5 Features to Help You Make the Most of Your 401(k)

Automatic asset allocation

All workplace retirement plans that automatically enroll eligible workers, and many that don’t, have a default investment option, meaning the plan sponsor chooses where to invest your contributions if you don’t want to. This serves “to steer participants toward what retirement professionals generally agree are best practices in retirement saving,” Iwry says.

Typically, that means defaulting the money into a target date fund (TDF), which automatically adjusts asset allocations as investors age, reflecting changing priorities.

When you’re younger, a TDF will likely lean into higher-return investments such as stocks, emphasizing growth while you have time to recover from market downturns. As your “target” date for retirement approaches, your funds shift to a more conservative mix, focusing on low-risk assets such as bonds and cash to preserve your nest egg.

Student loan match

As of this year, SECURE 2.0 allows employers to make matching retirement plan contributions for workers who use their own contributions to pay down student debt. Participating employees can “get the benefits of the employer 401(k) plan while making their student loan repayments,” says Jay Kirschbaum, senior vice president and director of benefits compliance at World Insurance Associates.

Say you earn $80,000 a year, contribute 5 percent to your 401(k) and your employer matches that dollar for dollar. You could use the $4,000 you would put into your 401(k) this year to pay down your student loan, and your employer would still contribute $4,000 to your retirement plan.

Because the student loan match is so new, it hasn’t spread much, but “we expect to see more uptake in 2025,” Kirschbaum says, especially among larger companies that see an opportunity to attract new talent. “Employers that want to make a special effort to recruit and retain Gen Z employees may be more interested in these options.”

Small businesses may be less enthusiastic, given “the additional complexity and potential cost they expect will come with administering something so new,” Belwood says.

Emergency saving accounts

According to a June 2024 Bankrate report, 27 percent of U.S. adults have no emergency savings, and 29 percent have less than three months’ worth of expenses set aside, the minimum financial pros recommend for a rainy-day fund. Lacking emergency savings makes it more likely you’ll need to draw down retirement funds to meet an unexpected expense.

Another SECURE 2.0 provision that took effect this year authorizes employers to augment their retirement plans with an emergency savings option. Workers who participate in their company’s 401(k) can steer up to $2,500 in payroll deductions into a parallel account so they have cash available for sudden, unforeseen expenses.

Some major companies, including Delta, Best Buy and Starbucks, have implemented emergency savings programs for their workers in recent years. Analysts expect SECURE 2.0 to spur wider adoption. A 2023 T. Rowe Price survey of consultants who help companies design and manage retirement plans found that 85 percent anticipate an increase in plans offering emergency savings in the next three to five years.

In-plan annuities

Automatic enrollment and auto-escalation help employees build adequate retirement funds. In-plan annuities offer an alternative way for retirees to live off those funds by converting savings into fixed monthly payments that last for life rather than making periodic, variable withdrawals.

“Workers face a problem — how to save enough money to last 20 to 30 years in retirement and effectively draw down their various sources of savings to ensure they don’t run out of money before they die,” says Bryan Hodgens, senior vice president and head of research at LIMRA, a trade association supporting insurance and financial services companies. “In-plan annuities can provide the guaranteed income that a pension once did, supplementing Social Security.”

LIMRA estimates that only about 1 in 10 defined-contribution plans had an annuity option in 2023, but the group’s surveys find that more 4 in 10 plan sponsors are considering offering in-plan annuities, and nearly 7 in 10 percent workers with at least $100,000 in investable assets are interested in products that provide a guaranteed retirement income.

Although they can provide a hedge against longevity risk — the prospect of outliving your money — in-plan annuities come with “trade-offs” that 401(k) owners should consider, Hodgens says. For example:

• Management fees for annuities can be higher than for a standard retirement account.
• There’s typically less flexibility in accessing your savings once you’ve converted them to an annuity.
• Investment options for an annuity may be limited and provide lower returns.
• Inflation can eat into fixed monthly payments.

“There can be explicit fees for the annuity option or implicit opportunity costs that need to be considered,” Hodgens says.