Your employer offers a 401(k). You know you should participate. But how much should you actually contribute?
The short answer: At minimum, contribute enough to get the full employer match. Anything less is literally leaving free money on the table.
The longer answer depends on your age, income, goals, and financial situation. Let's break it down.
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2026 401(k) Contribution Limits
The IRS sets annual limits on how much you can contribute:
Under 50 years old: $23,500 maximum
50 and older: $31,000 maximum (includes $7,500 catch-up contribution)
Total limit (you + employer): $70,000
Most people don't hit these limits. The average 401(k) contribution is around 7% of salary.
The Magic of Employer Matching
This is the most important concept to understand: employer matching is free money.
A typical employer match looks like this:
"We match 50% of your contributions up to 6% of your salary."
Let's decode that with a $75,000 salary:
• You contribute 6% = $4,500/year
• Employer matches 50% of that = $2,250/year
• Total going into your 401(k): $6,750/year
• That employer match is a 50% instant return on your money!
If you only contribute 3%, you're only getting half the match. You're leaving $1,125/year on the table.
Rule #1: Always contribute at least enough to get the full employer match.
How Much Should YOU Contribute?
Here are general guidelines based on your situation:
Minimum: Get the full match
If your employer matches up to 6%, contribute at least 6%. This is the absolute floor if you can afford it.
Good target: 10-15% of income
Most financial advisors recommend saving 10-15% of your income for retirement (including employer match). If your employer matches 3%, you should contribute 7-12%.
Aggressive: Max it out
If you can afford it and want to retire early or wealthy, contribute the maximum $23,500 (or $31,000 if 50+).
The Power of Starting Early
Time is your biggest asset. Here's why:
Starting at 25 vs. 35
Person A starts at 25, contributes $500/month until 65:
Total contributed: $240,000
Value at 65 (7% return): $1,200,000+
Person B starts at 35, contributes $500/month until 65:
Total contributed: $180,000
Value at 65 (7% return): $567,000
Person A contributed only $60,000 more but ends up with $633,000 more.
That's the power of compound interest. Those extra 10 years make a massive difference.
Traditional vs. Roth 401(k)
Many employers now offer both options. Here's the difference:
Traditional 401(k):
• Contributions reduce your taxable income NOW
• You pay taxes when you withdraw in retirement
• Best if you expect to be in a LOWER tax bracket in retirement
Roth 401(k):
• Contributions are after-tax (no tax break now)
• Withdrawals in retirement are TAX-FREE
• Best if you expect to be in a HIGHER tax bracket in retirement
Not sure? Many people split 50/50 between Traditional and Roth to hedge their bets.
Common 401(k) Mistakes to Avoid
1. Not contributing enough to get the full match
This is literally turning down free money. If money is tight, find somewhere else to cut first.
2. Cashing out when changing jobs
You'll pay taxes AND a 10% penalty. Roll it into an IRA or your new employer's 401(k) instead.
3. Taking loans from your 401(k)
While sometimes necessary, 401(k) loans take money out of the market and can hurt long-term growth.
4. Being too conservative when young
If you're 25-30 years from retirement, having everything in bonds is too conservative. You need stock growth.
5. Not increasing contributions with raises
When you get a raise, increase your 401(k) contribution by at least 1%. You won't miss money you never saw.
6. Ignoring fees
A 1% annual fee vs. 0.1% fee can cost you hundreds of thousands over a career. Choose low-cost index funds when available.
What If You Can't Afford to Contribute?
If money is extremely tight, here's a priority order:
1. Build a small emergency fund ($1,000)
2. Contribute enough to get the full employer match (it's too valuable to skip)
3. Pay off high-interest debt (credit cards)
4. Increase emergency fund to 3-6 months
5. Increase 401(k) contributions
Even 1% is better than nothing. Start small and increase by 1% every year or with every raise.
How Much Will You Have at Retirement?
Let's look at some scenarios for someone starting at age 30 with $75,000 salary (assuming 3% annual raises and 7% returns):
Contributing 6% (with 3% match = 9% total):
At 65: ~$1,100,000
Contributing 10% (with 3% match = 13% total):
At 65: ~$1,600,000
Contributing 15% (with 3% match = 18% total):
At 65: ~$2,200,000
The difference between 6% and 15% contribution over 35 years is over $1 million.
Important 401(k) Rules to Know
Vesting schedules: Employer matches often "vest" over 3-6 years. If you leave before fully vested, you may forfeit some of the match.
Early withdrawal penalty: Taking money out before 59½ typically means 10% penalty + income taxes.
Required Minimum Distributions (RMDs): You must start withdrawing at age 73 (Traditional 401k).
Loans: Some plans allow loans up to 50% of your balance (max $50,000). You pay yourself back with interest.
🎯 Calculate Your 401(k) Growth
See exactly how much your 401(k) could be worth at retirement based on your contributions and employer match.
The Bottom Line
At minimum: Contribute enough to get the full employer match.
Ideal target: 10-15% of your income (including match).
If you can: Max it out, especially if you're behind on retirement savings.
Your future self will thank you for every dollar you contribute today. Time and compound interest are powerful allies — use them.