How Much Should You Contribute to Your 401(k)? (2024)

How Much Should You Contribute to Your 401(k)? (1)

Most retirement experts recommend you contribute 10% to 15% of your income toward your 401(k) each year. The most you can contribute in2023 is $22,500 or $30,000 if you are 50 or older (that’s an extra $7,500). That number has only been increased by $500 for the 2024 tax year. It can be hard to know where to save your money in order to best build wealth for retirement. Consider working with a financial advisor to determine a contribution rate or to determine the right savings plan for you.

Understanding How a 401(k) Works

A 401(k) is a retirement savings plan offered by many for-profit companies. They grew in popularity in the 1980s while fewer and fewer companies were offering pensions.

With a 401(k), your employer chooses some investment options, and then it is up to you to create a portfolio. A 401(k) allows you to decrease your taxable income because you fund it with pre-tax dollars, but it’s also riskier because it relies on the market. If the market performs poorly, your 401(k) could potentially lose money.A 401(k) is still a good way to save for retirement, but what percentage of your salary should you actually put into it?

How Much Should You Contribute to Your 401(k)?

As a rule of thumb, experts advise that you save between 10% and 20% of your gross salary toward retirement.That could be in a 401(k) or in another kind of retirement account. No matter where you save it, you want to save as much for retirement as you can while still living comfortably.

It’s important to say that this is just a general rule. The actual amount you should save depends on your situation.For example, if you are 50 years old and don’t have any retirement savings, you should save more than 20% of your gross annual salary. If you’re 30 years old and already have $100,000 in retirement savings, you could probably decrease your contributions for a bit to pay off a mortgage or loan.It’s difficult to create a one-size-fits-all plan because everyone is in a different place with his or her finances.

Saving 10% to 20% of your salary every year might sound like a lot. Luckily, you don’t haveto do it all at once. You can spread your contributions out throughout the year and you can contribute more or less some years. You also don’t have to save all that money through your 401(k). Let’s take a step back and talk about other factors you should consider when you think about how much to contribute to your 401(k).

Build Your Emergency Fund

You want to save as much as you can for retirement, but you shouldn’t put all of your savings toward retirement. You should always have enough cash reserves to cover necessary expenses like food and rent. It’s also a good idea to create an emergency fund.

An emergency fundwill protect you from unexpected expenses or difficult financial situations. What would you do if you lost your job or didn’t have a regular salary for a month? What if a family member got sick and you had medical bills to pay? A strong emergency fund allows you to get through tough times. Withdrawing money from your retirement accounts should be an absolute last resort. Just as importantly, an emergency fund will ease your mind by providing a sense of security. It’s always nice to know that you have a backup plan in case something goes wrong.

Again, there is no perfect answer for how much you should have in an emergency fund. It depends on your situation. In general, though, you want enough to cover at least a few months of expenses. That may sound like a lot if currently have no emergency fund, but you can build your fund over time by adding a little each week or month.

Contribute Enough for the Full Employer Match

You have enough saved up to cover your expenses. Your emergency fund is there in case you need it. Now you’re starting to think about 401(k) contributions. Where do you start?

The first thing you should figure out is if you have an employer matching program with your 401(k).With an employer match, your employer will match your 401(k) contributions up to a certain percentage of your gross salary. Say your employer offers 100% match on the first 5% you contribute. That means if you contribute 5% of your gross salary toyour 401(k), your employer will contribute an amount equal to 5% of your gross salary.The total contribution to your 401(k) would then equal 10% of your gross salary.

An employer match allows you to increase your contribution, and you should always take advantage of matching programs. Unfortunately, many people pass up free money by not contributing up to their employer match.

Invest in IRAs and Roth IRAs

If you remember the rule of thumb earlier, experts advise saving 10% to 20% of your gross salary each year for retirement. You could put this all in your 401(k), but you should consider some other options once you cover your 401(k) match.

If you are single and earn less than $153,000, you qualify for a Roth IRA in 2023. If you are married and earn less than $228,000 in 2023 you qualify for a Roth IRA. Those amounts rise to $161,000 and $240,000 in 2024.

This is a retirement savings vehicle that you can open at virtually any bank or financial institution. You fund these with after-tax dollars. So your contributions won’t reduce your taxable income. However, eligible withdrawals you make after turning 59.5 are tax-free.It’sgood to have a mix of taxable and non-taxable income in your retirement.

Roth IRAs are particularly useful for young people who are just starting their careers. Chances are that if you just graduated from college, you’re in a lower tax bracket than you will be in when you retire. Paying the income tax now instead of later can save you money, especially when you need it the most

In 2023, you can contribute up to $6,500 to a Roth IRA. The $1,000 catch-up contribution for those who are at least 50 years old can raise that to $7,500. For the 2024 tax year, those numbers raise to $7,000 and $8,000.

In addition, your employer may offer a Roth 401(k). It takes after-tax money just like a Roth IRA. For 2023, the contribution limit is $22,500. And the catch-up contribution limit for people aged 50 or older is $7,500. The base contribution limit raised to $23,000 in 2024, but the $7,500 contribution extension will stay the same.

You can also invest in a traditional IRA, which takes pre-tax dollars and lessens your taxable income just like a 401(k). Some people also have an IRA because when they left a previous employer, they moved their 401(k) funds into an IRA via anIRA rollover.

Contribute as Much as You Can

You haveemergency savings. You met your employer’s 401(k) match and then you maxed out aRoth IRA (if you qualify). Then what? How much should you really contribute to your 401(k) now? Your goal at this point should be to save as much as you can for retirement while still living comfortably.For some people, that will mean another 1% of their salary into their 401(k). For others, it will mean maxing out their 401(k).

The key is to put as much as you can toward retirement. Some people spend their money frivolously and save only a little bit. If you’re spending thousands of dollars every month on unnecessary purchases, you should find a way to cut that spending and put it toward retirement instead. (A budget could really help you cut unnecessary spending.) It might not sound fun, but remember that the goal is to have financial security when you retire.

Bottom Line

How Much Should You Contribute to Your 401(k)? (3)

Experts advise saving 10% to 20% of your gross salary each year, but that’s just a general rule.Your goal should be to save as much for retirement as you can. Before anything else, you should ensure that you have enough savings to cover regular expensesand emergencies. If you have an employer match on your 401(k), you shouldcontribute enough to cover the full match.

If you qualify for a Roth IRA, you should try to max it out. It’ll provide a source of nontaxable income in your retirement. Once you’ve done those things you should contribute as much to your 401(k) or IRA as you can. The most important thing is to contribute regularly – even if you can only save a little bit. It’s hard to prioritize your future over the things you want now, but you will thank yourselfif yousave while you’re young.

Tips for Contributing to Your 401(k)

  • If you’re struggling to get started or stay on track, consider working with a financial advisor.Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you switch jobs, you can no longer contribute to a previous employer’s 401(k) plan. You don’t want to lose the hard work you did to save that money, so you should look to make a direct 401(k) rollover to your new employer’s plan.
  • A traditional IRA and a 401(k)offer similar tax benefits. You might wonder whether one is a better option for you. Here’s an article to help you think about anIRA vs. a 401(k).
  • You should always avoid early withdrawals from your 401(k). Not only will you have to pay the income tax, you’ll have to a pay 10% penalty. There are a couple of ways you could avoid that big penalty though. If you really think you need to withdraw money early, here’s more information on 401(k) withdrawals.

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How Much Should You Contribute to Your 401(k)? (2024)


How Much Should You Contribute to Your 401(k)? ›

For that reason, many experts recommend investing 10-15 percent of your annual salary in a retirement savings vehicle like a 401(k).

How much should you contribute to a 401k? ›

Most retirement experts recommend you contribute 10% to 15% of your income toward your 401(k) each year. The most you can contribute in 2023 is $22,500 or $30,000 if you are 50 or older (that's an extra $7,500). That number has only been increased by $500 for the 2024 tax year.

How to calculate how much to contribute to a 401k? ›

Retirement experts suggest that you contribute at least 10% of your salary to your 401(k) account, but even this may not be enough for a secure retirement. Fidelity Investments recommends that you should be saving at least 15% of your pre-tax salary for retirement. Employer Match: 5%.

Is 2% enough for 401k? ›

If you need to start at a lower contribution than the general 10% to 15% guideline and work your way up, that's fine. Aim to contribute at least enough to grab the match, then bump up the percent you contribute by 1% or 2% each year. Unbiased, expert financial advice for a low price.

How much of your bonus should you put in a 401k? ›

One rule of thumb is to set a percentage of every windfall (e.g. 10% or 20%) — whether a bonus or a birthday check — to spend, and save the rest. To get the most out of a bonus, though, many people opt for a 401k bonus deferral and put some or all of it into their 401(k) account.

How much should you contribute to 401k at each age? ›

However, the general rule of thumb, according to Fidelity Investments, is that you should aim to save at least the equivalent of your salary by age 30, three times your salary by age 40, six times by age 50, eight times by 60 and 10 times by 67.

How much should I contribute to my 401k without a match? ›

The rule of thumb for retirement savings is 10% of gross salary for a start. If your company offers a matching contribution, make sure you contribute enough to get it all. If you're aged 50 or over, you're allowed to make a catch-up contribution each year. Consider other retirement savings accounts, such as a Roth IRA.

How much can I contribute to 401K per person? ›

The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan is increased to $23,000, up from $22,500. The limit on annual contributions to an IRA increased to $7,000, up from $6,500.

How to contribute to a 401K? ›

A 401(k) plan is only offered through an employer, which means you can't start investing in one on your own. If your employer does offer this type of retirement plan, you must sign up and figure out how much you wish to contribute. This is the amount that will be deducted from each paycheck.

How much do employers contribute to 401K on average? ›

The average 401k employer match in 2023 is around 4% to 6% of salary. According to a recent study by the US Bureau of Labor Statistics, 41% of companies that offer a 401k plan provide employer matching contributions up to 6% of employees' salaries.

Can I contribute 100% of my salary to my 401k? ›

Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and 2021), or $30,000 in 2023 ($27,000 in 2022; $26,000 in 2020 and 2021) if age 50 or over; plus.

How much is too much in a 401k? ›

People who overcontribute to a 401(k) can be subject to consequences such as being taxed twice on the amount above the contribution limit of $23,000 in 2024 ($30,500 for those age 50 or older) and a 10% early distribution tax if you're under 59.5 years old.

What percentage should I have my 401k? ›

In fact, most financial experts will suggest investing 15% of your income annually in a retirement account (including any employer contribution).

What is the best percentage for 401k per paycheck? ›

For that reason, many experts recommend investing 10-15 percent of your annual salary in a retirement savings vehicle like a 401(k).

How much to put into a 401k? ›

Many companies offer 401(k) plans to encourage employees to save for retirement. Some even match contributions you make yourself. Aim to save at least 15% of your pretax income each year for retirement (including employer contributions).

Is a 401k worth it? ›

The value of 401(k) plans is based on the concept of dollar-cost averaging, but that's not always a reliable theory. Many 401(k) plans are expensive because of high administrative and record-keeping costs. Nonetheless, 401(k) plans are ultimately worth it for most people, depending on your retirement goals.

What percentage of paycheck should go to a 401k? ›

For that reason, many experts recommend investing 10-15 percent of your annual salary in a retirement savings vehicle like a 401(k).

At what salary should you max out 401k? ›

We recommend investing 15% of your gross income to save for retirement (that's Baby Step 4, by the way). So if you're 100% debt free and have an annual salary of $150,000 or more, you could max out your 401(k) simply by investing your entire 15% through your workplace retirement plan.

How much should be in my 401k at 35? ›

By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary.

What is a good percentage to take out of your 401k? ›

The 4% rule is when you withdraw 4% of your retirement savings in your first year of retirement. In subsequent years, tack on an additional 2% to adjust for inflation. For example, if you have $1 million saved under this strategy, you would withdraw $40,000 during your first year in retirement.


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