How much should you be contributing to your 401(k) in 2024

As we enter the new year, many 401(k) plan savers are wondering how much they should contribute to their retirement plan in 2024. Although the answer depends on individual circumstances, there are specific steps that can be taken to optimize contributions and maximize retirement savings.

First and foremost, it’s important to be aware of the 2024 contribution limits set by law. The cap on employee elective deferrals for 401(k) plans is $23,000, with an additional catch-up contribution of $7,500 available for those aged 50 and older.

Financial experts suggest aiming to contribute as much as possible, taking advantage of employer-matching contributions whenever possible. A rule of thumb is to contribute 15% of your current income, but starting with a comfortable percentage and gradually increasing it every few months can also be effective.

For those seeking an employer match, it’s crucial to understand the criteria set by the company. Employees should ensure that their automatic 401(k) contributions satisfy the matching requirements outlined in their plan. By saving at least 6% of their annual salary, individuals can secure the full match offered by their employer.

To maximize 401(k) contributions, several strategies can be employed. One approach is the “1% Challenge,” which involves incrementally increasing contributions by 1% each month. Although seemingly small, these gradual increments can accumulate over time, especially when compounded by interest.

It is also effective to combine the 1% Challenge with the “Round-Up” rule. By rounding up retail purchases to the nearest dollar and contributing the spare change to the 401(k) at the end of each month, individuals can witness substantial growth over the course of a year. Various mobile apps, such as Acorn, Greenlight Max, and Chime, offer digital “coin jars” that facilitate this round-up strategy.

Starting the year with an aggressive savings plan is also advised. An ambitious goal can be set by determining a reasonable percentage of income to contribute and increasing it by 3% in January. Individuals can challenge themselves to maintain this contribution throughout the year, positioning themselves for greater financial security in the long run.

Age is another factor to consider when planning 401(k) contributions. Younger individuals may be more comfortable investing a higher percentage in stocks, given their longer time horizon to navigate market volatility. On the other hand, older individuals nearing retirement might opt for more conservative investment strategies, prioritizing the preservation of their savings. Those approaching retirement age can also take advantage of the catch-up rule, a provision that allows individuals over 50 to contribute more to a 401(k).

Many 401(k) plans now include an auto-escalation feature that increases contribution percentages annually. Additionally, allocating a higher percentage of bonuses to the retirement plan can further boost savings. It is recommended to review one’s 401(k) contribution at least once a year, ideally during open enrollment or at the beginning or end of the year.

As we embark on the new year, maximizing 401(k) contributions is a crucial step towards securing a comfortable retirement. By leveraging these strategies and staying informed about contribution limits and employer matching opportunities, individuals can make significant progress in building their nest eggs.