How to Contribute to Your 401(k) Plan
Understand the key decisions and procedures for directing money from your paycheck into your employer-sponsored 401(k) retirement account.
A 401(k) contribution is the portion of an employee’s salary deferred into a retirement savings plan sponsored by their employer. These contributions are systematically deducted from each paycheck and form the foundation of a long-term investment strategy. Navigating the setup process involves several stages, from initial enrollment to ongoing management.
Getting Started with Enrollment
Before you can begin contributing, you must complete the plan’s enrollment process. Your employer’s Human Resources department is the primary source for all necessary documents and instructions, often available through a company intranet portal or the plan’s benefits administrator. These materials will outline the steps to create your account and provide deadlines for new employees to enroll.
You will need to gather specific personal information, including your Social Security number, date of birth, and mailing address. It is also necessary to designate at least one beneficiary, which requires their full legal name, Social Security number, and date of birth.
This initial enrollment phase is administrative and focused on establishing your account with the plan provider. It does not involve making financial decisions about your investments or contribution amounts, but gets you into the system for the next steps.
Deciding Your Contribution Details
You must first decide on the contribution amount, which can be set as either a specific dollar figure or a percentage of your gross pay per pay period. A percentage-based contribution automatically adjusts as your salary changes, while a flat-dollar amount provides a predictable deduction from each paycheck.
A feature of many 401(k) plans is the employer match. This is an amount your employer contributes to your account based on your own contributions. A common matching formula is for an employer to contribute 50 cents for every dollar you contribute, up to 6% of your salary. To receive the full benefit, you would need to contribute at least 6% of your pay.
The Internal Revenue Service (IRS) sets annual limits on how much an employee can contribute. For 2025, the employee contribution limit is $23,500. Individuals age 50 and over are permitted to make additional “catch-up” contributions of $7,500. A provision effective in 2025 allows those aged 60 to 63 to make a higher catch-up contribution of $11,250, if their plan has adopted this option.
You must also choose the type of contribution: Pre-tax (Traditional) or Roth. Pre-tax contributions are deducted from your paycheck before income taxes are calculated, which lowers your current taxable income. Roth contributions are made with post-tax dollars. The difference lies in the timing of taxation, as Traditional contributions are taxed upon withdrawal in retirement, while qualified Roth withdrawals are tax-free.
Making Your Contribution Elections
Once you have decided on your contribution amount and type, the next step is to formally make these elections through an online portal provided by the 401(k) plan administrator. After logging in, you will navigate to a section for contributions to input your chosen rate and select between Pre-tax and Roth options.
The interface will require you to enter the percentage or flat dollar amount you decided upon. If your plan offers both Pre-tax and Roth contributions, you will need to specify how you want to allocate your total contribution between the two, such as splitting it between both types.
After you submit your elections, you should receive a confirmation notice. The first contribution will then be deducted from a subsequent paycheck. You can verify its accuracy by reviewing your pay stub, which will show the amount deferred and whether it was classified as Pre-tax or Roth.
Managing Your Contributions Over Time
Your initial contribution decisions are not permanent. Most 401(k) plans allow you to change your contribution rate and type at any time through the plan’s online portal. This flexibility allows you to increase your savings rate following a salary raise or reduce it if your financial circumstances change.
Some plans offer a feature known as automatic escalation. If you opt into this program, your contribution percentage is automatically increased by a set amount, such as 1%, on an annual basis. This feature is designed to help you gradually increase your savings rate, and you can opt out or change the percentage increase.
Life events, salary changes, and evolving financial goals may warrant adjustments to how much you save and whether you use Pre-tax or Roth options. Staying engaged with your plan ensures your contributions remain aligned with your long-term objectives.