One of the most common questions people have when they’re saving for retirement is: “How much should I be saving?” It’s a critical question, because the amount you contribute to your accounts today has a significant impact on how much you’ll actually have to live on during retirement.

There’s no one-size-fits-all answer to this question, but understanding the best practices and strategies of retirement savings can put you on the right path.

What is a 401(k) and How Does it Work?

A 401(K) is an employer-sponsored retirement plan that many corporations offer to help employees save for retirement. These plans, which are named after the section of the Internal Revenue Code where they’re found, allow for either pre-tax or after-tax contributions. These tax advantages make them one of the most powerful retirement savings tools available.

When you sign up for your company’s 401(k), you’ll elect to set aside either a set dollar amount or a set percentage of your pay from each paycheck. The money is then deposited into your account, invested in funds of your choice, and grows over time.

Once you leave the workforce, you hopefully have a large enough nest egg to fund a comfortable retirement.

Why 401(k) Contributions Matter

The money you contribute to your 401(k) will support you during your retirement. While it may not seem like a priority if you have decades left until you retire, starting early gives your money more time to grow and compound.

Consider this: If you contribute $500 per month to your 401(k) starting at age 25 with a 10% annual return (the average historical return, according to the Securities and Exchange Commission), you would have more than $2.65 million by age 65. But if you wait until 35 to start saving, you would have less than one million. That 10-year difference costs you more than $1.65 million.

The other reason 401(k) contributions are so important is their tax-advantaged nature. Unlike taxable brokerage accounts, a 401(k) plan reduces your tax burden by making either your contributions or your withdrawals tax-free, increasing the amount you ultimately have during retirement.

Understanding 401(k) Contributions

401(k) contributions come in two different forms: traditional and Roth.

Traditional 401(k): Your contributions made into a traditional 401(k) are pre-tax, meaning you don’t pay income taxes on the dollars you contribute. The money grows tax-free in your account, and then you’ll pay income taxes when you withdraw the money during retirement.

Roth 401(k): Your contributions to a Roth 401(k) are made after-tax. You don’t get a tax benefit in the current year. However, your money grows tax-free in your account, and you’ll get tax-free withdrawals during retirement.

The choice between these two accounts depends on your financial goals and your current and expected future tax situation. Someone in a high tax bracket today might prefer traditional contributions that can lower their tax burden. On the other hand, lower-earners who expect to be in a higher tax bracket in retirement might prefer the Roth option.

What Taxes Do You Pay on Your 401(k)?

While 401(k) plans offer major tax benefits, you’ll still end up paying some taxes.

In the case of a traditional 401(k), you’ll pay income taxes when you withdraw the money during retirement. Many people are in a lower tax bracket during retirement, meaning the rate you’ll pay is lower than what you would have paid on your contributions. The amount you’ll pay ranges from 10% to 37%, depending on your overall financial situation.

Roth 401(k)s have tax-free withdrawals, but you’ll contribute with after-tax dollars. That means the money counts toward your income for the year and is subject to income taxes at the same rates listed above. While this results in a higher tax burden in the current year, you’ll get the tax benefit on the back end.

Some people choose to diversify their tax benefits by splitting their contributions between a traditional and a Roth 401(k).

401(k) Contribution Limits

The IRS places a limit on the amount you can contribute to your 401(k) each year. For 2026, the contribution limit is $24,500, up from $23,500 in 2025.

Additionally, if you’re 50 or older, you get a catch-up contribution of $8,000, making your total contribution limit of $32,500. Finally, if you’re 60, 61, 62, or 63, you have a higher catch-up contribution of $11,250, bringing your total contribution limit to $35,750.

In addition to your own contributions, your employer can also contribute to your 401(k) on your behalf. The maximum combined contribution limit between you and your employer in 2026 is $72,000.

Employer Match, Aim for 15%

Many employers contribute to their employees’ 401(k) accounts on their behalf, usually as a matching contribution. For example, if you contribute to your account, your employer may match your contributions, up to a certain percentage of your salary. A common matching formula is either 100% of your contributions up to 3% of your salary, or 50% of your contributions up to 6% of your salary.

At the very minimum, aim to contribute enough to get your full employer match, however much that requires. However, that may not be enough for most people. Many financial advisors recommend saving at least 15% of your salary for retirement. If your employer contributes 3%, aim to contribute 12%, if possible, to hit the full 15% benchmark.

Keep in mind that if you’re starting to save later in your career, you’ll likely need to save more than 15% of your salary to hit your retirement goals.

Use Your Age as a Guide

Experts set some general benchmarks that you should aim to reach when saving for retirement. While they won’t be accurate for everyone, these figures can give you goals for how much of your salary to have saved at certain ages to be on track for retirement.

Here’s what some experts recommend aiming for:

• Age 30: 1X your annual salary
• Age 35: 2X your annual salary
• Age 40: 3X your annual salary
• Age 45: 4X your annual salary
• Age 50: 6X your annual salary
• Age 55: 7X your annual salary
• Age 60: 8X your annual salary
• Age 67: 10X your annual salary

These numbers may seem daunting, but remember that once you have a significant nest egg in your retirement account, compounding will do much of the work in growing your balance.

Additional IRA Savings

Your 401(k) isn’t the only retirement savings tool available to you. You can also save in an individual retirement account (IRA). Like 401(k)s, IRAs can be either traditional or Roth accounts.

In 2026, the IRS allows workers to save up to $7,500, up from $7,000 in 2025. For workers 50 and older, there’s an additional catch-up contribution of $1,100, up from $1,000, bringing your maximum contribution to $8,600.

It’s important to note that the IRS places some limitations on who can enjoy the full tax advantages of these accounts. If your income is too high, you may not be able to deduct your full traditional IRA contribution, or you may not be able to contribute to a Roth IRA.

See the IRS’s latest numbers to see if your income allows you to enjoy the benefits of these accounts.

Max Out Your Retirement Accounts

As financial advisors, we always recommend you max out your 401(k) contributions when possible. While we know this isn’t feasible for everyone, it truly puts you in the best position to enjoy a comfortable retirement.

In 2026, fully maxing out your accounts would mean contributing $24,500 to your 401(k) for the year, which amounts to 2,041.67 per month. Yes, that’s a tall order, but the outcome is worth it.

If you max out your account each year based on 2026’s contribution limits for 30 years, you would end up with more than $4 million, based on a 10% average annual return.

Of course, maxing out your retirement accounts isn’t possible for everyone in every phase of life. In your early earning years, there’s a good chance you won’t earn enough to max out your accounts. And people who have children often have other financial priorities during their 20s, 30s, and 40s.

The good news is that even if you make lower contributions in your earlier working years and then max out your accounts with your catch-up contributions after age 50, you’ll still be well-positioned for a comfortable retirement.

Increase Your Savings Goal

It’s one thing for us to tell you to contribute more to your 401(k), but it’s an entirely different thing for you to actually do it. We understand that finding the extra money in your budget can be a challenge, so we have some strategies that may help you boost your savings.

Increase Contributions Over Time

It’s okay to start with a lower contribution rate and then increase it over time. By using this strategy, the pain of the increased contribution will be minimal.

Many plans offer what’s called auto-escalation, where your contribution will automatically increase by a set percentage each year (often 1%). A 1% increase will be barely noticeable on your paycheck, but will significantly boost your retirement savings over time. This set-it-and-forget-it approach takes the onus off you to increase your contributions.

Invest Your Raises

Many companies offer annual raises, or at least cost-of-living adjustments. That extra 2 or 3 percent might not seem like much, especially distributed over a couple of dozen pay periods, but they can have an enormous impact on your retirement.

You’ve probably found that you don’t really miss the income you set aside for your 401(k). You’ve budgeted it in, and you’ve accounted for it. The same principle applies. Unless you have foreseeable increases in your monthly budget, set aside your raise each year to prepare for the future while paying your bills now.

Contribute Financial Windfalls

You depend on your regular paycheck to pay your bills. In fact, you probably have direct deposit set up, and might even have automatic bill pay set up from your bank account. You can go weeks without seeing any of your own money.

But sometimes, some good fortune comes along. Perhaps you scored a side gig from an old colleague and are getting some extra money outside of normal work hours. Perhaps you got a quarterly performance bonus. Maybe you got more than you expected on your tax return.

While it might be tempting to spend that windfall on a vacation or new furniture, consider using it to give you financial flexibility down the road. And if you have other financial goals you’d like to allocate those windfalls toward, consider splitting the money 50/50. Half goes into your retirement account, while the other half goes toward another purpose.

Get Professional Financial Advice

While these guidelines provide a solid starting point, everyone’s financial situation is unique. Your ideal contribution rate depends on factors like your age, current savings, retirement goals, other sources of retirement income, and more.

A financial advisor can take a holistic look at your situation and help you develop a comprehensive retirement strategy tailored to your specific circumstances. They can analyze your current trajectory, identify gaps in your retirement planning, and create a personalized savings plan that balances your retirement goals with your current financial needs.

For help making your 401(k) savings plan, reach out to a Wealth Enhancement Group advisor today. We can discuss your savings strategy and ensure you’re on track to meet your retirement goals.

Frequently Asked Questions about 401(k) Contributions

What is a 401(k), and how does it work?

A 401(k) is an employer-sponsored retirement plan that lets you make either pre-tax or after-tax contributions. You choose a dollar amount or percentage of each paycheck to contribute, the money is invested in funds you select, and it can grow over time.

Why do 401(k) contributions matter so much?

Your contributions help fund retirement, and starting earlier gives your money more time to grow through compounding. For example, contributing $500 per month starting at age 25 (with a 10% annual return) could grow to more than $2.65 million by age 65, while starting at 35 could result in less than $1 million.

What’s the difference between a traditional 401(k) and a Roth 401(k)?

Traditional 401(k) contributions are pre-tax, grow tax-free, and are taxed when withdrawn in retirement. Roth 401(k) contributions are after-tax, grow tax-free, and can be withdrawn tax-free in retirement.

How do you decide between traditional and Roth 401(k) contributions?

The choice depends on your goals and your current versus expected future tax situation. For example, someone in a high tax bracket today may prefer traditional contributions to lower today’s tax burden, while lower earners who expect a higher tax bracket in retirement may prefer Roth.

What taxes do you pay on a 401(k)?

With a traditional 401(k), you pay income taxes when you withdraw in retirement, with tax rates ranging from 10% to 37% depending on your situation. With a Roth 401(k), withdrawals are tax-free, but contributions are made with after-tax dollars and are taxed in the year you contribute.

What are the 401(k) contribution limits for 2026?

For 2026, the employee contribution limit is $24,500. If you’re 50 or older, the catch-up contribution is $8,000 (total $32,500). If you’re age 60 to 63, the catch-up is $11,250 (total $35,750). The maximum combined total between employee and employer contributions is $72,000.

How much should you contribute to get the most from an employer match, and what’s the 15% guideline?

At a minimum, the guidance is to contribute enough to get the full employer match. Some common match formulas are 100% up to 3% of salary or 50% up to 6%. Many financial advisors recommend saving at least 15% of salary for retirement.

What are some retirement savings benchmarks by age?

There are wide ranging opinions regarding benchmarks, but generally you want to have saved a certain amount of your annual salary by a certain age. Suggestions: age 30 (1x salary), 35 (2x), 40 (3x), 45 (4x), 50 (6x), 55 (7x), 60 (8x), and 67 (10x).

What are some ways to increase 401(k) (retirement) savings over time?

There are a lot of ways to increase retirement savings over time. Some ideas include starting with a lower savings rate and increasing gradually, using plan auto-escalation that may raise contributions by a set amount each year (often 1%), putting annual raises toward retirement savings, and using financial windfalls to boost savings.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

This article was originally published in the Pioneer Press. You may view the article here.

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