401(k) Tips

How to contribute to a 401k?

If you have a 401(k) plan, you should contribute as much as you can to max out your contributions. Find out how you can contribute to a 401(k) plan.

3 min read

If your employer offers a 401(k), you should take advantage of this benefit to accumulate retirement savings for your golden years. 401(k) plans allow employees to set aside part of their salary each year for their retirement. Once you enroll in a 401(k) plan, you should find out how you can contribute to the plan.

Contributions to a 401(k) plan are typically made through payroll deductions. Usually, the employer withholds the contributions from your paycheck every pay period and then makes direct deposits to your 401(k). Some employers may also allow employees to make check deposits to the 401(k). In this case, an employee will be required to write a check to the plan with the amount they want to contribute.  

How to contribute to 401(k)

Here are the two main ways of contributing to a 401(k) plan:

Payroll deduction

Payroll deduction is sometimes known as a salary deferral. It is a contribution that is withheld from an employee's paycheck and then added directly to the 401(k) plan. The employee must authorize the salary deferral before the employer can withhold the contributions.

Usually, when enrolling into a 401(k) plan, employees are required to select a percentage of their salary that they would like to contribute to the 401(k). For example, if your annual income is $100,000, you can choose to contribute 19%, which is equivalent to $19,000. As your income increases, your 401(k) contributions also increase. However, you should watch out not to exceed the annual contribution limit.

Write a check

Although most employers require 401(k) to be funded through paycheck deferrals, some employers may allow check deposits. Before writing a check to your 401(k), you should check with your employer to know if it allows check deposits.  

If you are self-employed and you have a Solo 401(k), you can add funds to the account through check deposits. Since you are both the employer and the employee, you can write a check from the business checking account and not a personal checking account. The IRS requires that retirement contributions should come out of the payments that you receive.


If you have a 401(k) with a new employer, you can decide to rollover an old 401(k) left with the former employer to the new 401(k). Ask the former employer to make a direct rollover to the new 401(k) to avoid owing taxes on the transfer. Consolidating 401(k)s can help you manage your retirement money more effectively, and have a big pool of funds to diversify your portfolio.

You may also consider a reverse rollover from a traditional IRA to a 401(k). Though not a common option, the IRS allows reverse rollovers, and you can transfer your IRA money to a 401(k). You can opt for a reverse rollover if you want to enjoy more convenience over your money or access 401(k) loans.

How much can you contribute to a 401(k)?

Retirement experts recommend saving 10% to 20% of your salary to a 401(k), depending on how much you earn. Generally, you should contribute as much as you can to collect the maximum 401(k) match (if any) and max out your 401(k) contribution. You can contribute up to $20,500 to a 401(k) in 2022, an additional $6,500 if you are above age 50.

You should also determine how much to contribute depending on your retirement goals. If you are in your 20s, you can start contributing a small percentage of your salary to a 401(k), and increase the percentage gradually since you have a long time of tax-deferred growth. However, if you are already 50 and your retirement savings are inadequate, you can save a bigger percentage of your income to achieve your retirement savings goals sooner.

Can I add more money to my 401(k) account whenever I want?

If you received a pay rise, or you run a small business on the side, you may consider adding more money to your 401(k). However, you can only make the additional contributions through payroll deductions.  

If you want to increase your 401(k) contributions, you must check with your employer to know how often you can change 401(k) contributions. Employers may allow employees to change their 401(k) contributions every pay period, quarterly, bi-annually, or annually.  

Once you are allowed to make changes to your 401(k), you should adjust the contribution percentage to reflect the new contribution amount.

Should you max out your 401(k)?

If you have maxed out your 401(k) contributions, and you have more money left to save, you should consider directing the extra funds to another retirement fund. The best alternative is to open a traditional IRA or Roth IRA to make the additional contribution.

With a traditional IRA, you can contribute up to $6,000 in 2022 and an additional $1,000 if you are 50 or older. If you have a workplace retirement plan, there are restrictions on how much traditional IRA contributions you can deduct from your taxable income.

With a Roth IRA, you can make after-tax contributions to the account. You can contribute up to $6,000 to the retirement account in 2022, and an extra $1,000 if you are above 50. However, there are income restrictions Roth IRA. If your annual income exceeds the income restrictions, you won’t be allowed to contribute to a Roth IRA.

If you have both a traditional IRA and Roth IRA, the cumulative contributions should not exceed the $6,000 annual contribution limit.