Here’s How Much You Should Save in a 401(K) in 2024
Retirement planning will change in 2024 , and now is the time to take a look at your retirement savings and make sure you’re on the right track. One of the best ways to save for retirement is through a 401(k) plan, especially if your employer offers matching contributions. The IRS increased contribution limits for 401(k) plans in 2024 to $23,000, up from $22,500 in 2023. This gives you even more options for storing money in this tax-advantaged account. So what contribution should you strive to make?
Follow the 10% rule
Financial experts often recommend saving 10-15% of your gross income for retirement. If you make $60,000 a year, you’d want to save $6,000 to $9,000 a year. Given the 2024 401(k) limit is $23,000, the 10% rule means you’d have to be pretty high-earning to start worrying about that contribution limit. For example, if you make $80,000 a year, 10% of your income is $8,000. This amount is well below the $23,000 contribution limit, allowing you to follow the 10% rule while maximizing the tax benefits of your 401(k).
Determine what you can afford
Look at your monthly salary and expenses. Figure out where you can cut costs and put more money toward retirement. Even small cuts, like getting lunch delivered to work or canceling unused subscriptions, can make a difference.
Ideally, try to contribute at least enough funds to receive matching funds from your employer. This is free money you won’t want to miss. If your employer contributes up to 5% of income, you must contribute at least that percentage.
Consider increasing your contribution by 1%.
Still can’t take on 10%? This is normal and completely understandable. This number is generally accepted in the world of personal finance, but everyone’s financial situation is different. To get started, wherever you are right now, consider increasing your contribution rate by just 1% this year. This small change will help increase your savings over time without sacrificing too much of your lifestyle. And you can repeat this every year until you reach your savings target.
The main thing is to start saving as early as possible and be consistent. If you’re not sure what amount to aim for, meet with a financial advisor who can help you set up a savings plan.