While your goal should ideally be to save 10 to 15 percent of your income for retirement, don’t be discouraged if you can’t contribute at that level yet, said Kyle McBrien, a certified financial planner with Betterment, a financial services firm. “It’s OK to start small,” he said. Aim to increase your contribution gradually each year.
Even if you can contribute the maximum amount, that doesn’t necessarily mean you should, Mr. McBrien said. If you haven’t built up an adequate rainy-day fund for surprise expenses or a job loss, for instance, that should take priority before you contribute to your 401(k) beyond your employer’s match.
“Replenish your emergency fund first,” he said.
You may have other goals to save for besides retirement, said Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute. Perhaps you have children and want to save for their education in a 529 college fund or want to contribute to a health savings account — a special account that can cover short-term medical needs or be invested for retirement.
“If you do have dollars to save,” he said, “think about where they should go.”
Here are some questions and answers about saving in a 401(k):
Do extra 401(k) contributions have to be treated as Roth contributions if I’m a high earner?
Not yet. Under the Secure 2.0 Act, a law passed late last year, savers earning $145,000 or more who make 401(k) catch-up contributions would have had to make them as pretax Roth contributions starting in 2024. But this summer, the I.R.S. delayed that provision for two years, after employers and plan administrators said they needed more time to prepare. (Not every 401(k) plan offers a Roth option.) So for next year and for 2025, at least, extra contributions for those 50 and older may be made pretax to a traditional 401(k), even for high earners.
Can I change the amount of my 401(k) contributions after open enrollment?
The annual open enrollment period, when employees choose their benefits for the new year, is underway at many workplaces. But while health insurance choices are typically fixed for the full year unless you have a big change in your life, many employers let you tweak your retirement contributions at any time. (Check with your employer to be sure.) Note that after you make a change, it may take a paycheck cycle or two for it to take effect, said Mr. McBrien at Betterment.