You've gotten a new job, congrats! If your company provides a 401(k) plan, an employer-backed retirement savings scheme, this is a golden chance to amass funds for your future. It can be a straightforward process - sometimes you don't have to do anything at all. Nowadays, companies usually auto-enroll their fresh faces into the 401(k) plan, but you have the option of opting out if you prefer, explains Carla Adams, founder and financial consultant at Ametrine Wealth.
If auto-enrollment doesn't apply to you, you'll need to register yourself. Carl Holubowich, certified financial planner at Armstrong Fleming & Moore, mentions that signup typically involves basic paperwork, and reminds that the earlier you begin, the more you allow your money to amplify via compound interest.
Companies often give their employees a choice between a traditional 401(k) or a Roth 401(k). Traditional 401(k)'s let you add funds using pre-tax dollars, reducing your taxable income for the current year. On the other hand, Roth 401(k) contributions are taxed, but your withdrawals after retiring are tax-free. Holubowich stresses that you don't have to opt solely for one, you can divide your contributions between both options.
Try to decide the contribution percentage from each paycheck that you're comfortable with, advises Holubowich. He further recommends contributing 10 to 15% of your salary, but says that this can include any employer matching contributions, which can significantly augment your savings.
In 2025, the maximum contribution limit for most employees is $23,500. If you're 50 or older, you're allowed an additional catch-up contribution of $7,500, summing to $31,000. The investment options in a 401(k) plan are plentiful - from stock funds to bonds and target date funds.
Investments in target-date funds become increasingly conservative as the retiree's chosen retirement date nears. However, there are alternatives for handling the conservative investment allocation if you have a higher risk tolerance and still crave the simplicity of a target date fund.
Keep an eye on the expense ratio - the annual fee charged by each fund for its management expenses. Adams reminds that scrutinizing the expense ratio is paramount and often forgotten. Choosing lower-cost funds will help keep more money in your pocket and provide substantial benefits over the long haul.
Lastly, reviewing your 401(k) investment portfolio a few times a year is a wise strategy. "Your plan may automatically rebalance your portfolio, but sometimes you may need to make the adjustments yourself," noted John Abernethy, director of financial planning at Together Planning. "Ensure your investment strategies still align with your objectives and, if necessary, rebalance or enhance your contributions."
Enrolling in a 401(k) plan is a simple task-many employers will even auto-enroll their employees. Aim to contribute as generously as your budget allows, particularly if your employer will match your contributions. Remember, the more you save now, the more you will have to enjoy in your golden years.