How Much Should You Contribute to a 401(k)?


Quick Answer

Individual contributions to a 401(k) should be the maximum amount allowed, enough to get the highest match from an employer, the plan's default rate, or the calculated amount that is needed to retire in financial comfort, according to U.S. News. If unsure as to what contribution amounts are necessary, an individual can also consult a financial adviser for assistance. As of the 2015 guidelines, the IRS notes that those saving for retirement through a 401(k) plan can contribute up to $18,000 for the year, with individuals who are age 50 or older able to contribute an additional $5,500 in "catch-up" contributions as necessary.

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Full Answer

Individuals who are unable to make maximum contributions should still look to saving as much as possible in order to maximize employer contribution matching. This helps individuals increase their retirement savings, bringing them closer to the maximum year contribution. For companies that offer matching, the formula is often 50 cents for every dollar contribution, up to a maximum of 6 percent of pay. Other plans offer a default savings rate of 3 percent of the employee's pay, according to U.S. News. Over time, these plans may start to increase the employee's contribution amount, if they choose not to opt out of the default savings rate.

Individuals can also make contributions according to the lifestyle they plan on having after they retire, based on their life expectancy and if they plan on making any other financial investments. Some individuals may need more than a million dollars to retire in comfort, while others are fine with less.

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