Most employers give you the ability to sign up for their 401(k) plan when starting a new job or within a few months of starting. In some cases, you will be signed up automatically. At other companies, you have to opt-in and set everything up yourself.
If you have a great employer that cares about employees’ futures, they may also offer a 401(k) contribution match. For example, if you contribute 3% of your income to your 401(k), the employer may match the 3% for a total of 6%. Each company runs its 401(k) a little differently, so check with your HR department, employee benefits handbook or website to learn more.
401(k) plans generally have a limited set of investments picked by your employer and the plan administrator. Most give you a handful of mutual funds and exchange-traded funds (ETFs) and sometimes the company’s stock as investment choices in the account.
401(k) Contribution Limits
There are contribution limits to retirement accounts, and a 401(k) is no exception. For 2019, the maximum you can contribute to a 401(k) is $19,000. For 2020, it’s $19,500. Workers 50 and older can contribute an extra amount per year for a total of $25,000 in 2019 and $26,000 in 2020. If you withdraw before the government-mandated age — 55 for some people and 59½ for others — you have to pay tax and a penalty. But if you can afford to contribute regularly, a 401(k) can save you significantly on taxes and help you build up a big nest egg for retirement.