If you are fortunate enough to have a job with a 401(k) retirement savings plan, you may wonder, "How much should I put towards a 401k? Am I putting in too much, or not enough?" There are answers to these questions, and they depend on a few different scenarios. Let’s talk about the factors you should consider when deciding how much to put into your 401(k) savings.
A 401(k) savings plan is a financial plan offered to employees by many employers. There is typically a yearly limit to the amount you can put into this saving plan, set by the IRS (Internal Revenue Service). For the current year, 2022, you may put up to $20,500 of your salary into a 401(k) retirement savings plan.
One of the most important factors to consider when deciding how much to put into a 401(k) plan is employee matching. Some companies will match the amount you contribute to your 401(k) savings up to a certain point. You should take advantage of what basically amounts to free money and try to contribute as much as possible until you reach the limit of the amount they will match.
If your company offers to match a 401(k) plan, then you should attempt to put in at least enough to receive the maximum amount they’ll match. A typical match could be around 3% of an employee’s salary or half of the first 6% the employee contributes. This could help answer the question, "How much should I contribute to a 401k?"
Another factor to consider when trying to come up with a yearly amount to contribute to your 401(k) plan is what your retirement goals are, in a financial sense. You should figure out where you may want to live by retirement age and what it will take to make those plans happen. Will you be buying or selling your home or investment properties? How expensive is housing where you want to live? And what type of lifestyle are you hoping to fund during your retirement years?
Most financial experts would recommend saving 10 to 15 percent per paycheck towards your 401(k) retirement plan. If you can contribute more, that’s wonderful. But realize the limits each year as per IRS guidelines and adjust accordingly. There are other retirement savings options and investments you can also contribute to. It’s advisable to consult a professional accountant or financial planner to discuss options related to 401(k) savings and other retirement fund options. Think about your future and save while you’re able to.