How to Enroll in Your 401k the Right Way

Stop leaving free money on the table. Learn how to navigate your employer’s 401k plan with these simple, step-by-step instructions.

1. Check your employer match policy. Find your company’s benefits summary and look for the matching formula. For example, an employer might match 100% of your contributions up to 3% of your salary. This is effectively a guaranteed return on your money, so aim to contribute at least enough to claim the full match.
2. Calculate your contribution percentage. Decide what percentage of your paycheck you can commit to saving. Most experts suggest a total retirement savings rate of 10-15% of your gross income. If you cannot reach that immediately, start with the amount required to get the full employer match and increase it by 1% every six months.
3. Choose between Traditional or Roth. A Traditional 401k lowers your taxable income today, but you pay taxes when you withdraw in retirement. A Roth 401k uses after-tax dollars today, so your withdrawals in retirement are generally tax-free. Choose Traditional if you are in a high tax bracket now; choose Roth if you expect to be in a higher bracket later.
4. Select your investment strategy. Most 401k plans offer 'target-date funds' as a default option. These funds automatically adjust your risk by shifting from aggressive to conservative as you approach your retirement year. This is a common, low-maintenance choice for those who do not want to manage individual assets.
5. Set it and forget it. Once you submit your election, the contributions are deducted automatically from your paycheck. Log in to your account once a year to ensure your contribution percentage is still aligned with your income level. Avoid checking the balance daily, as retirement investing is a multi-decade process.