Question 1

How does employer 401k matching work?

Accepted Answer

Employer matching means your company contributes additional money to your 401k based on your own contributions. A common match is 50% of your contributions up to 6% of your salary. So if you earn $75,000 and contribute 6% ($4,500), your employer adds 50% of that ($2,250). This is essentially free money and one of the best returns on investment available — always contribute enough to get the full employer match.

Question 2

What is the difference between a Traditional and Roth 401k?

Accepted Answer

With a Traditional 401k, contributions are pre-tax (reducing your taxable income now), but withdrawals in retirement are taxed as ordinary income. With a Roth 401k, contributions are after-tax (no tax break now), but qualified withdrawals in retirement are completely tax-free. Choose Traditional if you expect to be in a lower tax bracket in retirement, and Roth if you expect the same or higher bracket.

Question 3

What is the maximum 401k contribution limit?

Accepted Answer

For 2024, the employee contribution limit is $23,000 per year. If you are age 50 or older, you can make an additional catch-up contribution of $7,500, for a total of $30,500. Employer contributions do not count toward your employee limit. The combined employee plus employer limit is $69,000 (or $76,500 with catch-up contributions).

Question 4

What happens to my 401k if I change jobs?

Accepted Answer

You have several options: leave the money in your former employer's plan, roll it over to your new employer's 401k, roll it into a Traditional IRA, or cash it out (not recommended due to taxes and penalties). Rolling over to an IRA often provides the most investment options and lowest fees. Employer match contributions may have a vesting schedule — unvested amounts are forfeited when you leave.

Question 5

How much should I contribute to my 401k?

Accepted Answer

At minimum, contribute enough to get the full employer match. Financial experts generally recommend saving 15-20% of your gross income for retirement (including employer match). If you can't start there, begin with what you can and increase by 1-2% each year. The power of compound growth means starting early — even with smaller amounts — is more impactful than starting later with larger contributions.

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