How Much Should I Contribute To My 401(k)?
Financial guidance for your 401(k)
To best prepare how much you should contribute to your 401(k), consider your budget. 80% of your income should go toward your needs and fun, and 20% should go to Future You. That can mean investing for retirement; it can also mean saving for the down payment for the house, the business you want to start, the kids you want to have. When you’re just starting out and have other future goals, you might only be able to put 5% or 10% to your 401(k). Eventually, you want to make sure you're fully funding your retirement goal.
Consider contributing at least up to your employer’s 401(k) match if they offer one, which is where your job puts in the same as you up to a certain point. It’s an easy way to boost your retirement savings — missing out on even 1% means missing out on free money for your retirement.
Investing for retirement with a specific vision in mind helps you stick to a financial plan and feel confident about setting aside a substantial amount of money for retirement savings. What's your ideal retirement? Maybe it’s traveling, pickleballing, or Golden Girling with friends. These dreams can also help you determine how much you should contribute to your 401(k). With the right financial steps, it can be within your reach.
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Ellevest recommends putting 20% of your income toward your future, which includes your retirement, paying off high-interest debt, and building savings.
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Contribute enough to get your entire employer match.
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Set your retirement goals so you can stay on track.
Financial guidance for your 401(k)
To best prepare how much you should contribute to your 401(k), consider your budget. 80% of your income should go toward your needs and fun, and 20% should go to Future You. That can mean investing for retirement; it can also mean saving for the down payment for the house, the business you want to start, the kids you want to have. When you’re just starting out and have other future goals, you might only be able to put 5% or 10% to your 401(k). Eventually, you want to make sure you're fully funding your retirement goal.
Consider contributing at least up to your employer’s 401(k) match if they offer one, which is where your job puts in the same as you up to a certain point. It’s an easy way to boost your retirement savings — missing out on even 1% means missing out on free money for your retirement.
Investing for retirement with a specific vision in mind helps you stick to a financial plan and feel confident about setting aside a substantial amount of money for retirement savings. What's your ideal retirement? Maybe it’s traveling, pickleballing, or Golden Girling with friends. These dreams can also help you determine how much you should contribute to your 401(k). With the right financial steps, it can be within your reach.
Everyone’s financial picture looks different — especially for women.
Women tend to have 65% less money in their 401(k) than men, which ultimately means hurting your ability to retire well. To really answer “How much should I put in my 401(k)?” you need a financial plan that's personalized to your unique circumstances.
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FAQS
A 401(k) is a specific retirement savings plan made up of an investment portfolio with some specific tax advantages. The only way you can use a typical 401(k) is if your employer offers it. That’s not the case with an Individual Retirement Account (IRA), which is available to anyone with income. Here’s the lowdown on how to choose between a 401(k) or IRA.
If you decide to take advantage of your employer’s 401(k) plan, they’ll help you set it up so that your contributions — usually a percentage of your salary — come out of your paycheck automatically.
Many employers also offer a 401(k) employer match. That means if you put money into your account, they’ll put some in, too. This is actual free money, so it’s in your best interest to contribute enough so that you’re getting the full amount of the match. Here’s what you need to know about how 401(k) employer match works.
You can contribute $22,500 toward your 401(k) if you’re under 50 years old, and $30,000 if you’re over 50. If you have both a traditional 401(k) and a Roth 401(k), that’s the total limit you can invest for retirement across both accounts.
If you are 50 years old or older, you have something called a catch-up contribution, which allows you to invest an extra $7,500 a year to help you boost your retirement. The idea is that, when you’re closer to retirement, you should be able to put more into it.
We’ve covered what a 401(k) is, but did you know that half of US employers offer both Roth and traditional options with their 401(k) plan? Both have tax advantages, but they work differently from one another. Income taxes are a thing. And the money you withdraw from your 401(k) when you retire is, technically, income. Depending on if you choose a traditional 401(k) vs Roth 401(k), you either pay those taxes later or now.
With a traditional 401(k), you pay taxes when you withdraw the money at retirement. With a Roth 401(k), you contribute money on an after-tax basis and it grows tax free and comes out tax free at retirement. So if you think you’ll move down in tax brackets when you retire, you might choose a traditional 401(k), and if you think you’ll move up in tax brackets when you retire, you might choose a Roth 401(k). Or, if you’re like, “heck if I know,” you might plan for either reality by using both — then you’ll pay some taxes now, and some later.