How much should I contribute to my 401(k)?

At minimum, contribute enough to get the full employer match — that's a 50-100% instant return. Ideally, work up to 15% of your income (including the match). If that's too much right now, start at the match level and increase by 1% each year. Many plans have auto-escalation features that do this automatically.

Should I choose Traditional or Roth 401(k)?

If you're early in your career and in a lower tax bracket, Roth 401(k) is usually better — you pay taxes now at a low rate and withdrawals in retirement are tax-free. If you're in your peak earning years (22-32% bracket or higher), Traditional may save more in taxes now. If unsure, splitting contributions 50/50 hedges your bet.

What should I invest in within my 401(k)?

If you're not sure, choose the target-date fund closest to your retirement year (e.g., Target 2060 Fund if you plan to retire around 2060). It automatically diversifies and becomes more conservative over time. If you want more control, look for a low-cost S&P 500 or total stock market index fund. Avoid high-fee actively managed funds if lower-cost alternatives exist.

Things to Know Before Starting a 401(k)

Before starting your 401(k), understand three critical things: always get the full employer match (it’s free money), choose low-cost index funds over expensive managed funds, and decide between Traditional and Roth based on your current tax bracket.

What You Need to Know

#	Key Point	Why It Matters
1	Always get the full employer match	It’s a 50-100% guaranteed return
2	Choose low-cost funds	Fees silently eat your returns
3	Traditional vs. Roth changes your taxes	Pay now or pay later
4	Contribution limits are generous	$23,500/year (+ catch-up if 50+)
5	Don’t cash out when you leave a job	10% penalty + tax = lose 30-40%
6	Vesting schedule determines what’s yours	Employer match may not be fully yours yet
7	Increase contributions annually	Even 1%/year makes a huge difference

Employer Match: Don’t Leave Free Money Behind

Match Type	Your Contribution	Employer Adds	Free Money on $80K Salary
100% match up to 3%	3% ($2,400)	$2,400	$2,400/year
50% match up to 6%	6% ($4,800)	$2,400	$2,400/year
100% match up to 6%	6% ($4,800)	$4,800	$4,800/year
Dollar-for-dollar up to 4%	4% ($3,200)	$3,200	$3,200/year

Not contributing enough to get the full match is literally turning down part of your salary.

Contribution Limits (2025-2026)

Category	Limit
Employee contribution (under 50)	$23,500
Catch-up (age 50-59)	+$7,500 = $31,000 total
Enhanced catch-up (age 60-63)	+$11,250 = $34,750 total
Employer + employee combined	$70,000

Traditional vs. Roth 401(k)

Feature	Traditional 401(k)	Roth 401(k)
Tax on contributions	Deducted from taxable income (tax break now)	No deduction (pay taxes now)
Tax on withdrawals	Taxed as ordinary income	Tax-free
Best when	Current tax bracket is high	Current bracket is low
RMDs required?	Yes, starting at 73	No (after rollover to Roth IRA)
$1,000 contributed	Costs ~$750 after tax savings	Costs full $1,000
$1,000 withdrawn in retirement	~$750 after taxes	Full $1,000 tax-free

How to Choose Investments

Option	Best For	Typical Expense Ratio
Target-date fund	Don’t want to manage investments	0.10-0.75%
S&P 500 index fund	Core US stock exposure	0.02-0.15%
Total stock market index	Broadest US diversification	0.02-0.15%
International stock index	Global diversification	0.05-0.20%
Bond index fund	Stability/conservative allocation	0.03-0.15%
Company stock	Avoid — don’t concentrate in one stock	Varies

The Cost of Fees

Expense Ratio	Value of $10,000 After 30 Years (8% return)
0.05%	$98,600
0.25%	$93,800
0.50%	$88,100
1.00%	$78,000
1.50%	$69,300

A 1% difference in fees costs $20,600 on just $10,000 over 30 years. On larger balances, the impact is devastating.

The Power of Starting Early and Increasing

Strategy	Monthly Contribution	Balance at Age 65 (8% return)
Start at 25, contribute $300/month	$300	$1,054,000
Start at 35, contribute $300/month	$300	$447,000
Start at 25, increase 1%/year	$300 → $600	$1,600,000+
Start at 35, contribute $600/month	$600	$894,000

Starting 10 years earlier at half the contribution beats starting later at double the contribution.

Common 401(k) Mistakes

Mistake	Impact
Not contributing enough to get full match	Leaving $2,000-$5,000/year on the table
Cashing out when changing jobs	30-40% lost to taxes and penalties
Choosing high-fee funds over index options	Tens of thousands lost over career
Only investing in company stock	One bad quarter can devastate retirement
Not increasing contributions annually	Missing compounding opportunity
Borrowing from 401(k)	Interrupts compounding; risky if you leave job

The Bottom Line

Your 401(k) is the most powerful wealth-building tool most Americans have access to. Step 1: Contribute enough to get the full employer match. Step 2: Choose the lowest-cost index fund available. Step 3: Increase your contribution by 1% every year. Step 4: Never cash it out when you change jobs. These four steps, followed consistently for 30+ years, build substantial wealth.