Most advice about 401(k) retirement plans focuses on choosing the right mutual funds or how to improve your portfolio performance. But top financial advisor Wes Moss from Capital Investment Advisors says the real secret to retiring a millionaire is the contributions you make month after month and balancing your immediate needs with that distant future goal.
“Contributions are the one element of building a nest egg over which you have total control,” says Moss. “You certainly can’t control the whims of financial markets. If market performance in the next 10 or 20 years is low, your contributions are the surest way to keep growing your 401(k). If performance is high, then contributing more to your 401(k), especially early on, could mean an early retirement, more security or more to leave to your children.”
We asked Moss how much to contribute to a 401(k) to reach your retirement goals…the best 401(k) contributions strategies…and how to avoid mistakes…
Understanding 401(k) Contributions
More than 70 million workers participate in employer-sponsored 401(k) retirement savings plan. A 401(k) is a “defined contribution” plan, which means you put in a set amount and can invest the money in investment vehicles that your plan offers.
401(k) accounts are popular because they’re easy to open and contribute to. Contributions typically are taken from each paycheck, so once you set up the process with your employer, it is automatic. With a traditional 401(k) account, contributions are made with pretax dollars—your employer withholds your elected percentage before calculating reportable wages, which reduces your taxable income for the year.
Investments in your 401(k) grow tax-deferred, and you don’t pay tax on dividends, interest or capital gains inside the account. Instead, you pay ordinary income tax when you withdraw money from the 401(k) in retirement.
If your plan offers it, a Roth 401(k) works the opposite way—you contribute after-tax dollars (no tax-free compensation now), but qualified withdrawals in retirement—including all the investment growth—are tax-free if you meet the age and holding-period rules.
401(k) Contribution Limits for 2026
For 2026, the standard employee contribution limit to a 401(k) is $24,500. Workers age 50 and older can contribute an additional $8,000, for a total of $32,500 in employee contributions.
What’s more, federal law has authorized a higher “super catch-up” limit for workers ages 60 to 63—an additional $11,250 this tax year for plans that implement it, allowing total employee contributions of as much as $35,750 for 2026.
The Importance of the Employer Match
“One of the best features of 401(k) plans is the ‘employer’ contribution, which lets employers match a portion of what employees contribute,” says Moss. The most common formula, according to Vanguard, which administers 401(k) plans for five million participants, is 50% of every dollar an employee contributes, up to 6% of the employee’s salary. Example: If your salary is $80,000 and you contribute 6% ($4,800), your employer kicks in another $2,400. If you contribute only 3% ($2,400), the employer adds only $1,200.
Caveats: As an employee, you cannot take a personal tax deduction for your employer’s contributions to your 401(k) because that money is not included in your taxable income. Your company’s matching contributions do not count against your own employee annual contribution limit, but it does count toward your total annual contribution limits (employee plus employer contributions), which in 2026 cannot exceed $72,000 per year ($80,000 for people ages 50 and over…$83,250 for workers ages 60 to 63).
How Much Should You Contribute to a 401(k)?
“In my experiences, most people need to contribute 10% to 15% of their annual wages (including employer matches) to their 401(k) over the course of their work careers to fund a comfortable and desired retirement,” says Moss. Of course, this will depend on a variety of factors including when you start saving…your income…your retirement goals…other financial obligations…and other sources of income or savings.
Caveats…
Set your contribution rate at least high enough to grab the full employer match. Reason: It is free money, a guaranteed, risk-free return on your own contribution, on top of any market growth. “That can be worth tens, even hundreds of thousands of dollars over time,” says Moss.
If you delay funding your 401(k) until your mid-30s or 40s, you may have to target up to 15% to 20% of income because you have fewer years for compounding. If you wait until you are 50, you may need to make the maximum annual amount allowed by the IRS.
Periodically check the progress of your nest egg by using rough age-based targets, then adjust your contribution rate if you are off-track. Example: You should expect to have at least the amount of your salary saved by age 30…three times your salary by age 40…six times by age 50…and eight to 10 times by age 60.
Good news: If you contribute the maximum amount to your 401(k) (including catch-ups) with 8% expected annual return rate, you can hit $1 million in about 16 years.
Strategies to Increase Your 401(k) Contributions
Many workers set their annual contribution rate just high enough to get the maximum matching contribution their employer offers. Problem: Those workers often fail to raise that rate in subsequent years even if they can afford to.
Two nudging techniques to make sure you increase the rate of your contributions…
Enroll in your company’s “automatic escalation” program
Many employers offer to raise participants’ annual contributions by one percentage point a year, until the rate hits 10%. If you do this gradually, you feel less of a pinch because you acclimate to the smaller paychecks.
Reserve a certain dollar amount or percentage of future pay raises, bonuses, tax refunds or financial windfalls to go toward your 401(k) contributions
This can allow you to save more without reducing your take-home pay.
Common 401(k) Contribution Mistakes to Avoid
Not considering a Roth 401(k)
How to decide: If you are in a 24% or lower income tax bracket, lean toward saving in a Roth 401(k). You forgo the immediate tax deduction, but you are in a relatively low tax bracket. If you are in a 32%% tax bracket or higher, favor traditional 401(k)s, especially if you think you are likely to pay a much lower marginal tax rate in retirement when the IRS bill comes due.
Caveats…
- Even if you contribute to a Roth 401(k), your employer match still will go into the pre-tax (traditional) side of your 401(k) by default—not a separate account, but a separate sub-account within the same plan. Some employers now allow you to elect Roth treatment for the match as well, but that option is still relatively uncommon, so check with your employer. If you elect that employer matching contributions go into a Roth, you’ll be taxed currently on those contributions.
- You can contribute to both a traditional and a Roth 401(k) in the same year, provided your employer’s plan allows it. But the combined total of your contributions to both accounts cannot exceed your annual IRS limit.
- Starting in tax year 2026, federal law requires that high earners (those who earned more than $150,000 in 2025) contribute over-50 catch-up contributions for 2026 only to Roth 401(k) accounts.
Maxing out your annual 401(k) contribution
“One of the great advantages of 401(k) accounts is how much money it allows you to sock away,” says Moss. “But there are times it makes more financial sense to funnel extra cash elsewhere rather than try to max out your 401(k) contributions.” Examples: You owe high-interest debt…need the liquidity to make sure you can cover basic monthly bills…and to maintain an emergency fund.
Beyond the 401(k): Additional Retirement Savings Options
401(k) accounts do have some notable drawbacks as retirement vehicles. Example: The plan your employer offers may have limited investment options with potentially high fees…401(k)s have strict penalties for early withdrawals before 59½…and 401(k) assets can be forgotten, especially if you change jobs multiple times.
Here are two other popular retirement saving options that can supplement a 401(k) and offer advantages of their own…
IRA
Both traditional and Roth IRAs offer greater investment flexibility beyond employer-selected mutual funds, lower fees, portability and more control compared with a 401(k). Maximum 2026 annual contribution for IRAs: A total of $7,500…$8,600 for age 50 and over.
Health Savings Account (HSA)
Although it requires you to be enrolled in a high-deductible health insurance plan, an HSA offers superior tax benefits compared with a 401(k). Contributions are tax-deductible…earnings grow tax-free…and withdrawals are tax-free for qualified medical expenses. HSAs are portable if you change employers, have no required minimum distributions (RMDs) and become penalty-free for non-medical withdrawals after age 65. Maximum 2026 annual contribution for HSAs: $4,400 (self-only coverage)…$8,750 (family coverage)…an additional $1,000 catchup contribution for individuals aged 55 or older.
