Upticks: Ways to Optimize Your 401(k)
By Luke Sullivan on May 30, 2025
Your 401(k) might be working—but is it working for you? Jake and Cory explore five thoughtful strategies to help you get more out of your 401(k). They cover tax diversification, employer matches, common misconceptions, the risks of borrowing from your 401(k), and more. Whether you’re just starting or refining your approach, this episode offers practical insights to help you make more informed, confident decisions.
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Read an overview of the conversation below
Understanding Tax Diversification in 401(k) Contributions
One of the most important strategies for optimizing a 401(k) is tax diversification. This involves allocating contributions among pre-tax, Roth, and after-tax options to help manage future tax liabilities. As Cory explains, “When you are making pre-tax contributions to a 401k, you are making a bet that your tax rate is going to be lower in retirement than it is when you’re making those contributions.” This approach defers taxes now in hopes of paying less later.
Conversely, Roth 401(k) contributions are taxed upfront, allowing for tax-free growth and withdrawals in retirement. Cory notes the growing relevance of Roth options: “In the last 15 years, I’ve seen far more clients that have that option available… it can then grow tax-free from that point forward.” However, not all plans offer Roth options, so we recommend you check with your HR department to find out. The key takeaway is to diversify across these options to hedge against unpredictable future tax rates and potentially avoid putting all your eggs in one tax basket.
Employer Contributions and IRS Limits
Another foundational strategy is receiving your full employer match. This is often referred to as “free money,” and Jake believes failing to take advantage of it is a missed opportunity. Jake emphasizes, “You are literally giving up money… you are a fool if you are walking away from a free match.” Cory adds, “You need to treat that as part of your compensation that you are actively choosing to leave on the table.”
However, many employees mistakenly believe that receiving the match means they’ve maxed out their 401(k). Jake dispels this myth: “Some people think… that is maxing out their 401k because they’re getting the match. That’s not how it works.” The IRS allows significantly higher annual contributions—over $20,000 in some cases—so understanding these limits is important. Optimizing your 401(k) means not only capturing the match but also contributing beyond it if your financial plan allows. As Cory puts it, “You can max out your contributions to max out the match… but that is not in all likelihood the dollar amount you’re limited [to].”
Integrating Your 401(k) into Your Financial Plan
A common mistake is treating the 401(k) as a standalone account rather than integrating it into a broader financial strategy. Cory stresses, “Your 401(k) does not exist in a vacuum… it’s one piece of the puzzle.” This means aligning your 401(k) with other retirement income sources like Social Security, pensions, and spousal assets.
Jake illustrates the danger of isolated thinking: “A big mistake I see people make… is they’ll use that and they’ll compare that against maybe an IRA or brokerage account return… invested completely differently.” Each account serves a different purpose and we believe should be evaluated within the context of your overall goals. This integration can help your 401(k) grow and be positioned to support your retirement lifestyle. As Cory summarizes, “That’s how you do real financial planning… that’s how you can optimize the 401k into the financial plan.”
Aligning Asset Allocation with Your Retirement Goals
Beyond contributions, how your 401(k) is invested plays another important role in the long-term. Jake warns against the “set it and forget it” mentality: “Your 401k is not a microwave oven… if you let something go on for decades wrong, it’s gonna go in the wrong direction.” Asset allocation should evolve with your financial plan and risk tolerance.
Target-date funds, while convenient, may not align with your specific needs. Jake critiques them as “a very cookie-cutter way to do things… they don’t know anything about your financial plan.” Instead, he advocates for personalized asset allocation that reflects your goals and timeline.
Cory reinforces this point: “For a lot of [clients], it’s the largest asset that they have on their balance sheet… you don’t want to dismiss your 401(k) or not give it enough care.” We believe it’s important to regularly review and adjust your allocation.
Avoiding Loans, Emotional Decisions, and Overfunding
One of the most detrimental actions is borrowing from your 401(k). While it may seem harmless—“I’m just borrowing from myself”—Jake explains the real cost: “You’re just putting yourself way behind from a compound interest standpoint.” Removing funds reduces the base on which interest compounds, potentially costing thousands over time. Instead, maintain a robust emergency fund and consider other financing options like a home equity line of credit. Jake advises, “The 401k actually should be the last place because again of this compounding nature.”
Another pitfall is making emotional decisions during market downturns. Cory emphasizes the importance of having a plan you can stick to: “There are a lot of great plans that are made on paper that can fall apart emotionally when the market drops.” Staying the course, even during volatility, is important.
Finally, avoid overfunding your 401(k) at the expense of liquidity. Jake shares, “Some people… might be overfunding their 401k and underfunding their emergency savings.” A balanced approach helps keep you prepared for both short-term needs and long-term goals.
Optimizing your 401(k) isn’t about chasing perfection—it’s about making intentional, informed choices that align with your broader financial plan. By understanding your options, avoiding common missteps, and integrating your retirement plan into a larger strategy, you can build a more flexible and resilient financial future. As Jake and Cory emphasize, it’s not just about saving—it’s about planning with purpose.
Thank you for tuning in, we hope you have a great week!
