401(k) Essentials

Making the Most of Your 401(k)

A 401(k) is one of the most powerful wealth-building tools available to employees. Understanding how it works helps you maximize its benefits.

You contribute a portion of your paycheck before taxes (Traditional) or after taxes (Roth). The money grows tax-advantaged until retirement.

2024 Contribution Limits:

Under 50: $23,000

50 and older: $30,500 (includes catch-up)

Many employers match a portion of your contributions. A typical match might be:

50% of your contribution up to 6% of salary

100% of your contribution up to 3% of salary

**Always contribute at least enough to get the full match.** It's an instant 50-100% return on your money.

Traditional 401(k):

Contributions reduce current taxable income

Pay taxes when you withdraw in retirement

Best if you expect lower tax rate in retirement

Roth 401(k):

Contribute after-tax dollars

Withdrawals are tax-free in retirement

Best if you expect higher tax rate in retirement

Most 401(k)s offer:

**Target-date funds:** Set-it-and-forget-it based on retirement year

**Index funds:** Low-cost, diversified market tracking

**Actively managed funds:** Higher fees, attempt to beat market

For most people, a target-date fund or simple index fund portfolio is ideal.

Not contributing enough to get full match

Cashing out when changing jobs

Being too conservative when young

Not rebalancing periodically

Ignoring fees