How much should I contribute to my 401(k)? Start with your budget

November is when a lot of people open their benefits portal, see the retirement contribution box, and type in whatever number they typed last year. How much should I contribute to my 401(k)? The usual answers are rules of thumb: 10%, 15%, "as much as you can". They are not wrong, but they skip the part that decides whether the number survives the year: what it does to your paycheck.

I read a lot of ledgers, and the contribution rates that stick are the ones that were chosen from the budget, not from a slogan. Below is how to do that: the match first, then the real cost of each percent, then where the rest of the money comes from.

The limits, and why they are rarely the question#

For 2026 the most you can defer into a 401(k) from your own pay is $24,500, up from $23,500 in 2025, announced by the IRS in November 2025. If you are 50 or older you can add a catch-up of $8,000, and people aged 60 to 63 get a larger catch-up of $11,250.

The 2027 limits were not official at the start of November 2026. Projections from Milliman and Marsh put the 2027 deferral limit at $25,500, with the IRS expected to confirm the figures in early to mid November, according to 401(k) Specialist on 20 October 2026. Check your plan's enrollment page once the IRS publishes.

For most people the limit is a ceiling they will never touch. On a $60,000 salary, $24,500 would be about 41% of gross pay. The real question is not "how close to the limit can I get?" but "how much can my budget carry, starting with the money my employer is offering for free?"

Step 1: get the full employer match#

If your employer matches contributions, that is the first number to hit. A common formula is "50% of what you put in, up to 6% of your pay". Another is "100% up to 4%". Whatever the formula, there is a contribution rate below which you are leaving part of your pay on the table.

Find your plan's formula in the summary plan description or the benefits portal, and write down two things:

• the match rate (50%, 100%, or a tiered mix), and
• the cap, the percentage of pay above which the match stops.

Contributing up to the cap is, for most people, the highest return they will find anywhere in their budget. Contributing past it still helps, but each extra dollar is only your own dollar.

One caveat worth checking: some plans calculate the match per paycheck. If you contribute so much that you reach the annual limit by September, you may miss the match on the last few paychecks unless your plan does a year-end "true-up". That mostly matters for high earners, but it is a reason to spread contributions across the year.

Step 2: see what each percent really costs#

A traditional 401(k) contribution comes out of your pay before federal income tax (and state income tax in most states). It does not skip Social Security and Medicare tax. So every dollar you contribute costs you less than a dollar of take-home pay, by roughly your income tax rate.

A Roth 401(k) works the other way round: the contribution is taxed now and the withdrawals later are not. With Roth, your take-home pay drops by the full contribution. The steps below work for either; only the take-home figures change.

A worked example#

Here is one person: $60,000 salary, paid twice a month, so 24 paychecks of $2,500 gross. They are in the 12% federal bracket. Their employer matches 50% of contributions, up to 6% of pay. To keep the arithmetic clean, I will ignore state tax.

At 3%, they put in 3% × $2,500 = $75 a paycheck. Income tax falls by 12% × $75 = $9, so take-home drops by $75 − $9 = $66. The employer adds 50% × $75 = $37.50.

At 6%, they put in $150. Tax falls by $18, take-home drops by $132, and the employer adds $75, the full match.

At 10%, they put in $250. Tax falls by $30, take-home drops by $220. The employer still adds $75, because the match stops at 6% of pay.

Now look at the steps between the rows, because that is where the decision lives.

From 3% to 6%: take-home falls by a further $132 − $66 = $66 per paycheck. The account gains $75 more from them and $37.50 more from the employer, $112.50 in total. Each dollar of take-home they give up puts about $1.70 into the account.

From 6% to 10%: take-home falls by a further $220 − $132 = $88. The account gains $100, all of it their own money. Each dollar of take-home now buys about $1.14.

Over a year, 6% means $150 × 24 = $3,600 from them and $75 × 24 = $1,800 from the employer, for a take-home cost of $132 × 24 = $3,168. Staying at 3% would leave $900 of match a year unclaimed.

What 1% more costs#

Each extra percentage point on this salary is $25 a paycheck. With the 12% tax saving, take-home drops by $22, or $528 over a year, while $600 goes into the account. Below the match cap, the employer adds another $12.50 a paycheck on top.

That $22 is the number to test against your budget. It is roughly one takeaway meal or one streaming subscription per paycheck, which is why a subscription audit is often where the first percent comes from.

Step 3: fit the rest into your budget#

Once the match is covered, how much more you contribute depends on what else is competing for the same money. A sensible order, for most people:

1. A starter emergency fund, so a car repair does not go on a credit card. The guide to sizing your emergency fund works through how much.
2. The full employer match, as above.
3. High-interest debt. A credit card charging 22% will usually cost you more than a retirement account can be expected to earn. The debt snowball vs. avalanche post covers how to clear it.
4. More retirement saving, one percent at a time, alongside your other goals.

Steps 2 and 3 are not either/or. Plenty of people keep the match going while they pay down debt, because giving up the match to pay off a card faster usually costs more than it saves.

Use your next raise#

The least painful time to add a percent is the paycheck after a raise. Say our person gets a 3% raise, to $61,800, or $2,575 a paycheck. The extra $75 gross is about $60.26 after 12% income tax and 7.65% Social Security and Medicare tax. If they move their contribution up by 1% of the new pay, that is $25.75 into the account and $22.66 less take-home. They still keep $37.60 of the raise every paycheck, and they never see their pay go down. If you want to check whether the raise is real after prices, the real raise calculation is a good companion to this one.

Use auto-increase if your plan has it#

Many plans offer an automatic increase of 1% a year, usually up to a cap such as 10% or 15%. Pair the date with your raise and the change becomes almost invisible.

Change it whenever you like#

Unlike an FSA, which is fixed for the plan year once you elect it (see how to size an FSA), most 401(k) plans let you change your contribution rate at any time. That makes it safe to start lower and step up once the budget proves it can carry the amount.

This is general education about budgeting and retirement accounts, not advice about your situation. Your plan document, your HR team or a financial professional can confirm what applies to you.

What to ask an advisor about it#

In Azno, your paychecks, recurring bills, debts and goals sit in one ledger, so the three steps become questions you can ask instead of a spreadsheet you have to build:

• "My employer matches 50% up to 6% and I contribute 3%. How much match am I missing a year, and what would my take-home be at 6%?" You see the gap in money, not percentages.
• "Where could $22 a paycheck come from in my budget, based on the last three months of spending?" The answer points at real categories and recurring charges, not a generic list.
• "Set a goal to raise my 401(k) contribution by 1% when my next raise lands, and remind me in March." This comes back as a proposal; nothing changes until you approve it.

If you want to see what your own budget can carry before your next enrollment deadline, create a free account and import a few months of transactions. The right contribution is the highest one your budget can keep paying all year.