401K Max Contributions 2025 Guide

A 401(k) is one of the most common types of retirement accounts, and it’s often the first retirement investing tool an employee uses to plan for their future. By following a few simple rules and knowing how to take advantage of a company’s matching contributions program, you can maximize your investments in a 401(k) and make sure it’s working to serve your future financial goals.

Key Takeaways

A 401(k) is a type of retirement plan that allows investors to set aside pre-tax or post-tax money from their paycheck to grow in a restricted account.
Most 401(k) plans offer matching contributions from employers up to a certain amount.
A good general rule is to aim to contribute 15 percent of your pre-tax income to your 401(k), although contributing more is always a good idea up to the maximum allowed annual contribution—$23,500 in 2025.

What is a 401(K)

A 401(k) plan is a type of retirement account that allows employees to divert a portion of their paycheck into a restricted account prior to paying taxes on the funds. The funds aren’t taxed until they’re withdrawn in retirement, allowing you to invest more money up front and recognize higher growth while the funds remain in the account.

Many employers offer a company-sponsored 401(k) plan that includes some level of matching funds from the company, further incentivizing the use of these types of accounts to plan for retirement.

How much should you contribute to your 401(k)?

The maximum amount of money an individual below the age of 50 can contribute to their 401(k) in 2025 is $23,500, but a good general rule to follow is to aim for 15 percent of your pre-tax income. If this is too much, just try to contribute as much as you can comfortably and make it a goal to increase your contribution over time.

If you can comfortably contribute 15 percent of your income and still remain under the maximum annual contribution of $23,500, increase the percentage to a level that works for you. Everyone’s financial situation is different, but a 401(k) is a powerful investing tool and should be used to the best of your ability to grow your personal xff.

Why 15 percent?

Shooting for a 15 percent 401(k) contribution strikes a balance between what’s attainable for most people and what the average person’s needs for retirement will be. A common retirement savings goal is to try to maintain somewhere between 60 and 80 percent of your income level from before your retirement, and this level of contribution to a 401(k) can make this possible if you start investing early in your career.

How to get the most return on a 401(k)

A 401(k) will serve you well as you continue your investing journey, but there are a few simple guidelines everyone should follow to ensure they’re getting the most out of these powerful investing vehicles.

Start contributing early

A 401(k) is often one of the first retirement planning tools an investor utilizes, and the account will likely see consistent contributions throughout an employee’s career.

Starting your contributions in your mid-20s will allow the returns on your investment to compound, growing your wealth significantly over a long period of time. If you start investing later in your career, or aren’t able to maximize your contributions early on, you might find that 15 percent isn’t enough to reach your retirement goals.

Make sure to leverage the employer match

A 401(k) contribution is typically matched in some way by your employer, and many employers have a maximum level to which they’ll match your funds. Some companies will match your contributions one-to-one, with each dollar invested matched by the company up to a certain level, while others will contribute an additional percentage of each dollar the employee invests until the maximum match is reached.

No matter how your company structures its 401(k) program, it’s always a good idea to invest at least enough to hit the max employer match as the additional funds are essentially a bonus provided to you when you hit retirement.

Consolidate

As you change jobs and explore new investing opportunities throughout your career, it’s possible you may wind up with multiple 401(k) accounts. In these cases, it’s often advisable to consolidate these accounts into a single retirement account. This can save you money over time, as many retirement plans have some associated administrative fees that may be redundant if you hold more than one of the same type of account.

Consolidating your retirement accounts when possible can also make it easier to plan for the future, as you can get a clearer picture of your financial position and have fewer variables to take into account as you plan your next move.

What happens if I inherit a 401(k)?

The remaining funds in a deceased person’s 401(k) can be left to a surviving heir just like any other account, and the beneficiary must withdraw those funds within 10 years of receiving them, unless the surviving heir is the deceased person’s spouse.

Other than this time restriction on distribution of the funds, an inherited 401(k) is treated exactly the same as a normal 401(k) once ownership of the account has transferred. Funds from the account continue to mature as they did under the account’s original ownership and are taxed when they’re withdrawn as usual.

Bottom Line

A 401(k) can help you grow your money significantly in the long term, and it’s one of the most popular choices for investors trying to plan for their retirement. Start early, max out your employer match, and aim for a 15 percent contribution each year and you’ll be well-positioned to capitalize on all the benefits these types of accounts can offer you once your working years are behind you.

401(K) Max Contribution FAQ

Is contributing 20% to a 401k too much?

If you can comfortably set aside more than the recommended 15 percent of your pre-tax income each year, that’s great—a 401(k) is an excellent option for investing leftover funds from your paycheck. Just remember not to exceed the maximum yearly contribution, or you’ll find yourself paying taxes twice on the same income.

Can I retire at 62 with $400,000 in 401k?

Knowing when you have enough savings to retire can be tricky, and each person’s situation is different. For some, $400,000 in a 401(k) is enough to maintain a relatively modest lifestyle from the age of 62 on. For others, they’ll want a good deal more in savings before they retire. This decision largely comes down to your lifestyle, age, existing assets and the cost of living in the area you plan to retire to.

What’s a good employer match rate?

When assessing your employer’s match rate, it’s important to consider the percentage they’re willing to match as well as the maximum amount of matching funds the company will provide. Many companies will match your contributions dollar-for-dollar up to a certain point, but even a plan that matches only 50 percent or less of your contribution is worth investing in if the overall max contribution is high enough.

A typical 401(k) plan will match around 4 percent of your salary, so any combination of max contributions and matching percentages that yields 4 percent or more of your pre-tax income is likely to be a good choice.

401K Max Contributions 2025 Guide