15 Ways to Maximize Your 401(k) Benefits in 2022

A 401(k) is an excellent retirement account for many reasons.

You can contribute to one regardless of your income. And the contribution limits are higher than with many other retirement investment accounts, such as IRAs. You can also set up contributions directly with your employer.

Because of the many benefits this account offers, it's usually worth taking advantage of your 401(k) if your employer provides access to one. In fact, maximizing this account can be well worth the effort since it could set you up for a secure retirement.

Not sure how to do that? Just follow these 15 tips.

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Many employers establish a default contribution rate for employee 401(k)s. They may also have a default investment. But the standard contribution amount and investment mix may not be right for you.

Rather than just sticking with the status quo, be sure to review your account in 2022 and make personalized decisions about your account that are right for your retirement plans.

A growing number of employers offer a choice between Roth and traditional 401(k)s. The accounts work differently, although the contribution limits and rules for employer matching contributions are the same.

A traditional 401(k) allows you to make pre-tax contributions. This means you save on your tax bill in the year you contribute. But you must pay taxes on withdrawals. A Roth 401(k) does the opposite. You get no up-front tax break, but you can take money out tax-free as a retiree.

Think about whether you're likely to be in a higher tax bracket now or later to decide whether you'd prefer to take your tax savings up front or defer it until retirement.

ALSO READ: 3 Reasons a Roth 401(k) Should Be on Your Radar

Many employers match a portion of 401(k) contributions. For example, your employer might offer a 50% match or a 100% match up to a specific percentage of your salary, such as 5%.

You need to know what the rules are for earning matching contributions and do everything possible to earn the maximum employer match in 2022 so you don't leave free money on the table.

The maximum employee contribution to a 401(k) is increasing next year. In 2021, the maximum contribution was $19,500 ,while it's going up to $20,500 in 2022.

If you were contributing the maximum allowable amount next year, this means you can -- and should -- invest more for your future in 2022 if you can afford to do so.

Catch-up contributions for those 50 and over will remain the same, though. Older workers can contribute an extra $6,500 in 2021 and in 2022.

If you haven't yet started contributing to your 401(k), the best and easiest way to make the most of this account in 2022 is to start investing in it. You should be able to sign up to make contributions by filling out some simple paperwork with your employer. Even if you can invest only a small amount, it's worth doing.

If you're already contributing, increasing the amount you divert from your paychecks into your 401(k) can help you get more benefits from this account in 2022. Bump up your contributions as early in the year as possible to take full advantage of the chance to claim more tax breaks for retirement savings.

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If you have a choice between contributing a lump sum or a percentage of income to your 401(k), always opt for contributions to be calculated on a percentage basis.

That way, as your income goes up, the amount you're investing will automatically increase along with it.

If you get a salary bump next year, increase your 401(k) contribution by that amount before you get a single higher paycheck. So, a 2% raise would translate to a 2% higher 401(k) contribution.

By banking your raises and diverting them directly to your 401(k), you'll never get used to the extra money in your paycheck. You're used to living on your current wages, so you won't miss it.

And the extra contributions can go a long way toward building your retirement nest egg.

ALSO READ: 5 Ways to Squeeze Every Last Penny Out of Your 401(k)

It's important to have an appropriate mix of different assets in your 401(k). This can change over time. To make the most of your account, be sure you have the right investment mix given your age and investing goals.

You should check your asset allocation as early as possible in 2022. If you're invested too conservatively or too aggressively, you risk not ending up with the money you need as a retiree.

But an age-appropriate mix will help you maximize the chances of earning generous returns while limiting potential losses.

There's always a trade-off between risk and potential rewards. If you want to maximize the value of your 401(k) in 2022, take the time to assess your personalized risk tolerance so you can develop an investing mix that matches it.

If you don't mind taking on a little extra risk, for example, you may want a more aggressive mix of investments than your 401(k) plan might default to or recommend.

On the other hand, if you want to invest more conservatively, you may need to set higher savings goals so your 401(k) account balance grows enough despite the likelihood your returns will be lower.

It's important to have a good mix of different assets in your 401(k) so you reduce the likelihood of big losses.

By spreading your money around stocks, bonds, and real estate and by making sure you aren't invested too heavily in any one industry, you can maximize the chances at least some of your 401(k) investments will perform well in 2022.

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Many 401(k) accounts offer target date funds to simplify the investing process. These funds let you invest by specifying when you want to retire. For example, you might buy a 2032 target date fund if you'll be retiring in 2032.

When you invest in a target date fund, the fund does the hard work of asset allocation and rebalancing your portfolio for you. It starts out investing your money in a mix of riskier assets and then moves a growing share of it to safer investments as you get nearer to retirement.

If you want to invest with a target date fund, be sure you've carefully considered when you want to retire so you can select the right one. If your timeline is off, your money could be invested too aggressively or too conservatively and it could be hard to make the most of your 401(k).

Many 401(k) plans charge administrative fees. And sometimes the investments available in a 401(k) have high expense ratios. Be sure to check what fees you're paying for your investments.

If it turns out your 401(k) is costing you a fortune in fees, you may not actually want to maximize your investments in it.

Instead, you may be better off putting enough into your 401(k) to earn the full employer match and then investing the rest of your retirement funds elsewhere, such as in an IRA.

ALSO READ: 3 Drawbacks of Using Only a 401(k) for Retirement

Lower- and middle-income Americans may qualify for a tax credit called the Saver's Credit if they contribute to an eligible retirement account such as a 401(k).

The Saver's Credit is worth up to $1,000 as a single filer or $2,000 for married joint filers. But you can earn it only if you invest the requisite amount in an eligible retirement account.

If you can qualify for it, you should make sure your 401(k) contributions are large enough to earn it in order to maximize the government help you get with investing for your future.

Your 401(k) may seem like a tempting pot of money if you run into financial trouble. That's especially true because many 401(k) plans allow you to borrow against your account and pay interest to yourself.

These 401(k) loans can help you avoid early withdrawal penalties that otherwise apply when taking money out of tax-advantaged retirement accounts before age 59 1/2.

But if you take money out of your 401(k), even temporarily, you'll lose the chance to earn returns on it. Aim to avoid this in 2022 if at all possible as you want your money working for you.

If you have old 401(k)s from past employers, you should be eligible to roll over these accounts. That means moving them into a different tax-advantaged retirement plan.

You could roll them over into your current employer's plan if the new plan offers a better investment mix or lower fees. Or you could move the money into an IRA and take advantage of broader investment options that these accounts offer.

Take the time to consider whether a rollover makes sense for you in 2022 so you can maximize the potential returns your old 401(k)s are earning.

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The sooner you start taking these steps, the more your 401(k) investing can pay off in 2022.

The beginning of a new year is a great time to make financial resolutions that can help set you up for a more secure future. And resolving to maximize your 401(k) may just be the best decision you'll ever make.

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