A:

No, there is no minimum you have to contribute to your traditional 401(k) plan, but to maximize your retirement account potential, there are suggested amounts that should be contributed. There is also a maximum that you are allowed to contribute to your retirement account. The maximum amount is based on certain criteria.

Focusing on the minimums first: according to Forbes, some experts state you should have one time your income socked away in a 401(k) by the time you are 35. Ten years later, when you turn 45, you should have three times your annual income saved. For example, if you make $50,000 a year at 35, you should have $50,000 saved and $150,000 saved by 45. Other financial experts are more realistic, advising that workers should invest between 6% and 10% of their monthly income. If you make $2,000 a month, you should save between $120 and $200 a month. For many people, this is more realistic and doable. As a general rule, saving a little is better than saving nothing at all, but you should strive to save as much as you can while still meeting your daily financial obligations.

If you have the income to save vigorously, then there are maximum contributions you will need to consider. For workers under the age of 50, you can save up to $18,000 in 2017. If you are over the age of 50, you can invest an additional $6,000 in catch-up payments for a total of $24,000 annually. This equates to roughly $1,500 a month for those under 50, and $2,000 per month for those 50 and over.

There are definite advantages to saving as much as possible in a traditional 401(k). One advantage is that by investing the funds you will have less of a tax burden at the end of the year, since 401(k) investments are done on pre-tax income. This means you will have less income to be taxed, which will decrease the amount of taxes you owe. However, it is important to remember that your 401(k) investments will be taxed when you withdraw them, so you might want to keep that in mind when determining how much you want to invest.

A Roth IRA operates a bit differently than a traditional 401(k) fund. Instead of your investment dollars going into the fund pre-tax, they are invested post-tax. You invest your income after its taxed. This might mean you have less you can afford to invest, but when it's time to start living off the funds, all the money in the account is yours since it was already taxed. Whichever approach you choose, investing in your retirement is always a good thing.

RELATED FAQS
  1. What is the maximum I can contribute to my 401(k) plan?

    Investing for retirement might mean making some sacrifices at first, but the resulting peace of mind is well worth the initial ... Read Answer >>
Related Articles
  1. Retirement

    401(k) vs. Picking Stocks: What's Best?

    The pros and cons of two different ways to invest your retirement savings.
  2. Retirement

    Why Your 401(k) Is More Important Than You Think

    If you are thinking of dipping into your 401(k), think again. It’s one of your best sources of retirement income.
  3. Retirement

    Top 10 Mistakes to Avoid on Your 401(k)

    Funding and managing your 401(k) is critical to a financially healthy retirement. Avoid these top 10 mistakes.
  4. Retirement

    Stages of Retirement Planning

    From twenty- to sixtysomething, here are some age-targeted ways to plan for your life post-job.
  5. Retirement

    Planning 401(k) Investments In a New Job

    Your 401(k) is one of the most important financial tools that you have. Setting it up the right way is key to a successful retirement.
  6. Retirement

    Maxing Out Your 401(k) vs. an IRA or Roth IRA

    What is the best way to save for retirement? Max out your 401(k)? Add an IRA? And what about the Roth? Your questions, answered.
  7. Investing

    Four 401(k) Benefits You Should Take Advantage Of

    If you’re saving for retirement through your employer, there are certain 401(k) benefits that can make planning for retirement easier.
  8. Retirement

    Should You Join Your Company’s 401(k) Plan?

    There are several good reasons to take advantage of an employer's 401(k) plan.
  9. Retirement

    Build Your Own Retirement Plan

    A step-by-step guide to planning for your retirement. The sooner you start, the easier it will be to build a good cushion for your future.
  10. Retirement

    Traditional or Roth 401(k), Which Is Better?

    When it comes to saving in 401(k) plans, using both a regular 401(k) and Roth 401(k) is best.
RELATED TERMS
  1. Roth 401(k)

    An employer-sponsored investment savings account that is funded ...
  2. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  3. Personal Finance

    Personal finance: all financial decisions and activities of an ...
  4. Savings Account

    A deposit account held at a bank or other financial institution ...
  5. Budget

    An estimation of revenue and expenses over a specified future ...
  6. Designated Roth Account

    An individual retirement plan in which employees can have all ...
Hot Definitions
  1. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  2. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  5. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  6. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
Trading Center