How Much Should I Be Saving with My 401(k) Plan?

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Regardless of how long we have been in the workforce, we have plans for our future post-retirement. Whether it is going on a long-planned family vacation or saving for your children’s higher education, the spending choices we make today have a significant impact on how comfortably we achieve these goals in the future. According to official statistics, nearly half of all working Americans do not have a retirement plan for their future, which is alarming, considering a 401(k) plan is one of the best ways to ensure a peaceful, stress-free retirement. While most people save money on their own, a 401(k) plan takes care of everything, including retirement savings, loans, monthly and annual contributions, achievable retirement goals, the impact of withdrawals, and more. A 401k savings calculator is the perfect tool to visualize the consequences of your actions, like contributions and withdrawals, on your 401(k) account. Read on as we take a closer look at how much you should be saving with your 401(k) plan.

How Much Should You Contribute?

While a 401(k) calculator can assist you mathematically, the decision about how much to contribute to your 401(k) remains subjective. The choice of contribution depends on multiple factors, including your age, the number of years you plan to be employed in the future, and the lifestyle you wish to adopt upon retiring. According to financial advisors, the empirical approach should be to deposit 10 to 15 percent of your income into your 401(k) account. It should be noted that your total length of employment is also important because starting a 401(k) later in life will require more contributions to catch up than if you started saving in your 20s. In general, the idea is to save as much as you can while maintaining a comfortable lifestyle presently. The maximum contribution limit in 2022 is up to $20,500, with $6,500 being the limit for catch-up contributions if you are aged 50 or above. Additionally, if you start saving later in your life, you should make larger contributions to your 401(k) account. Having a secure safety net helps later in life by obviating the need to tap into your emergency savings or accruing debt.

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401(k) Withdrawals

Although a 401(k) account is intended to save your money for life after retirement, emergencies can happen at any time. In case you need to support yourself through a rough patch financially and have exhausted all other avenues, you might need to dip into your 401(k) account. It should be noted that 401(k) withdrawals, while perfectly legal, can carry severe penalties. If you withdraw funds from your 401(k) before reaching the retirement age of 59.5 years, you will be subject to a 10 percent penalty. To put this number in perspective, a withdrawal of $10,000 will be subject to $1,000 in tax penalties. Moreover, when you withdraw a certain amount from your account, your funds will be counted as taxable income, meaning that you will be required to pay the state and federal taxes levied on that amount.


A 401(k) plan is the ideal way to save funds for retirement while working to build a better future for yourself. As a general rule, you should contribute at least 10 to 15 percent of your annual income to your 401(k) account and refrain from withdrawals as they are associated with severe tax penalties.

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About the Author

Tobias Simmons is a personal finance blogger born in Ontario and based in Las Vegas, Nevada. He's no Doctor of Science or financial expert but is a self-taught student giving advice for the average peer.