We get it. Given the state of the world, it may feel weird putting money aside now to use only much lꦓater in life.

In fact, in 2023, 73% of Gen Z workers said that the economy made them hesitant to set long-term goals. Not to mention, making a good living and building your savings is tough, with housing and other essentials get🅰ting more and more costl💎y.

Even so, some things never change. Investing in your 🍃future is fundamental to ensuring that you’ll be able to live comfortably down🌟 the road.

And luckily, some syste𒉰ms and tools can help make the sa𝓡ving and investing process smoother. The 401(k) is one of these tools.

How Much Should You Contribute to Your 401(K)?

Once you calculate an ideal (and feasible) retirem𝓀ent age, there are a few routes you can tꦇake.

If your job offers a 401(k), you can aim to save at least 15% of your pretax income—the percentage that many financial advisors suggest.

In some 🐎cases, your employer will match part or all of your contributions, which is essenti♕ally a way to double your savings.

If you don’t have a 401(k) plan through an employer, you can open an 澳洲幸运5开奖号码历史查询:individual retirement account (IRA). (We’ll explain that 🐼in the section "Alternatives to a 4⭕01(k).")

Understanding 401(k) Contributions

A 401(k) is a retir🅠ement savings plan offered by many U.S. employers.

As an employee who signs up for a 401(k), you agree to have💖 a percentage of each paycheck paid directly into an investment account, and the employer may m𒆙atch part or all of that contribution.

If you have a 401(k), you can choose fro♓m several investment options, typically mutual funds.

Benefits of Contributing

Taking advantage of a 401(k) plan is smart for a 澳洲幸运5开奖号码历史查询:number of reasons, one of which is that the money you in𒁃vest grows undiminished by taxes (tax deferred) for years.

That means more of your money can work and grow in value for you for a long period of time. That's key to building savings.

Another benefit: Your contributions are pretax and deductible, meaning they come out of your paycheck before taxes are calculated and deducted. As a result, they reduce your taxable income, which may reduce the amount that you owe in federal taxes.

And, of course, automatic contributions sꦫtraight from a paycheck make saving and investing convenient a꧋nd easy.

Taxes and penalties typically apply only if you withdraw funds from your 401(k) before you turn age 59½.

“It’s like why we buy toilet paper in bulk. A 401(k) is bulk buying,” said , CFP, CPFA, MBA, who specializes in future financial planning.

“A bunch of people are banding together and creating an investment account and getting lower pricing for doing that. So in gene🥃ral, a 401(k) should be the first, and for most Gen Z, the only p👍lace they have to save right now.”

How to Determine Your Contribution

To understand how much of your pay🍌check you should aim to invest, you need to consider several factors.

Calculate an Ideal Retirement Age

Start by calculating your ideal retirement age. This is based on your individua🦂l goals 🐻and circumstances.

There are several 澳洲幸运5开奖号码历史查询:retirement calculators that let you adjust numerous factors to help determine how much you nee😼d to save.

They factor in your current age, target retirement age, annual income, annual retirement savings, expected income inc♔reases, etc.

Aim to Save 15% Early in Your Career

While it may seem difficult to balance housing, basic☂ necessities, a social life, school, and hobbies all on the same paycheck, there’s still no time like the present to start saving.

These days, 20-somethings often are not saddled with certain large🀅r financial obligations such a𝄹s dependents and mortgages.

If we’ve 🤪learned anything in our 20-something years on earth, it’s that things tend only to get more complicated. The longer you wait to begin investing, the more you’ll have to pu♑t away later in life.

So it’s smart to get going as soon as possib๊le rather than risk running out of money or having to defe🍸r retirement.

“We believe that we need a bunch of money to start invౠesting or that we can wait to get started when, in actuality, if we take a relatively small amount of money but allow it to grow and with as much time as possible, that’s the way to do it,” said , New York Times bestselling author and founder of HerFirst100k.

“So I always tell people that ♍time is🙈 more important than the amount of money when it comes to investing.”

“With a relative⛄ly small amount of money, I can allow it to grow and work harde🐻r for me as I progress,” Dunlap said.

Gen Z workers who have been in their 401(k) plan for five years straight saw their balances climb to an average of $52,900 in 2024, according to Fidelity.

Take Advantage of Employer Contributions

Understanding that employers may m🌃atch your contributions to some degree with their own on your behalf may affect your decision about how much to contribute.

Many employers offering a 401(k) plan also provide an employer match. This is where the company matches employee contributions up to a certainꦓ percentage of their salary꧅.

According to Vanguard, the median contribution in 2023, the most recent year for which data is available, was 4%.

Types of Matches

Employers have several options for matching 401(k) contributions:

• They can opt to match employee contributions dollar-for-dollar up to a certain percentage.
• They can match a partial amount, e.g., 50 cents on the dollar up to 4%.
• Employers can create a tiered formula, for example contributing 100% of the first 2% of the employee's contribution and 50% of the next 2%.
• Some employers also set a dollar cap on the total contribution.
• Your employer may choose to set a vesting schedule for its matching contributions. In this case, you would be entitled to a percentage of the matching contribution after a set number of years of service.

Typically, vesting percentages increase with your tenure at the organization until you are fully vested. For example, you might be 20% vested at two years, 40% vested at three years, and so on, until you're 100% vested at six years of service.

A Different Kind of Match

Another option is to have your employer match your 澳洲幸运5开奖号码历史查询:student loan payments. Under the SECURE 2.0 Act, the Internal Revenue Service (IRS) authorized linking 401(k) matching contributions to employee student loan repayment.

While eliminating debt (and being rewarded for it) may seem like an excellent option for many, it’s still advisable to sta🙈rt contributing to your retirement as soon as possible.

Additionally, debt repayment♔s should be prioritized by how high the interest rate is; if it’s small—say, under 6%🌠—it may make more financial sense for you to contribute to a retirement plan than to pay off your loans faster.

The 50/30/20 Rule

The golden rule for money management is the 50/30/20 rule. In this frameಌwork, you spend 50% of your after-tax paycheck on needs, 30% on wants, and 20% ಌon savings.

It’s inten꧒ded to help 🥃you get in the habit of managing your after-tax income responsibly, especially in having funds on hand for emergencies and retirement.

Every household should first prioritize creating an emergency fund in case of layoffs, unexpected medical expenses, or o🉐ther unfꦯoreseen costs.

Needs include:

• Rent or mortgage payment
• Car payment
• Insurance and healthcare
• Grocery
• Minimum debt payments
• Utilities

Wants include:

• New clothing
• Tickets to events
• Eating out
• Vacations and nonessential travel
• The latest gadget

Savings include:

• Creating an 澳洲幸运5开奖号码历史查询:emergency fund
• Making contributions to a 401(k) or IRA
• Investing in the stock market
• Setting aside funds to buy property
• Making debt repayments beyond the minimum

Of course, following this framework can be difficult—and few people actually do. As of January 2025, the average monthly personal saving rate for individuals in the U.S. was just 4.6%.

Even if it’s just aspirational for now, k🙈eeping this framework in mind will help you set lasting, healthy habits with your money.

Tips to Maximi𒅌ze 401(k) Cont🌺ributions in Your 20s

Contributing your 401(k) may feel like a luxury in your 20s. You're just beginning your career and likely have other expenses competing for a share of your entry-level salary, including student loans and skyrocketing housing costs.

However, there are w𓂃ays to fit 401(k) contributions into♉ your budget and begin the habit of saving for your future.

• Start small: Even 1% of your salary will make a difference over time. Given that your 401(k) contribution is probably pre-tax, you may not even notice the difference in your take-home pay.
• Start early: As the saying goes, it's not timing the market, it's time in the market. Getting started early will help you maximize the power of compound interest, which will boost your savings over time.
• Aim to meet your employer match: If you have an employer match, take advantage of it. Let that percentage be your initial savings target.
• When you get a raise, your 401(k) gets a raise: Make a commitment to increase your contribution whenever you get a raise, promotion, or new job with a higher salary.

Alternatives to a 401(k)

IRAs

If you don’t have a 401(k) package in your role, you still have the option to begin your retirement savings. Opening a 澳洲幸运5开奖号码历史查询:Roth or traditional IRA is a great way to allocate a portion of your income and invest it for your future self.

A Roth IRA allows you to contribute post-tax dollars, so there are no immediate tax savings from deductions. But once you retire, the amount you paid in and the money it earned over time ar♎e both tax free.

Conversely, a traditional IRA allows you to contribute a portion of🍨 pretax dollars. Thꦫis reduces your annual taxable income while setting aside money for retirement. You will have to pay taxes when you withdraw this money.

As with a 401(k) plan, you shꦛould be sure to invest the money in your IRA account rather than let it sit in cash so that you start earning a return immediately.

Gen Z tends to favor IRAs over 401(k)s. This could be due to the prev💮alenceꦗ of the gig and creator economies.

In fact, the number of IRAs owned by Gen Z investors grew by 11% from Q4 2023 to Q4 2024. In addition, their dollar contributions grew by 16% in that time period, according to Fidelity.

The Bottom Line

Contributing to your 401(k) in your 20s will give your money a long time to grow and help you maximize the powerful impact of compounding interest on your savin๊gs over time.

If you can't commit to saving 15% of your income right off the bat, start small. You can increase your contribution as you earn more money. In addition, focus on meeting your employer match, if there is one.

Ultimately, any money you start investing in your 401(k) at the beginning of your career is an investment in your future financial security. Moreover, you'll be building solid money-management habits that can last a lifetime.