Get the most from your 401(k) by understanding contribution limits, capturing the full employer match, choosing between Roth and traditional, selecting low-cost investments, and reviewing fees annually.
Know the annual employee contribution limit ($23,000 for 2024)
This limit applies to your elective deferrals only. Employer match contributions do not count toward this cap. The combined employer-plus-employee limit is $69,000 for 2024.
If you are 50 or older, add the catch-up contribution ($7,500 for 2024)
Catch-up contributions bring your maximum to $30,500 per year. If you turned 50 any time during the calendar year, you qualify for the full catch-up amount for that entire year.
Calculate the per-paycheck contribution amount needed to max out
On 26 biweekly paychecks, maxing at $23,000 requires $884.62 per paycheck. On 24 semi-monthly paychecks, it's $958.33. Set your contribution as a dollar amount rather than percentage if your plan allows it.
Check whether your plan has a true-up provision for employer match
Without a true-up, front-loading contributions (maxing out by October) can cost you match money for November and December. A true-up provision corrects this at year-end. Ask HR if your plan includes it.
Capture the Full Employer Match
Request your plan's Summary Plan Description to find the exact match formula
Common formulas include 100% on the first 3% of salary, 50% on the first 6%, or a flat 3% regardless of your contribution. The median employer match is about 4.5% of salary.
Set your contribution rate to at least the match threshold
If the match is 50% of the first 6%, contribute at least 6% to get the full 3% match. On a $75,000 salary, that's $4,500 from you earning $2,250 free from your employer annually.
Understand your vesting schedule and plan accordingly
Cliff vesting means 0% until a specific year (often 3), then 100%. Graded vesting gives 20% per year over 5-6 years. If you're at 60% vested with $15,000 in match, leaving costs you $6,000.
Verify that your contributions are being matched correctly on each pay stub
Payroll errors happen in about 1%-2% of plans. Check your first 2-3 pay stubs after enrollment to confirm the match is calculated correctly. If the math doesn't add up, contact HR immediately.
Choose Between Roth 401(k) and Traditional 401(k)
Understand Traditional: contributions reduce taxable income now, taxed at withdrawal
A $10,000 Traditional contribution in the 22% bracket saves $2,200 in taxes this year. You pay income tax when you withdraw in retirement. This benefits you most if your retirement tax rate will be lower than today's.
Understand Roth 401(k): contributions are after-tax, withdrawals are tax-free
A $10,000 Roth contribution costs $2,200 more in taxes today (at 22%), but every dollar of growth and withdrawal is tax-free in retirement. A $10,000 Roth contribution growing at 7% for 30 years becomes $76,000 tax-free.
Consider splitting contributions between both if your plan allows
A 50/50 split provides tax diversification. If tax rates rise, your Roth portion is protected. If rates drop, your Traditional portion benefits. The combined limit ($23,000) applies across both.
Note: employer match always goes into Traditional regardless of your Roth election
Even if you contribute 100% to Roth 401(k), the employer match lands in a Traditional (pre-tax) account. This means you'll have both types in retirement regardless of your choice.
Select Your Investments
Review all available fund options in your plan and note their expense ratios
Most plans offer 15-30 fund options. Focus on expense ratios first. Anything above 0.50% is expensive. Look for index funds under 0.10%—a $500,000 balance saves $2,000 per year at 0.05% versus 0.45%.
Build a simple portfolio with U.S. stocks, international stocks, and bonds
A basic allocation: 60% U.S. stock index, 20% international stock index, 20% bond index. Adjust stock/bond ratio based on years to retirement. More than 20 years out? Go heavier on stocks (80/20 or 90/10).
Consider a target-date fund if you prefer a hands-off approach
Pick the fund closest to your expected retirement year. A Target 2050 fund starts aggressive and automatically becomes conservative. Expense ratios on these range from 0.08% to 0.75%—check before selecting.
Avoid company stock concentration above 10% of your portfolio
If your employer offers company stock in the plan, limit it to 10% maximum. Your income already depends on your employer. Holding 30%+ in company stock doubles your risk if the company struggles.
Analyze and Minimize Fees
Identify your plan's administrative fees on the annual fee disclosure
Plans must disclose fees annually. Look for participant-level fees, which average $50-$150 per year. Some employers pay these for you. If you pay them, verify they're deducted from your account, not billed separately.
Compare expense ratios of similar funds in your plan
If your plan offers both an actively managed large-cap fund at 0.65% and an S&P 500 index at 0.03%, the index fund saves $620 per year on a $100,000 balance with similar or better long-term performance.
Check for revenue-sharing or wrap fees added on top of fund expenses
Some plans add 0.25%-0.75% in wrap fees beyond the fund's stated expense ratio. Ask HR for the total all-in cost per fund. This hidden layer can double your effective fee.
If your plan has poor fund options, contribute only enough for the match and invest the rest in a low-cost IRA
A plan where the cheapest option is 0.80% costs you significantly over decades. Get the free match money, then direct additional retirement savings to a personal IRA with access to funds charging 0.03%-0.10%.
Rebalancing and Annual Review
Enable automatic rebalancing if your plan offers it
Set it to quarterly or semi-annual. After a 20% stock rally, your 80/20 portfolio might drift to 88/12. Automatic rebalancing sells high and buys low without requiring your attention.
Review your contribution rate each January and increase by at least 1%
Increasing from 10% to 11% on a $75,000 salary adds $750 per year. Time that increase with your annual raise so your take-home pay stays flat. Most people can absorb a 1% increase without noticing.
Check your beneficiary designations annually
401(k) beneficiary designations override your will. After marriage, divorce, or a new child, update immediately. Failing to update after a divorce could leave your entire balance to an ex-spouse.
When changing jobs, decide between rolling over, leaving, or cashing out
Rolling into an IRA gives you the most investment options. Leaving it in the old plan is fine if fees are low. Never cash out—a $50,000 cash-out at age 35 in the 22% bracket costs $11,000 in taxes plus a $5,000 penalty.
Frequently Asked Questions
How much should I contribute to my 401(k)?
At minimum, contribute enough to capture your full employer match (free money). The 2024 employee limit is $23,000 ($30,500 if age 50+). Financial planners recommend saving 15% of gross income for retirement across all accounts. If 15% is not feasible now, start at the match level and increase by 1% each year. Many plans offer auto-escalation features that raise your contribution rate annually.
Should I choose Roth 401(k) or Traditional 401(k)?
If you expect to be in a higher tax bracket in retirement, Roth contributions (taxed now, tax-free later) are advantageous. If you are in your peak earning years and expect lower retirement income, Traditional (tax-deduction now, taxed later) saves more. Many advisors recommend splitting contributions between both for tax diversification. Early-career workers in lower tax brackets generally benefit more from Roth. Consult a financial advisor for personalized analysis.
What should I invest in within my 401(k)?
For most people, a target-date fund matching your expected retirement year provides appropriate diversification that automatically adjusts over time. If you prefer to choose your own allocation, look for low-cost S&P 500 or total market index funds with expense ratios below 0.10%. Avoid your company's stock exceeding 10% of your portfolio, and stay away from any fund with expense ratios above 0.75%.
What happens to my 401(k) if I leave my job?
You have four options: leave it in the former employer's plan (if allowed), roll it into your new employer's plan, roll it into an IRA (providing the widest investment choices and typically lower fees), or cash it out (triggering income tax plus a 10% penalty if under 59.5). A direct rollover to an IRA at Fidelity, Vanguard, or Schwab is the most common choice and incurs no taxes or penalties when done properly as a trustee-to-trustee transfer.
How do 401(k) fees affect my retirement savings?
The average 401(k) plan charges 0.50-1.00% in total fees (administration plus fund expenses), but fees range from 0.20% to over 2.00%. A 1% fee difference on a $500,000 balance costs you $5,000 per year in drag on returns. Over a 30-year career, that 1% difference can reduce your final balance by 25-28%. Check your plan's fee disclosure document (required annually by law) and advocate for lower-cost fund options through your HR department.