contributions are made before taxes, lowering your taxable income now. You’ll pay taxes when you withdraw funds in retirement.
- Roth 401(k): You contribute after taxes, but your withdrawals in retirement (including growth)are tax-free.
The best choice depends on whether you’d rather reduce your tax bill today or enjoy tax-free income later.
Why a 401(k) Can Be a Game Changer
A 401(k) isn’t just another line item in your benefits package—it’s one of the most effective ways to build wealth for the future. Here’s why:
Built-in Tax Benefits
Whether you go with Traditional or Roth, you’re gaining an advantage. Either you save on taxes now, or you enjoy tax-free income later. Either way, you win.
Free Money From Your Employer
If your employer offers matching contributions, you’re essentially doubling part of what you put in. That’s free growth you don’t want to miss.
Growth Over Time
Every dollar you contribute has the potential to earn returns—and those returns can then earn more returns. The earlier you start, the more compound interest works in your favor. Even small, consistent contributions can grow significantly over decades.
High Contribution Limits
In 2025, you can put away up to $23,500, plus an extra $7,500 if you’re 50 or older.1 That’s a big opportunity to build long-term savings.
Automate Savings
Contributions come right out of your paycheck automatically. You don’t have to think about it, which makes it easier to stick with.
5 Simple Ways to Maximize Your 401(k)
Enrolling is just the beginning—the way you manage your 401(k) can make a big difference in your retirement outlook. Here are five strategies to maximize its potential and help you take your plan from good to great.
- Max the Match
If your employer offers a match, think of it as a guaranteed return on your investment. For example, if they contribute 50 cents for every dollar you put in (up to 6% of your salary) that’s a 50% boost before your money even hits the market. Not taking advantage of the match is leaving money on the table. Prioritize contributing at least enough to secure the full amount your employer offers. - Increase Contributions Gradually
You don’t need to go from 0% to the maximum overnight. Instead, increase your contributions gradually. Even raising your contribution by 1% each year (perhaps timed with a raise) can grow into thousands of additional dollars by the time you retire. The key is consistency. Small, steady increases compound into something powerful over decades. - Stay Invested
Your 401(k) is designed for the long term. While it can be tempting to borrow or withdraw early, early withdrawals can cost you taxes, penalties, and future growth. By leaving your money invested, you give compounding time to do its best work. - Diversify Your Investments
Most 401(k)s offer a menu of investment options—from conservative bond funds to growth-oriented stock funds. Choosing the right mix depends on your risk tolerance, age, and goals. Younger investors often lean more toward growth, while those closer to retirement may prefer a balanced approach. Target-date funds can also be a smart “set it and forget it” option, automatically adjusting your mix as you near retirement. - Have A Plan When You Change Jobs
Changing jobs doesn’t mean your retirement savings should stall. When you leave an employer, you typically have the option to roll your 401(k) into your new company’s plan or into an IRA. Both allow your money to stay invested and grow without the tax consequences of cashing out. The choice depends on your new plan’s fees, investment options, and your personal strategy.
By contributing consistently, taking advantage of tax benefits, and making thoughtful investment choices, you’re giving yourself a stronger foundation for the future.
The earlier you start, the more powerful the results. But even if you’re beginning later, steady contributions can still make a meaningful difference. Think of your 401(k) as a long-term partnership with your future self—and the choices you make today can shape the freedom you’ll enjoy tomorrow.
This information is not intended as financial, tax or legal advise. Consult a qualified financial and/or tax advisor. The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. Mission Fed Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article by Mission Fed Credit Union is for the information and convenience of its readers and does not constitute endorsement, control or warranty by Mission Fed Credit Union.
1 401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000 | Internal Revenue Service
