How Much Should I Save In My 401k?

How Much Should I Save In My 401k

How Much Should I Save In My 401k?

The 401k is a great investment opportunity if you have access to one. If you work for a company they likely already have one available to you. If you aren't already enrolled in your companies 401k, you need to do it ASAP. You're leaving money on the table each day you don't have a 401k.

Talk to your HR contact at your company and get enrolled right away. I'll tell you why you should be investing in your 401k.

Types Of 401k’s

There are two common 401k’s that your company may offer you. Here is a simple breakdown of the differences:


In a regular 401k, you don't pay taxes on the money you are contributing to your 401k. The downside is that when you do withdraw from your 401k you will have to pay taxes on those 401k funds as income.

Roth 401k

In a Roth 401k, you pay taxes on the money you contribute to your Roth 401k.

The plus side is that when you withdraw money from your 401k you won't have to pay taxes on it. This is a pretty good plus.

Which 401k Is Right For You?

If I had to choose between the two, I would take the Roth 401k over the regular 401k. In most circumstances, your taxes will be higher when you withdraw from your 401k and your balance will be much bigger. I would rather pay taxes now rather than later on my 401K.

Company Match

One of the best features of a 401k is the awesome company match! Your company most likely will contribute a certain percentage of your salary to your 401k if you contribute. Every company is different but a common scenario is that your company will contribute 3% of your income to your 401K if you contribute 6%. That's a total of 9%!

This is an awesome deal you shouldn't be passing up on. If you're not getting your company match, sign up now! Check with your HR reps to verify you are meeting the requirements for the match!

How To Invest In Your 401k

What to invest in is always up for debate, but my two favorite investing options are:

1 - Age Target Date Funds

This is a fund that invests its portfolio based on when you expect to retire. You are basically handing the reigns of your investment options over to professionals.This is fine if you want a totally hands off, give it to someone else, approach.

The one thing to watch for is the fees. Fee's will eat up your returns over time. Look for the lowest fee possible. The best fees are ideally less than 1% if possible.

2 - S&P 500 Index ETF’s

These are my personal favorite for a 401K. The great thing about these funds is that they generally have very low fees. Sometimes the fees are less than .10%.

These funds also include stocks from the 500 biggest companies in the stock market. It's a diversified mix of stocks that track the entire stock market. Over history, the S&P 500 Index has averaged around 11% returns. That’s not bad returns at all.

How Much Should I Save In My 401k?

My goal is to always invest at least 10% of my income into my 401k. Always make sure you are getting your company match. If you have to invest more than 10% to get that match then do it. It’s free money!