How much should I contribute to my 401k?

At minimum, contribute enough to get the full employer match - that's an immediate 50-100% return on your money. Beyond that, the general recommendation is to save 15% of your pre-tax income (including employer match) toward retirement. For 2025, you can contribute up to $23,000 ($30,500 if 50+). If you can max out your 401k, also consider a Roth IRA and HSA for additional tax-advantaged savings.

What happens to my 401k when I change jobs?

You have four options: 1) Leave it in your former employer's plan (if balance > $5,000 and plan permits), 2) Roll it into your new employer's 401k, 3) Roll it into a Traditional IRA (more investment options, often lower fees), or 4) Cash out (worst option - you'll pay income tax plus a 10% early withdrawal penalty). Rolling to an IRA is usually the best choice, offering broader investment options and consolidated management.

What is the difference between Traditional and Roth 401k?

Traditional 401k: contributions are pre-tax (lower taxable income now), earnings grow tax-deferred, and withdrawals are taxed as ordinary income in retirement. Roth 401k: contributions are post-tax (no immediate tax break), earnings grow tax-free, and qualified withdrawals in retirement are tax-free. If you expect to be in a higher tax bracket in retirement, Roth is better. If you're in a high bracket now, Traditional is usually better. Many employers offer both options.

How does the employer match actually work?

Common match formulas: 100% match on the first 3% of salary (you contribute 3%, employer adds 3%), or 50% match on the first 6% (you contribute 6%, employer adds 3%). Vesting schedules determine when the employer match becomes yours - some are immediate, others vest over 3-6 years. Always contribute at least enough to get the full match. Not doing so is leaving free money on the table - potentially tens of thousands of dollars over your career.

What asset allocation should I use in my 401k?

A simple rule of thumb: 110 minus your age = percentage in stocks. At 30: 80% stocks / 20% bonds. At 50: 60% stocks / 40% bonds. At 65: 45% stocks / 55% bonds. Within the stock portion, diversify across US large-cap, US small-cap, and international stocks using low-cost index funds (0.03-0.10% expense ratio). Target-date funds are a good hands-off option that automatically adjusts allocation as you approach retirement.

What is the 4% Rule and how does it apply to 401k?

The 4% Rule states you can withdraw 4% of your portfolio in the first year of retirement, adjusting for inflation each subsequent year, with a low probability of running out of money over 30 years. Applied to your 401k: multiply your projected balance by 0.04 to estimate sustainable annual retirement income. For a $1M balance, that's $40K/year. This rule is a guideline, not a guarantee - adjust based on your expected retirement length and risk tolerance.

Can I withdraw from my 401k before age 59.5 without penalty?

Generally, early withdrawals are subject to income tax plus a 10% penalty. Exceptions include: separation from service at age 55+ (Rule of 55), substantially equal periodic payments (SEPP/72t), disability, medical expenses exceeding 10% of AGI, and up to $50K for a first-time home purchase (via 401k loan). 401k loans (up to 50% of vested balance or $50K, whichever is less) are also penalty-free but must be repaid or treated as a distribution.

How do 401k fees impact my retirement savings?

401k fees - including expense ratios on funds, administration fees, and advisory fees - can significantly erode your savings. A 1% fee on a $500K portfolio costs $5K/year and $150K+ over 30 years. Choose low-cost index funds (0.03-0.10% ER) and favor plans with low administrative fees. If your employer's plan has high fees, contribute enough to get the match, then maximize an IRA (where you have full control over fund selection) before contributing more to the 401k.

401k Retirement Calculator

Project your 401k balance at retirement including employer match, compound growth, and estimate your retirement income.