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

Key takeaways

  • 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). This can be in a 401(k) or another retirement account.
  • Contributing early can help you get the most out of your 401(K).

You probably already know: Retirement is expensive. Luckily, there are retirement accounts, such as the 401(k), you may have access to as an employer benefit, that can help you save for retirement—and get a tax break at the same time.

But how much should you contribute to your 401(k)? If retirement is years or even decades away, it can be hard to figure out what you may need. Although everyone's financial situation is unique, here are some general guidelines to consider when figuring out how much to contribute to your 401(k).

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How much should you contribute to your 401(k)?

Fidelity's guideline is to work up to saving 15% of your pretax income each year for retirement, including any employer contributions.

If your employer helps you save for retirement, they might do so by contributing a set amount or percentage of your salary no matter what you contribute to your 401(k). They may also help you save by contributing what's called a 401(k) match. That's when your company contributes only when you do. Generally, companies use a formula like putting in 50 cents or $1 for every dollar you do, up to a certain percentage of your salary. If your employer offers a 401(k) match, it's a smart idea to prioritize saving at least enough in your 401(k) to get that full amount.

Pay attention to vesting requirements. For example, your employer may stipulate that you remain an employee for a set period of time before any or all of the 401(k) match becomes yours. If you change jobs before the end of the vesting period, you won't get to walk away with all of your employer's contributions in your 401(k).

The 15% retirement savings goal can also include contributions you make to an individual retirement account (IRA).

Why 15%?

This guideline is based on research finding that most people need between 55% to 80% of their preretirement income to finance their lifestyle in retirement. Not all of it needs to come from your savings; some may come from Social Security. That, combined with saving 15% each year from age 25 to 67 should help you reach that level of income replacement.

Of course, that 15% retirement savings goal may vary based on your financial situation and depends on some key choices you make before retirement, such as when you start saving and when you plan to retire. Those who start saving for retirement earlier, for example, may be able to save less, while those who start later may need to save more each year to catch up.

You also may be able to save less than 15% each year if you know you'll have other retirement income sources, like a pension. If you anticipate having a higher or lower standard of living in retirement, you may need to save more—or less. Figuring out the right amount to save for retirement can get complicated as situations become more complex. You may want to meet with a financial professional to figure out how much you personally should be saving for retirement overall and in your 401(k).

Get an estimate of where you stand for retirement using the Fidelity Retirement ScoreSM

How much can you contribute to your 401(k)?

Every year the IRS sets the max that you and your employer can contribute to your 401(k). In 2023, the 401(k) contribution limit for employees is $22,500. In 2024, this goes up to $23,000. If you're at least 50 at the end of the calendar year, you can add a catch-up contribution of $7,500 in each year. Your 401(k) contributions cannot exceed your annual compensation at the company that holds your plan.

In addition to your individual employee contributions, there is a combined limit that you and your employer can contribute to a 401(k). In 2023, this amount is $66,000. In 2024, it increases to $69,000.

If you'd like to save more for retirement than you can contribute to your 401(k) this year, consider contributing to an IRA.

What happens if you contribute too much to your 401(k)?

There are usually controls in place to keep you from contributing too much to a company retirement plan. But if you've changed jobs this year or have access to multiple workplace plans, you'll want to stay on top of how much you save in a 401(k) each year. Contributing too much can lead to paying additional tax.

If you overcontribute, you may request excess contributions (and anything they earned) be returned by Tax Day each year. You should also receive a modified W-2 that reflects that additional income.

How to get the most out of your 401(K)

Consider these 3 steps to help you save more (and smarter) for retirement.

1. Contribute early. If you start saving in your 401(k) early on and keep that money invested over the long term, you could benefit from compound interest, which is when your investment returns earn returns of their own. Compound interest can potentially help your savings grow exponentially—helpful when saving for a major goal like retirement.

2. Start small if you have to, and go for the match. Saving 15% of your pretax salary can seem intimidating when you're first getting started with saving for retirement. But starting to contribute even small amounts as soon as you're able has the potential to add up in the long run. And it can help to establish a good habit. If your company offers a match, aim to contribute at least enough each year to get the full amount offered. Every dollar your company saves for you is one you don't have to save for yourself.

3. Keep track of your 401(k)s. It's not uncommon for people to lose track of their retirement plans over time, especially if you work for multiple employers during your career. Keep a record of your retirement accounts to make sure you're not accidentally leaving any savings behind. And remember that you have options for how to handle your old 401(k)s.

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