Why you should contribute to your 401(k) right away

A 401(k) is a strong retirement savings plan that helps you reduce your current tax burden. With compounding, ongoing contributions, and employer matching benefits, the savings can add up significantly, so you have the money you need to retire. However, the sooner you start contributing, the more time your investment has to grow and accumulate interest. Here’s a look at why it’s time to start contributing to your 401(k) rather than delaying.

Why should I start saving for retirement now?

Saving for retirement right now is one of the smartest financial decisions you can make. No matter your age or income, you stand to benefit. Social Security alone is rarely enough for retirees, so here are some advantages of saving now:

• It’s easy!: All you have to do is let your employer know what percent you want to contribute each pay period, and voilà that amount goes straight from your paycheck to your 401(k) account.
• Compounding: The sooner you invest in your retirement, the faster you start growing your savings thanks to investment compounding. Even just a few hundred dollars each month in your 20s can grow into hundreds of thousands of dollars by retirement age.
• Less financial stress: Retirement can last several decades. Saving for the future can give you a financial cushion and money for unexpected medical expenses. You’re also less likely to be scrambling to save as retirement approaches.
• You can start small: You don’t have to contribute thousands of dollars each month. Small, consistent savings add up.
• Build good habits: The act of saving is a good financial habit, and it can help you create a budget that truly works for your needs now and in the future.

What is a 401(k)?

A 401(k) is a retirement savings plan through employers in the United States. Employees can put aside a set percentage of their paycheck toward their traditional 401K, before taxes are taken out (pretax). As a result, you pay less in taxes on each check now. However, you pay taxes later when you withdraw the money, including investment earnings.

Roth 401(k)s are another option. You set money aside for each paycheck, but after taxes are taken out. Any withdrawals you take out later are tax-free.

Investments, annual contributions, and retirement timeline can all affect your 401(k)’s performance and growth. Some employers also offer “employer matching,” which means they’ll match a part of your contributions, up to a certain percentage of your annual income.

However, both traditional and Roth 401(k) plans have contribution limits, meaning you can only invest so much each year. This number changes every year to account for inflation. Here’s a quick look at 2025 limits, including maximum combined employer and employee contribution.

Keep in mind that if you withdraw from your 401(k) before you’re 59 ½ years old, you may pay a 10% penalty – unless you meet the IRS’s hardship withdrawal criteria. If it’s a traditional plan, you also pay the income tax.

Contribute to your 401(k) right away

As with any retirement savings, the sooner you can contribute to your 401(k) the better. Here are some tips for making the most of your plan*:

• Take advantage of the full employer match. If your employer offers matching contributions up to a certain amount, contribute at least that much to maximize benefits. You’re leaving money on the table if you don’t.
• Increase your contributions over time. Start with what you can afford. As your salary increases, increase your contributions, too.
• Only borrow or withdraw from your 401(k) if necessary. Taking money out of your 401(k) limits its growth potential. You could also be hit with early withdrawal penalties if you don’t have a qualifying reason.
• Review your strategy. Have a full retirement strategy in place, and understand how your 401(k) fits into that. As you hit life milestones, review your plan and your finances to make sure you’re still aligned with your goals.

A 401(k) is only part of your entire retirement plan, but an important one. Keep your retirement goals and finances in mind when reviewing your options, choosing contributions, and growing your investments.