Different Ways To Contribute To Your 401(k)

A 401(k) plan is a company-sponsored retirement account where employees can contribute income, and employers may match contributions. Understanding the different ways to contribute to your 401(k) is important. There are two basic types of 401(k)s:

  • Traditional 401(k) contributions
  • Roth 401(k) feature

What Are the Differences Between a Traditional and a Roth 401(k)?

The main distinction between both is the tax benefits:

  • Traditional 401(k) contributions are made on a pre-tax basis, and individuals pay income tax on the amounts withdrawn once they retire.
  • Roth 401(k) feature allows for the contribution of after-tax dollars. The elected amount is deducted from your paycheck after income, Social Security, and other applicable taxes are withheld. 

You can learn more about the differences between Roth and Traditional Contributions.

How Does Money Get Deposited Into My 401(k) Plan? 

After you reach your plan's eligibility rules, there are two main ways that money gets contributed to your account:

Via your Paycheck

Once you have selected the amount you would like to contribute to your 401(k) account, that percentage of the dollar amount is deducted from each paycheck during the payroll period.

Via your Employer Contributions

Some plans have an "employer match," which means your employer will contribute to your account based on how much you contribute up to certain limits established by the IRS or your plan document.

Via Rollover Contribution

Please take a look at the details below about Rollover Contributions.

What Are The Contribution Limits For a 401(k)?

For 2024, the limit to contribute to a 401(k) annually is $23,000 (indexed each year for inflation), regardless of whether the funds are a pre-tax or Roth contribution (up from $22,500 in 2023). However, participants aged 50 years or older may contribute up to $30,500 annually.

$23,000 is the limit you can contribute from your paycheck. If your plan offers an employer match, the amount of your employer’s contribution is in addition to your contribution.

You can learn more about 401(k) Contribution Limits

How Much Should I Contribute?

The amount you save depends on your financial situation. Your decision should be based on your other investments, your risk tolerance, and how much income you think you will need during retirement. The most important thing is that you start saving now. You can learn more about How Much to Contribute.

What Is a Rollover Contribution?

A rollover contribution refers to the funds you have moved from your previous employer’s retirement account or another qualified plan into your new employer’s retirement account. If your plan accepts rollover funds, you can consolidate your retirement accounts by transferring assets from those other accounts. Learn all about Rollover Contributions through our help center article:

We hope this information is helpful; if you would like further assistance, don't hesitate to contact us at help@vestwell.com.