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

The employer match is the single best return available anywhere. A common formula is 50 cents per dollar on the first 6% of salary: on an $80,000 income, contributing $4,800 earns a free $2,400. Contributing less than the match threshold leaves guaranteed money on the table — prioritize this even while paying down moderate-interest debt.

After securing the match, work toward a total retirement savings rate of about 15% of gross income, counting the match itself. Many planners suggest this order: full match in the 401(k), then max an IRA (which usually offers better fund choices and lower fees), then return to the 401(k) up to the annual limit. If your plan has excellent low-cost index funds, simply raising your 401(k) percentage is a fine shortcut.

Contributions to a traditional 401(k) reduce taxable income now — someone in the 22% bracket who contributes $10,000 saves $2,200 in current-year taxes. Roth 401(k) contributions flip this: no deduction today, tax-free withdrawals later, which favors younger workers and anyone expecting higher future tax rates. Note that employer matches are typically made pre-tax regardless of which you choose.

Practical tactics compound the habit: enable automatic annual escalation (increasing your rate by 1% each year), redirect half of every raise to the 401(k) before you get used to the income, and check your vesting schedule — employer contributions may vest over 3-6 years, which matters if you switch jobs. Watch fund expense ratios too; a 1% fee difference can consume roughly a quarter of a career’s growth.

A 401(k) calculator shows the long-run impact of each percentage point: for a 30-year-old earning $80,000, moving from 6% to 10% contributions can add several hundred thousand dollars by 65 once the match and compounding are included.