View the full transcription of this episode here.
If you’ve ever wondered “How do 401(k)s really work? Should I use the Roth option? How much should I contribute, and when?” this conversation breaks it down. Glen and Robert walk through traditional vs. Roth 401(k)s, company matches, “true-up” rules, catch-up contributions in your 50s and early 60s, required minimum distributions (RMDs), and how employee stock purchase plans (ESPPs) fit into a broader plan. The aim isn’t to provide a one-size-fits-all formula; it’s to help you understand how informed financial choices today may support your long-term goals.
Small decisions compound. Spreading contributions across the year so you don’t miss match dollars, choosing Roth vs. traditional based on your tax picture, and avoiding concentration in company stock can meaningfully influence long-term financial outcomes, but do not guarantee any specific result. The earlier you establish a savings strategy, the more flexibility you preserve for your future self. It’s never too late to improve your setup, but it’s far easier with a clear plan.
Traditional 401(k): Contributions go in pre-tax, grow tax-deferred, and withdrawals are taxed as ordinary income in retirement. The classic assumption is you’ll be in a lower bracket later—sometimes true, sometimes not.
Roth 401(k): Contributions are made after-tax; qualified withdrawals (contributions + growth) are tax-free if certain IRS conditions are met (e.g., age 59½ and a five-year holding period). Employer matches tied to Roth deferrals are typically deposited into a traditional 401(k) bucket for the company’s current-year tax deduction, so you’ll often end up with two sub-accounts.
Company Match: If your employer matches your contributions (e.g., 100% of the first 6%), that’s part of your total compensation, so consider contributing enough to receive the full match available under your plan.
Auto-Increase: Many plans let you nudge savings up 1% each year. If your average raise is ~2–3% annually, letting 1% flow to retirement may feel painless while enhancing long-term savings potential.
The episode discusses current-year contribution limits, standard catch-ups beginning at age 50, and an enhanced catch-up window during the person’s early 60s. Because the IRS updates these figures periodically, confirm the latest official limits for your tax year and your specific plan features before acting.
Many companies match contributions each paycheck, not based on your total for the year. That means if you “front-load” your 401(k), contributing heavily early in the year and hitting the annual limit by spring, you could reduce the amount of employer match you receive. Some plans fix this automatically through what’s called a true-up, where the plan reviews your total contributions at year-end and adds any missed match to make you whole. Others don’t, which means once your contributions stop, so does the match. The best move? Ask HR whether your plan includes a true-up. If it does, front-loading is fine. If not, pace your contributions evenly across all pay periods so you capture the full company match, every dollar you’re entitled to.
Employee Stock Purchase Plans (ESPPs) can be a powerful benefit, especially when they offer a discount of 10–15% on your company’s stock or include a look-back feature that lets you buy at the lower of two prices. That discount can create potential value at purchase. But it’s important to stay mindful of concentration risk, when too much of your portfolio depends on a single stock. We’ve seen employees with 50%, 70%, even 90% of their net worth tied to their employer’s shares, which can feel great in good markets but be financially challenging if the company’s stock declines. The takeaway: consider participating if available, but maintain diversification to manage risk over time.
“As much as you can” is a good instinct, but the right number depends on: age, target retirement date, required income, other resources (Social Security, pensions, equity comp), and taxes. Rules of thumb (like 10–15%) are fine starting points for younger savers; mid-career catch-up often requires a custom glidepath. A written plan turns “I hope it’s enough” into “I understand what may be required to pursue my goals.”
GDS Wealth Management (“GDS”) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. This material is for informational and educational purposes only and should not be construed as investment, tax, or legal advice. Investing involves risk, including possible loss of principal. Past performance does not guarantee future results. Examples are hypothetical and for illustrative purposes only. Tax laws, contribution limits, and plan rules are subject to change. Consult your HR department or a qualified professional for advice specific to your situation. Complimentary consultations are offered without obligation and do not guarantee any specific result. For more information on our services, fees, and disclosures, please visit www.gdswealth.com.