Investing in your 401k can be the best way to assure you are able to quit working and retire someday. Many people have questions about how much to contribute and where to invest. In this blog, we describe a common situation and answer some of the most common questions.

Should I save for retirement in my company’s 401k plan?

Many employers offer 401k retirement plans for their employees. This plan provides employees tax savings and investments that grow over time. Some of the advantages of 401k plans include tax-deferred growth, the ability to withdraw money from a Roth 401k tax-free, and possibly lower costs, if the employer subsidizes the costs of the retirement plan. 401k plans can reduce the hassle of investing by making it so you automatically invest some of every paycheck in your retirement savings. Most 401k plans have a menu of investments to choose from.

What is a typical 401k company match? Or, how much does a typical employer give their employees in a 401k plan?

Most employers make contributions on behalf of their employees into the 401k retirement plan. The most common plans take one of two forms, called the safe harbor limits. Safe harbor is a phrase that means the employer is safe from getting in trouble with the IRS; it does not refer to an employee, or the investments inside the 401k.

The most common 401k plans we see at A&I Wealth Management offer a safe harbor company match which is 100% of the first three percent, and 50% of the next two percent, of an employee’s contribution. A mathematical example might make it easier to understand. An employee who earns $100 contributes $5 to the company 401k. The employer contributes $4, through the match. This is a dollar-for-dollar match for the first three percent, and a fifty-cents per dollar match for the next two percent of the employee’s contribution.

The second type of safe harbor is a flat contribution from the employer, whether or not the employee makes any type of contribution. This type of “nonelective contribution” is almost always at least 3% of the employee’s pay. An example with numbers might make it easier. A person who earns $100,000, even if she never contributes to the 401k plan, has $3,000 contributed to the 401k plan by her employer in this type of safe harbor plan.

How should I pick investments in my company’s 401k plan?

Most 401k providers offer a menu of investments to choose from. For younger employees, you might consider more aggressive investments that have a higher average annual return. Older employees might want to pick less volatile investments so they have greater short-term security as they approach their retirement years. Most employers have an investment advisor who can help employees select from the menu of investments. A popular way to choose investments inside the 401k plan is to look up the investment using an internet search browser, like Google. For custom advice, speak with a financial planner, like a CFP professional.

What is a 401k plan? Is it the same as a pension?

A 401k plan is a way for Americans to tuck away money for retirement, with a tax savings, offered by employers. Most 401k plans enable employees to save taxes today by contributing money before it is taxed, with every paycheck. As discussed elsewhere, most 401k plans also have a Roth 401k option. A 401k plan is not the same as a pension, or defined benefit (DB) plan. A DB plan gives the employee a guaranteed income after meeting certain retirements set by the employer. A 401k plan offers the employee a lump sum of money instead.

How much should I contribute to a 401k to give me a safe retirement?

The amount of money a person should save for retirement varies by person, their lifestyle, budget and more. However, a general rule of thumb is save 10% of your paycheck for retirement. If you are closer to retirement, you may want to save considerably more than 10% so that you can catch up. If you are younger, and you are able to save 10%, then you may give yourself either the chance of retiring early, or having more money in your retirement years. To determine the amount of money

Should I invest in my own company’s stock?

Some companies offer the opportunity for employees to become shareholders of their own company through the retirement plan. Usually, this gives the employee to buy the stock at a discount, and the most common discount is 15%. With this benefit, comes some risks and potential rewards. Usually, you are required to hold the company stock for a period of time, and the most common length is one year. The stock may be more or less volatile than the overall equity market, so that can be either a good thing or a bad thing. Most employers put a maximum amount that you can invest in your own company stock; this is to prevent employees from being wiped out in case the company has a financial emergency, like bankruptcy. Talk with your financial planner to see how much you should invest, for the best, most personal advice.

Should I invest in a Roth 401k or the traditional 401k plan? What is the difference?

A traditional 401k plan gives you tax savings up front. In a traditional plan, you can contribute before-tax dollars with every paycheck. The money grows tax-deferred and then, when you are ready to retire, you pay income taxes at your retiree income tax rate. If you want to minimize your taxes, and you are sure that you will be in a lower tax rate in retirement, a tax-deferred 401k plan is a good plan for you.

In a Roth 401k plan, the tax benefits are reversed. You contribute after-tax dollars with every paycheck, grow the money tax-deferred, and when you withdraw the money in retirement it is all tax-free. This type of plan works well for people who plan to save enough money to have a comfortable retirement, who want to reduce their tax burden in retirement years, and who might fear future tax increases from the Federal government.

Listen to a Podcast Roth 401k and why you may want one today

See further: Roth 401K – Essential Guide to Investing & Growing Money Tax Free

I own a business and want to offer a retirement plan for my employees. How do I get started?

Small business owners need to compete with large businesses in order to attract and keep talented employees. Setting up a 401k plan is easier than many business owners think. Plus, recent tax law changes provide employers incentives to start new plans that can reduce, or even eliminate, the costs for setting up a professional 401k plan.

See further: 401k Financial Advisor | Retirement Planning – A&I Wealth

 

 

MINI FAQ

How much should I contribute to my 401k in 2026?
A common recommendation is to contribute at least 10% of your paycheck. If you’re closer to retirement, consider increasing contributions to catch up. Your personal target depends on lifestyle, budget, and retirement goals.

What is the typical employer match for a 401k?
Many employers offer a safe harbor match—100% of the first 3% and 50% of the next 2% of your contributions. Some employers offer a flat 3% contribution regardless of employee contributions.

Should I invest in my company stock through my 401k?
Company stock can offer discounted buying opportunities, but it carries risk if the company underperforms. Most plans limit how much you can invest in company stock to reduce potential losses.

Roth 401k vs. Traditional 401k – which is better?
Traditional 401k contributions reduce taxable income now, but withdrawals are taxed in retirement. Roth 401k contributions are after-tax, but withdrawals are tax-free. Your choice depends on expected future taxes and savings goals.

Can small business owners offer a 401k plan to employees?
Yes, it’s easier than many think, and recent tax incentives can reduce or eliminate setup costs. Offering a 401k can help attract and retain top talent.

How do I pick investments in my 401k?
Younger employees often benefit from more aggressive growth funds, while older employees may prefer lower-risk investments. Consult your plan advisor or a CFP professional for personalized guidance.

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Disclaimer: The information provided in this blog post is for general informational purposes only and should not be construed as financial or legal advice. Please consult with a qualified professional for advice regarding your specific situation.

DISCLOSURE: Client stories included in this blog reflect hypothetical client situations that represent those commonly encountered by AIWM representatives.