InvestGen Archives

Feb

2026

Guide to 457 Retirement Plans

By Rebecca Lake | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

A 457 plan — technically a 457(b) plan — is similar to a 401(k) retirement account. It’s an employer-provided retirement savings plan that you fund with pre-tax contributions, and the money you save grows tax-deferred until it’s withdrawn in retirement.

But a 457 plan differs from a 401(k) in some significant ways. While any employer may offer a 401(k), 457 plans are designed specifically for state and local government employees, as well as employees of certain tax-exempt organizations. That said, a 457 has fewer limitations on withdrawals.

This guide will help you decide whether a 457 plan is right for you.

What Is a 457 Retirement Plan?

A 457 plan is a type of deferred compensation plan that’s used by certain employees when saving for retirement. The key thing to remember is that a 457 plan isn’t considered a “qualified retirement plan” based on the federal law known as ERISA (from the Employee Retirement Income Security Act of 1974).

These plans can be established by state and local governments or by certain tax-exempt organizations. The types of employees that can participate in 457 savings plans include:

• Firefighters

• Police officers

• Public safety officers

• City administration employees

• Public works employees

Note that a 457 plan is not used by federal employees; instead, the federal government offers a Thrift Savings Plan (TSP) to those workers. Nor is it exactly the same thing as a 401(k) plan or a 403(b), though there are some similarities between these types of plans.

How a 457 Plan Works

A 457 plan works by allowing employees to defer part of their compensation into the plan through elective salary deferrals. These deferrals are made on a pre-tax basis, though some plans can also allow employees to choose a Roth option (similar to a Roth 401(k)).

The money that’s deferred is invested and grows tax-deferred until the employee is ready to withdraw it. The types of investments offered inside a 457 plan can vary by the plan but typically include a mix of mutual funds. Some 457 retirement accounts may also offer annuities as an investment option.

Unlike 401(k) plans, which require employees to wait until age 59 ½ before making qualified withdrawals, 457 plans allow withdrawals at whatever age the employee retires. The IRS doesn’t impose a 10% early withdrawal penalty on withdrawals made before age 59 ½ if you retire (or take a hardship distribution). Regular income tax still applies to the money you withdraw, except in the case of Roth 457 plans, which allow for tax-free qualified distributions.

So, for example, say you’re a municipal government employee. You’re offered a 457 plan as part of your employee benefits package. You opt to defer 15% of your compensation into the plan each year, starting at age 25. Once you turn 50, you make your regular contributions along with catch-up contributions. You decide to retire at age 55, at which point you’ll be able to withdraw your savings or roll it over to an IRA.

Who Is Eligible for a 457 Retirement Plan?

In order to take advantage of 457 plan benefits you need to work for an eligible employer. Again, this includes state and local governments as well as certain tax-exempt organizations.

There are no age or income restrictions on when you can contribute to a 457 plan, unless you’re still working at age 73. A 457 retirement account follows required minimum distribution rules, meaning you’re required to begin taking money out of the plan once you turn 73. At this point, you can no longer make new contributions.

A big plus with 457 plans: Your employer could offer a 401(k) plan and a 457 plan as retirement savings options. You don’t have to choose one over the other either. If you’re able to make contributions to both plans simultaneously, you could do so up to the maximum annual contribution limits.

Pros & Cons of 457 Plans

A 457 plan can be a valuable resource when planning for retirement expenses. Contributions grow tax-deferred and as mentioned, you could use both a 457 plan and a 401(k) to save for retirement. If you’re unsure whether a 457 savings plan is right for you, weighing the pros and cons can help you to decide.

Pros of 457 Plans

Here are some of the main advantages of using a 457 plan to save for retirement.

No Penalty for Early Withdrawals

Taking money from a 401(k) or Individual Retirement Account before age 59 ½ can result in a 10% early withdrawal tax penalty. That’s on top of income tax you might owe on the distribution. With a 457 retirement plan, this rule doesn’t apply so if you decide to retire early, you can tap into your savings penalty-free.

Special Catch-up Limit

A 457 plan has annual contribution limits and catch-up contribution limits but they also include a special provision for employees who are close to retirement age. This provision allows them to potentially double the amount of money they put into their plan in the final three years leading up to retirement.

Loans May Be Allowed

If you need money and you don’t qualify for a hardship distribution from a 457 plan you may still be able to take out a loan from your retirement account (although there are downsides to this option). The maximum loan amount is 50% of your vested balance or $50,000, whichever is less. Loans must be repaid within five years.

Cons of 457 Plans

Now that you’ve considered the positives, here are some of the drawbacks to consider with a 457 savings plan.

Not Everyone Is Eligible

If you don’t work for an eligible employer then you won’t have access to a 457 plan. You may, however, have other savings options such as a 401k or 403(b) plan instead which would allow you to set aside money for retirement on a tax-advantaged basis. And of course, you can always open an IRA.

Investment Options May Be Limited

The range of investment options offered in 457 plans aren’t necessarily the same across the board. Depending on which plan you’re enrolled in, you may find that your investment selections are limited or that the fees you’ll pay for those investments are on the higher side.

Matching Is Optional

While an employer may choose to offer a matching contribution to a 457 retirement account, that doesn’t mean they will. Matching contributions are valuable because they’re essentially free money. If you’re not getting a match, then it could take you longer to reach your retirement savings goals.

457 Plan Contribution Limits

The IRS establishes annual contribution limits for 457 plans. There are three contribution amounts:

• Basic annual contribution

• Catch-up contribution

• Special catch-up contribution

Annual contribution limits and catch-up contributions follow the same guidelines established for 401(k) plans.

There are two special catch-up contributions. For 2025 and 2026, employees aged 60 to 63 may contribute a “super” catch-up contribution instead of the standard catch-up contribution, thanks to SECURE 2.0. The traditional 457 special catch-up contribution is an additional amount that’s designated for employees who are within three years of retirement. Not all 457 retirement plans allow for this special catch-up contributions.

It’s important to be aware that under a new law regarding catch-up contributions that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 457 catch-up contributions into a Roth account. Because of the way Roth accounts work, these individuals will pay taxes on their catch-up contributions upfront, but can make eligible withdrawals tax-free in retirement.

Here are the 457 savings plan maximum contribution limits for 2025 and 2026.

	2025	2026
Annual Contribution	Up to 100% of an employees’ includable compensation or $23,500, whichever is less	Up to 100% of an employees’ includable compensation or $24,500, whichever is less
Catch-up Contribution	Employees 50 and over can contribute an additional $7,500	Employees 50 and older can contribute an additional $8,000
Special Catch-up Contribution	SECURE 2.0 super catch-up of $11,250 for employees aged 60 to 63; $23,500 or the basic annual limit plus the amount of the basic limit not used in prior years, whichever is less^*	SECURE 2.0 super catch-up opf $11,250 for employees aged 60 to 63; $24,500 or the basic annual limit plus the amount of the basic limit not used in prior years, whichever is less^*

2025

2026

Annual Contribution

Up to 100% of an employees’ includable compensation or $23,500, whichever is less

Up to 100% of an employees’ includable compensation or $24,500, whichever is less

Catch-up Contribution

Employees 50 and over can contribute an additional $7,500

Employees 50 and older can contribute an additional $8,000

Special Catch-up Contribution

SECURE 2.0 super catch-up of $11,250 for employees aged 60 to 63;

$23,500 or the basic annual limit plus the amount of the basic limit not used in prior years, whichever is less^*

SECURE 2.0 super catch-up opf $11,250 for employees aged 60 to 63;

$24,500 or the basic annual limit plus the amount of the basic limit not used in prior years, whichever is less^*

^*This option is not available if the employee is already making age-50-or-over catch-up contributions or SECURE 2.0 catch-up contributions.

457 vs 403(b) Plans

The biggest difference between a 457 plan and a 403(b) plan is who they’re designed for. A 403(b) plan is a type of retirement plan that’s offered to public school employees, including those who work at state colleges and universities, and employees of certain tax-exempt organizations. Certain ministers may establish a 403(b) plan as well. This type of plan can also be referred to as a tax-sheltered annuity or TSA plan.

Like 457 plans, 403(b) plans are funded with pre-tax dollars and contributions grow tax-deferred over time. These contributions can be made through elective salary deferrals or nonelective employer contributions. Employees can opt to make after-tax contributions or designated Roth contributions to their plan. Employers are not required to make contributions.

The annual contribution limits to 403(b) plans, including catch-up contributions, are the same as those for 457 plans. A 403(b) plan can also offer special catch-up contributions, but they work a little differently and only apply to employees who have at least 15 years of service.

Employees can withdraw money once they reach age 59 ½ and they’ll pay tax on those distributions. A 403(b) plan may allow for loans and hardship distributions or early withdrawals because the employee becomes disabled or leaves their job.

Investing for Retirement With SoFi

When weighing retirement plan options, a 457 retirement account may be one possibility. That’s not the only way to save and invest, however. If you don’t have a retirement plan at work or you’re self-employed, you can still open a traditional or Roth IRA to grow wealth.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Help grow your nest egg with a SoFi IRA.

FAQ

How does a 457 plan pay out?

If you have a 457 savings plan, you can take money out of your account before age 59 ½ without triggering an early withdrawal tax penalty in certain situations. Those distributions are taxable at your ordinary income tax rate, however. Like other tax-advantaged plans, 457 plans have required minimum distributions (RMDs), but they begin at age 73.

What are the rules for a 457 plan?

The IRS has specific rules for which types of employers can establish 457 plans; these include state and local governments and certain tax-exempt organizations. There are also rules on annual contributions, catch-up contributions and special catch-up contributions. In terms of taxation, 457 plans follow the same guidelines as 401(k) or 403(b) plans: Contributions are made pre-tax; the employee pays taxes on withdrawals.

When can you take money out of a 457 plan?

You can take money out of a 457 plan once you reach age 59 ½. Withdrawals are also allowed prior to age 59 ½ without a tax penalty if you’re experiencing a financial hardship or you leave your employer. Early withdrawals are still subject to ordinary income tax.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Photo credit: iStock/Nomad

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Feb

2026

How Much Should I Contribute to My 401(k)?

By AJ Smith | Growing Wealth, Investing, Life & Career, Preparing for Retirement | No Comments

Once you set up your retirement plan at work, the next natural question is: How much to contribute to a 401(k)? While there’s no ironclad answer for how much to save in your employer-sponsored plan, there are some important guidelines that can help you set aside the amount that’s right for you, such as the tax implications, your employer match (if there is one), the stage of your career, your own retirement goals, and more.

Here’s what you need to think about when deciding how much to contribute to your 401(k).

Key Points

• Determining the right 401(k) contribution involves considering tax implications, employer matches, career stage, and personal retirement goals.

• The contribution limits for a 401(k) are $23,500 in 2025 and $24,500 in 2026 for those under age 50. Those aged 50 and over can make an additional catch-up contribution.

• Early career contributions might be lower, but capturing any employer match is beneficial.

• Mid-career individuals should aim to increase their contributions annually, even by small percentages.

• Approaching retirement, maximizing contributions and utilizing catch-up provisions can significantly impact savings.

401(k) Contribution Limits for 2025 and 2026

Like most tax-advantaged retirement plans, 401(k) plans come with caps on how much you can contribute. The IRS puts restrictions on the amount that you, the employee, can save in your 401(k); plus there is a cap on total employee-plus-employer contributions.

For tax year 2025, the contribution limit is $23,500, with an additional $7,500 catch-up provision for those 50 and older, for a total of $31,000. The combined employer-plus-employee contribution limit for 2025 is $70,000 ($77,500 with the catch-up amount).

Also in 2025, there is an extra 401(k) catch-up for those aged 60 to 63. Thanks to SECURE 2.0, these individuals can contribute up to $11,250 instead of the standard catch-up of $7,500, for a total of $81,250.

The limits go up for tax year 2026 The 401(k) contribution limit in 2026 is $24,500, with an additional $8,000 catch-up provision for those 50 and older, for a total of $32,500. The combined employer-plus-employee contribution limit for 2026 is $72,000 ($80,000 with the catch-up amount).

Again in 2026, there is the extra 401(k) SECURE 2.0 catch-up for those aged 60 to 63. These individuals can contribute up to $11,250 instead of the standard catch-up of $8,000, for a total of $83,250.

Under a new law regarding catch-up contributions that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401 (k) catch-up contributions into a Roth 401(k) account. With Roth accounts, individuals pay taxes on contributions upfront, but can make qualified withdrawals tax-free in retirement.

401(k) Contribution Limits 2025 vs 2026

	2025	2026
Basic contribution	$23,500	$24,500
Catch-up contribution	$7,500 (ages 50-59, 64+) $11,250 (ages 60-63)	$8,000 (ages 50-59, 64+) $11,250 (ages 60-63)
Total + catch-up	$31,000	$32,500
Employer + Employee maximum contribution	$70,000	$72,000
Employer + employee max + catch-up	$77,500 (ages 50-59, 64+) $81,250 (ages 60-63)	$80,000 (ages 50-59, 64+) $83,250 (ages 60-63)

💡 Quick Tip: How much does it cost to set up an IRA account? Often there are no fees to open an IRA, but you typically pay investment costs for the securities in your portfolio.

How Much Should You Put Toward a 401(k)?

Next you may be thinking, now I know the retirement contribution limits, but how much should I contribute to my 401(k)? Here are some guidelines to keep in mind as you’re deciding on your contribution amount.

When You’re Starting Out in Your Career

At this stage, you may be starting out with a lower salary and you also likely have commitments to pay for, like rent, food, and maybe student loans. So you may decide to contribute a smaller amount to your 401(k). If you can, however, contribute enough to get the employer match, if your employer offers one.

Here’s how it works: Some employers offer a matching contribution, where they “match” part of the amount you’re saving and add that to your 401(k) account. A common employer match might be 50% up to the first 6% you save.

In that scenario, let’s say your salary is $100,000 and your employer matches 50% of the first 6% you contribute to your 401(k). If you contribute up to the matching amount, you get the full employer contribution. It’s essentially “free” money, as they say.

To give an example, if you contribute 6% of your $100,000 salary to your 401(k), that’s $6,000 per year. Your employer’s match of 50% of that first 6%, or $6,000, comes to $3,000 for a total of $9,000.

As You Move Up in Your Career

At this stage of life you likely have a lot of financial obligations such as a mortgage, car payments, and possibly child care. It may be tough to also save for retirement, but it’s important not to fall behind. Try to contribute a little more to your 401(k) each year if you can — even 1% more annually can make a difference.

That means if you’re contributing 6% this year, next year contribute 7%. And the year after that bump up your contribution to 8%, and so on until you reach the maximum amount you can contribute. Some 401(k) plans have an auto escalation option that will automate the extra savings for you, to make the process even easier and more seamless. Check your plan to see if it has such a feature.

As You Get Closer to Retirement

Once you reach age 50, you’ll likely want to figure out how much you might need for retirement so you have a specific goal to aim for. To help reach your goal, consider maxing out your 401(k) at this time and also make catch-up contributions if necessary.

Maxing out your 401(k) means contributing the full amount allowed. For 2025, that’s $23,500 for those under age 50, and in 2026, it’s $24,500 for those under age 50.. If, at 50, you haven’t been contributing as much as you wish you had in previous years, you can also contribute the catch-up contribution of $7,500 in 2025 and $8,000 in 2026. So you’d be saving $31,000 in 2025 and $32,500 in 2026. And if you are aged 60 to 63, you can contribute an additional catch-up of $11,250 in 2025 and 2026, instead of $7,500 in 2025, for a total of $81,250, and instead of $8,000 in 2026, for a total of $83,250. With the potential of compounding returns, maxing out your 401(k) until you reach full retirement age of 67 could go a long way to helping you achieve financial security in retirement.

The Impact of Contributing More Over Time

The earlier you start saving for retirement, the more time your money will potentially have to grow, thanks to the power of compounding returns, as mentioned above.

In addition, by increasing your 401(k) contributions each year, even by just 1% annually, the savings could really add up. For instance, consider a 35-year-old making $60,000 who contributes 1% more each year until their full retirement age of 67. Assuming a 5.5% annual return and a modest regular increase in salary, they could potentially save more than an additional $85,000 for retirement.

That’s just an example, but you get the idea. Increasing your savings even by a modest amount over the years may be a powerful tool in helping you realize your retirement goals.

Factors That May Impact Your Decision

In addition to the general ideas above for the different stages of your life and career, it’s also wise to think about taxes, your employer contribution, your own goals, and more when deciding how much to contribute to your 401(k).

1. The Tax Effect

The key fact to remember about 401(k) plans is that they are tax-deferred accounts, and they are considered qualified retirement plans under ERISA (Employment Retirement Income Security Act) rules.

That means: The money you set aside is typically deducted from your paycheck pre-tax, and it grows in the account tax free — but you pay taxes on any money you withdraw. (In most cases, you’ll withdraw the money for retirement expenses, but there are some cases where you might have to take an early 401(k) withdrawal. In either case, you’ll owe taxes on those distributions.)

The tax implications are important here because the money you contribute effectively reduces your taxable income for that year, and potentially lowers your tax bill.

Let’s imagine that you’re earning $120,000 per year, and you’re able to save the full $23,500 allowed by the IRS for 2025. Your taxable income would be reduced from $120,000 to $96,500, thus putting you in a lower tax bracket. And if you saved the full $24,500 allowed for 2026, your taxable income would be reduced to $95,500, again putting you in a lower tax bracket.

2. Your Earning Situation

One rule-of-thumb is to save at least 10% of your annual income for retirement. So if you earn $100,000, you’d aim to set aside at least $10,000. But 10% is only a general guideline. In some cases, depending on your income and other factors, 10% may not be enough to get you on track for a secure retirement, and you may want to aim for more than that to make sure your savings will last given the cost of living longer.

For instance, consider the following:

• Are you the sole or primary household earner?

• Are you saving for your retirement alone, or for your spouse’s/partner’s retirement as well?

• When do you and your spouse/partner want to retire?

If you are the primary earner, and the amount you’re saving is meant to cover retirement for two, that’s a different equation than if you were covering just your own retirement. In this case, you might want to save more than 10%.

However, if you’re not the primary earner and/or your spouse also has a retirement account, setting aside 10% might be adequate. For example, if the two of you are each saving 10%, for a combined 20% of your gross income, that may be sufficient for your retirement needs.

All of this should be considered in light of when you hope to retire, as that deadline would also impact how much you might save as well as how much you might need to spend.

3. Your Retirement Goals

What sort of retirement do you envision for yourself? Even if you’re years away from retirement, it’s a good idea to sit down and imagine what your later years might look like. These retirement dreams and goals can inform the amount you want to save.

Goals may include thoughts of travel, moving to another country, starting your own small business, offering financial help to your family, leaving a legacy, and more.

You may also want to consider health factors, as health costs and the need for long-term care can be a big expense as you age.

4. Do You Have Debt?

It can be hard to prioritize saving if you have debt. You may want to pay off your debt as quickly as possible, then turn your attention toward saving for the future.

The reality is, though, that debt and savings are both priorities and need to be balanced. It’s not ideal to put one above the other, but rather to find ways to keep saving even small amounts as you work to get out of debt.

Then, as you pay down the money you owe — whether from credit cards or student loans or another source — you can take the cash that frees up and add that to your savings.

The Takeaway

Many people wonder how much to contribute to a 401(k). There are a number of factors that will influence your decision. First, there are the contribution limits imposed by the IRS. In 2025, the maximum contribution you can make to your 401(k) is $23,500, plus an additional $7,500 catch-up contribution if you’re 50 and up. In 2026, you can contribute a maximum of $24,500, plus an additional $8,000 catch-up contribution if you’re 50 or older. And if you are aged 60 to 63, in 2025 and 2026, you can contribute up to $11,250 instead of $7,500, and $8,000 respectively, thanks to SECURE 2.0.

While few people can start their 401(k) journey by saving quite that much, it’s wise, if possible, to contribute enough to get your employer’s match early in your career, then bump up your contribution amounts at the midpoint of your career, and max out your contributions as you draw closer to retirement, if you can.

Another option is follow a common guideline and save 10% of your income beginning as soon as you can swing it. From there, you can work up to saving the max. And remember, you don’t have to limit your savings to your 401(k). You may also be able to save in other retirement vehicles, like a traditional IRA or Roth IRA.

Of course, a main determination of the amount you need to save is what your goals are for the future. By contemplating what you want and need to spend money on now, and the quality of life you’d like when you’re older, you can make the decisions that are best for you.

Help grow your nest egg with a SoFi IRA.

FAQ

How much should I contribute to my 401(k) per paycheck?

If you can, try to contribute at least enough of each paycheck to get your employer’s matching funds, if they offer a match. So if your employer matches 6% of your contributions, aim to contribute at least 6% of each paycheck.

What percent should I put in my 401(k)?

A common rule of thumb is to contribute at least 10% of your income to your 401(k) to help reach your retirement goals. Just keep in mind the annual 401(k) contribution limits so you don’t exceed them. For 2025, those limits are $23,500, plus an additional $7,500 for those 50 and up. For 2026, the limits are $24,500, plus an additional $8,000 for those 50 and older. In both 2025 and 2026, those aged 60 to 63 may contribute up to an additional $11,250 (instead of $7,500 and $8,000 respectively).

Is 10% too much to contribute to 401(k)? What about 20%?

Contributing at least 10% to your 401(k) is a common rule of thumb to help save for retirement. If you are able to contribute 20%, it can make sense to do so. Just be sure not to exceed the annual 401(k) contribution limits. The contribution limits may change each year, so be sure to check annually.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Feb

2026

What Is 401(k) Auto Escalation?

By Austin Kilham | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

One way to ensure you’re steadily working toward your retirement goals is to automate as much of the process as possible. Some employers streamline the retirement savings process for their employees with automatic enrollment, signing you up for a retirement plan unless you choose to opt out.

There are many ways to automate a 401(k) experience at every step of the way. You can have contributions taken directly from your paycheck before they ever hit your bank account and invest them right away. With automatic deductions, you’re more likely to save for your future rather than spending on immediate needs.

In some cases, you may also be able to automatically increase the amount you save. Some employers also offer a 401(k) auto escalation option that could increase your retirement savings amount as you get older. Here’s a closer look at how 401(k) auto escalation works and how it may help you on your way to your retirement goals.

Key Points

• 401(k) auto escalation automatically increases contributions at regular intervals until a preset maximum is reached.

• The SECURE Act allows auto escalation up to 15% of an employee’s salary.

• Auto escalation helps employees save more for retirement without needing to adjust contributions manually.

• Employers benefit from auto escalation by attracting and retaining talent and possibly reducing payroll taxes.

• Employees should assess if auto escalation aligns with their financial capabilities and retirement goals.

401(k) Recap

A 401(k) is a defined contribution plan offered through your employer. It allows employees to contribute some of their wages directly from their paycheck. Contributions are made with pre-tax money, which may reduce taxable income in the year they are made, providing an immediate tax benefit.

In 2025, employees can contribute up to $23,500 a year to their 401(k), and in 2026, they can contribute up to $24,500. Those aged 50 and older can contribute an extra $7,500 in 2025 and $8,000 in 2026, bringing their potential contribution total to $31,000 in 2025 and $32,500 in 2026. For both 2025 and 2026, those aged 60 to 63 may contribute up to an additional $11,250, instead of $7,500 and $8,000 respectively, thanks to SECURE 2.0.

Under a new law that went into effect on January 1, 2026 as part of SECURE 2.0, individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account. With Roth accounts, individuals pay taxes on contributions upfront, but can make qualified withdrawals tax-free in retirement.

For many individuals, the goal is to eventually max out a 401(k) up to the contribution limit. Employers may offer matching funds to help encourage employees to save. Individuals should aim to contribute at least enough to meet their employer’s match, in order to get that “free money” from their employer to invest in their future.

💡 Quick Tip: Did you know that you must choose the investments in your IRA? Once you open an IRA account and start saving, you get to decide which mutual funds, ETFs, or other investments you want — it’s totally up to you.

How 401(k) Auto Escalation Works

An auto escalation is a 401(k) feature that automatically increases your contribution at regular intervals by a set amount until a preset maximum is achieved. The SECURE Act, signed into law in 2019, allows auto escalation programs to raise contributions up to 15%. Before then, the cap on default contributions was 10% for auto escalation programs.

For example, you may choose to set your auto escalation rate to raise your contributions by 1% each year. Once you hit that 15% ceiling, auto escalation will cease. However, you can still choose to increase the amount you are saving on your own beyond that point.

Advantages of 401(k) Auto Escalation

When it comes to auto escalation programs, there are important factors to consider — for employees as well as for employers who sponsor the 401(k) plan.

Advantages for Employees

• Auto escalation is one more way to automate savings for retirement, so that it is always prioritized.

• Auto escalation may increase the amount employees save for retirement more than they would on their own.

• Employees don’t have to remember to make or increase contributions themselves until they reach the auto escalation cap.

• Increasing tax-deferred contributions may help reduce an employee’s tax burden.

Advantages for Sponsors

Employers who offer auto escalation may find it helps with both employee quality and retention as well as with reducing taxes.

• Auto escalation provides a benefit that may help attract top talent.

• It helps put employees on track to automatically save, which may increase retention and contribute to their sense of financial well-being.

• It reduces employer payroll taxes, because escalated funds are contributed pre-tax by employees.

• It may generate tax credits or deductions for employers. For example, matching contributions may be tax deductible.

• As assets under management increase, 401(k) companies may offer lower administration fees or even the ability to offer additional services to participants.

Disadvantages of 401(k) Auto Escalation

While there are undoubtedly benefits to 401(k) auto escalation, there are also some potential downsides to consider.

Disadvantages for Employees

Even on autopilot, it can be important to review contributions so as to avoid these disadvantages.

• Auto escalation may lull employees into a false sense of security. Even if they’re increasing their savings each year, if their default rate was too low to begin with, they may not be saving enough to meet their retirement goals.

• If an employee experiences a pay freeze or hasn’t received a raise in a number of years, auto escalation will mean 401(k) contributions represent an increasingly larger proportion of take-home pay.

Disadvantages for Sponsors

Employers may want to consider these potential downsides before offering 401(k) auto escalation.

• Auto escalation requires proper administrative oversight to ensure that each employee’s escalation amounts are correct — and it may be time-consuming and costly to fix mistakes.

• This option may increase the need to communicate with 401(k) record keepers.

• Auto escalation may cause employer contribution amounts to rise.

Is 401(k) Auto Escalation Right for You?

If your employer offers auto escalation, first determine your goals for retirement. Consider whether or not your current savings rate will help you achieve those goals and whether escalation could increase the likelihood that you will.

Also decide whether you can afford to increase your contributions. Perhaps your default rate is already set high enough that you are maxing out your retirement savings budget. In this case, auto escalation might land you in a financial bind.

However, if you have room in your budget, or you expect your income to grow each year, auto escalation may help ensure that your retirement savings continue to grow as well.

If your employer does not offer auto escalation, or you choose to opt out, consider using pay raises as an opportunity to change your 401(k) contributions yourself.

The Takeaway

A 401(k) is one of many tools available to help you save for retirement — and auto escalation can help you increase your contributions regularly without any additional thought or effort on your part.

If you’ve maxed out your 401(k) or you’re looking for a retirement account with more flexible options, you might want to consider a traditional or Roth IRA. Both types of IRAs offer tax-advantaged retirement savings.

Help grow your nest egg with a SoFi IRA.

FAQ

Is 401(k) auto enrollment legal?

Yes, automatic enrollment allows employers to automatically deduct 401(k) contributions from an employee’s paycheck unless they have expressly communicated that they wish to opt out of the retirement plan.

What is automatic deferral increase?

Automatic deferral increase is essentially the same as auto escalation. It automatically increases the amount that you are saving by a set amount at regular intervals.

Can a company move your 401(k) without your permission?

Your 401(k) can be moved without your permission by a former employer if the 401(k) has a balance of $5,000 or less.

Photo credit: iStock/Halfpoint

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

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Feb

2026

Ways to Build Wealth at Any Age

By Ashley Kilroy | Growing Wealth, Investing | No Comments

There are many time-honored ways to build wealth — at any age — and most of these methods include a few important steps: learning to set goals, save and invest, and avoid high-interest debt.

In other words, it’s possible to build wealth at any age, because almost anyone can learn the fundamental tenets of wealth-building. Embracing smart money-management habits may improve your long-term financial security, whether you use those funds for the purchase of a home, long-term goals such as retirement, or estate planning for after you’re gone.

The key, however, is to start as soon as possible, rather than wait until the right time (which may never come).

Key Points

• Building wealth can be accomplished at almost any age, because it’s the result of mastering smart money management skills.

• The common elements of wealth building include learning skills like saving, investing, setting goals, and avoiding certain types of debt.

• Wealth building also requires learning how to put your money into assets that have the potential to gain value.

• Being proactive about wealth building means saving and investing for the future, while finding ways to enjoy the present, too.

• Understanding wealth building at different ages also requires understanding specific challenges that can arise at various times of life.

Set Short- and Long-Term Goals

The first step in building wealth is to set short- and long-term goals that you can revisit and revise at any time, as needed.

Short-term goals focus on achieving near-term results, such as funding next summer’s trip or buying a new car.

In contrast, long-term goals might require several years or more of preparation. For example, you may want to collect enough to pay off your mortgage or send your kid to college . Creating realistic goals gives you direction, so make them as specific as possible.

Create a Budget

Once you know your goals, drafting a monthly budget is the next step.

Document up to three months’ worth of expenses by using a spending-tracker app, or a basic notebook. Then, break the list down into fixed costs, variable costs, necessary costs, and discretionary costs. It’s essential to know where your money is going, in order to make smart decisions about your priorities.

You probably can’t stop paying your utilities, but you will likely find places to save in your discretionary category (think restaurant meals, or entertainment expenses). Making cuts in some areas can help you channel money into your goals.

There are a number of effective budgeting methods and systems. Some rely on an app, others use hands-on strategies such as dividing your spending into separate envelopes. It’s important to try different budgets and find one you can stick with.

Pay Off Debt

To dedicate more money toward building wealth and saving for your goals, you’ll likely need to pay off some debt first. You can use your discretionary income as a tool for minimizing your debt load.

If you have multiple debts, consider using a debt reduction method, such as the avalanche method or the snowball method, to accelerate the process.

The Avalanche Method

The avalanche method prioritizes high-interest debts by ranking the interest rates from highest to lowest. Then, regularly pay the minimum on each of your debts, and put any leftover funds towards the one with the highest interest rate.

Once you pay that off, continue on to the second-highest debt. Follow that pattern to minimize the interest you’re paying as you become debt-free.

Snowball Method

Alternatively, the snowball method is another debt repayment strategy. It’s essentially the opposite of the avalanche approach. List your debts from the smallest balance to largest, ignoring the interest rates. Then, regularly dedicate enough funds to each to avoid penalties, and put any extra money toward the smallest debt.

After the smallest debt is paid, redirect your attention to the next largest debt, and so on. As the number of individual debts shrink, you’ll have more money to apply towards the larger debts. You may still have interests to worry about but picking off the debts one by one can impart a sense of forward movement and accomplishment.

Start Investing

Investing is an important way to build wealth at any age. Generally speaking, there are two ways to invest when building wealth. The first step is to max out your retirement savings. The second is to invest on your own.

Investing for Retirement

If you haven’t already, find out what if any employer-sponsored retirement savings plans are available to you, such as a 401(k) plan. These qualified retirement plans offer tax advantages, and typically allow you to direct a portion of your paycheck to your account, thus putting your savings on autopilot.

If your workplace does not offer any retirement accounts, consider whether you want to open an IRA — or a brokerage account to build an investment portfolio.

Generally, investing for retirement when you’re young means you can take on more risks. While a diversified portfolio is a standard strategy, younger investors might have a portfolio that’s heavier on equities , since they may help generate long-term growth.

As you get older and closer to retirement, your risk profile may change and your portfolio will need a rebalancing to incorporate more fixed-income investments, such as bonds, which are considered lower risk than stocks. Understanding stock market basics can help you become a more savvy investor.

Investing on Your Own

While investing for retirement should be a key part of your long-term wealth-building strategy, it’s also possible to open a taxable brokerage or online brokerage account for additional growth potential.

Investing always comes with the risk of loss, but many investors find ways to put their money to work by investing in low-cost mutual funds or exchange-traded funds (ETFs), as well as other types of securities.

One important aspect of active investing is knowing what the costs are. You may have to pay brokerage fees, expense ratios, trading commissions, and other charges. While these may seem small, or may be couched as a tiny percentage, investment fees can add up over time and reduce your returns.

How to Increase Your Income and Save More

You might be getting by on your current income, but there may be ways to boost what you bring home. With an extra-positive cash flow, you could pay down debt and save more, and achieve your goals sooner. Here are a few ways to make that happen.

Ask for a Raise

Asking for a salary increase is one solution for improving your cash flow. All it takes is a few good conversations, a positive work record — and a bit of courage and confidence. Speak to your peers and read up on how to conduct yourself when asking for a raise. Going in with a plan will save you anxiety and help you get your points across clearly.

Start a Side Gig

Additional work is also great to bulk up your resume and create new connections. It seems like everyone is starting up a side hustle these days. From online shops to freelancing, the opportunities are endless. All you have to do is determine your marketable skills and how to advertise them. There might be local opportunities, or you can create a profile online on side hustle-oriented websites.

Cut Expenses

Sometimes it’s not about finding new sources of money, but about creating a larger pool with the money already coming in. Take a second pass at your list of discretionary expenses to pinpoint a few more areas you could cut back on without feeling the impact in your day-to-day life.

One good example: Automatically renewed subscriptions for streaming services and local businesses, like gyms, are convenient. But think about how frequently you use the service. If the answer is “not often,” you’re not getting your money’s worth — and you may want to negotiate a lower fee, or cut the subscription altogether.

How to Build Wealth at Every Stage of Life

While it’s good to have a general strategy in place for building wealth and increasing cash flow, different stages in your life may require you to focus on different things. Taking advantage of the opportunities each decade brings you will help you financially adjust and build a stable lifestyle.

In Your 20s

You may be right out of school and trying to navigate the job market, but don’t wait to start working towards your long-term financial goals. The sooner you start, the sooner you’re likely to reach your goals.

Create an Emergency Fund

Generally, an emergency fund should include about three to six months’ worth of living expenses. Although that sounds like a lot, start small and save what you can. You’ll be grateful for the cushion if you should lose your job, need a car repair, or have a medical emergency.

Unexpected things happen all the time, and an emergency fund will protect you while you get things back up and running. It will also keep you from having to tap your savings accounts.

Eliminate High-Interest Debt

Your student loans aren’t going anywhere, so pay off student debt as soon as possible. The same goes for any other high-interest debt you might have incurred, such as with a credit card. Paying high interest rates will limit your ability to save.

However, don’t be afraid to use your credit cards responsibly. Your 20s are the perfect time to build good credit, which will be vital to certain goals, like purchasing a house. Use them strategically and pay them off immediately to build an upstanding credit history.

In Your 30s

Your 30s may bring some stability into your life, whether it’s a steady career, a partner, and/or kids. However, the costs you’re facing are likely growing with you. Focus on money moves that will benefit you long-term.

Plan for College Expenses

If you have children, saving for their education is a big step. Use opportunities like a 529 account to help provide the funding. A 529 plan is a tax-advantaged savings plan you can use to pay for future tuition and related costs. While saving for college is important, it’s essential to balance this with funding your retirement — which is an even bigger priority.

Pad the Nest Egg

By some popular estimates, by age 30 you should have at least one year’s worth of your annual salary saved for your retirement — and twice that by 35. Incrementally increasing the amount you put towards your savings will help boost that number as well. While these targets may seem big, the more important thing is to save steadily over time — that’s how real wealth-building happens.

In Your 40s, 50s and Beyond

By 40, conventional wisdom holds that you should be well on your way to a growing nest egg with three times your annual salary saved up. Again, this is just a target — but it can help you stay on track.

At this stage, you may also have other assets to your name, such as a home. If you have kids, they might be nearing college age, and retirement might not seem quite as far away as it once did. This will motivate you to save for your goals.

Protect Your Self and Your Wealth

It’s always smart to protect your assets — and yourself. Make sure you have insurance covering both you and your estate (through health and life insurance). Insurance can take a burden off of your family’s shoulders in case anything happens to you.

Capitalize on Make-Up Contributions

Maximizing your retirement savings is a key part of wealth-building at every age.

A make-up, or catch-up, contribution, is an additional payment that anyone over age 50 can make to their 401(k) or IRA account. If you’re in a financial position to contribute these extra funds, it can help bulk up those savings to help prepare for retirement.

For 2025, you can contribute up to $23,500 per year, and if you’re 50 or older, the maximum allowable catch-up contribution to 401(k) plans per year is $7,500, for a total of $31,000. In 2026, you can contribute up to $24,500 per year, and if you’re 50 or older, you can make a catch-up contribution of up to $8,000, for a total of $32,500.

However, there’s also something called a super catch-up contribution, which allows employees aged 60 to 63 to contribute an extra $11,250 in both 2025 and 2026 (instead of $7,500 and $8,000).

Under a new law that went into effect on January 1, 2026 as part of SECURE 2.0, individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account, meaning they’ll pay taxes on catch-up contributions upfront, but can make qualified withdrawals tax-free in retirement.

The annual IRA contribution limit for 2025 is $7,000, with those 50 and above allowed to contribute another $1,000 per year. In 2026, the limit if $7,500, with those 50 and older allowed to contribute an extra $1,100 per year. In total, anyone 50 or older can put $8,000 into their traditional or Roth IRA annually in 2025, and $8,600 in their IRA annually in 2026.

There are other types of retirement accounts for self-employed people that allow you to save more than in ordinary IRAs. Choosing the type of plan that matches your needs and helps you save and invest more is key to building wealth long term.

Wait to Take Social Security

Did you know you could receive a higher Social Security benefit if you wait to claim your benefits? Those who hold off collecting Social Security until age 67 — the full retirement age for people born in 1960 or afterward — get 108% of their benefits, and those who wait until the age of 70 can receive 132% of their monthly benefit.

On the other hand, if you begin taking benefits early, at age 62, you’ll receive 25% less in monthly benefits.

Shift Your Asset Allocation

Investors should periodically revisit their portfolio and reassess their investments and risk level. As you get closer to retirement, you may decide to allocate a larger part of your portfolio to safer choices like bonds and other fixed-income assets. This may not increase your nest egg, but it can help prevent losses.

The Takeaway

Building wealth at any age starts with a close look at your current income and expenditures, a detailed list of short-term and long-range goals — and a little follow-through based on where you are in life.

Some ways to start building wealth are to take on a side gig or side hustle, find ways to cut expenses and increase savings rates, and to start investing. There are numerous ways to do any of these, and it may take some experimenting to see what works for you.

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FAQ

What are the key principles for building wealth?

The basic tenets of building wealth may seem simple, but they require discipline. Spending less than you make, setting goals and saving toward those goals, learning to invest, and avoiding high-interest debt are generally good places to start.

Is 40 too late to start building wealth?

Even if you start at age 40, you should have enough runway to build wealth that can help support you later in life.

Does investing build wealth?

Investing involves risk, and there are no guarantees that investing your money will help it grow. That said, learning the ropes of how to invest and manage your money may help build wealth over time.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Feb

2026

The Average 401(k) Balance by Age

By Rebecca Lake | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Table of Contents

Average 401(k) Balance: Overview
Average 401(k) Balance: Under Age 25
Average 401(k) Balance: Ages 25-34
Average 401(k) Balance: Ages 35 to 44
Average 401(k) Balance: Ages 45 – 54
Average 401(k) Balance: Ages 55 to 64
Average 401(k) Balance: Ages 65 and Older
How Much Should I Have in My 401(k)?
Tips for Catching Up If You’re Behind

Key Points

• Establishing the habit of investing in a retirement plan early, even small amounts, may help you benefit from compounding returns.

• Aim to contribute enough to your 401(k) to get the full employer match, so you don’t leave money on the table.

• Automating contributions can make it easier to consistently build retirement funds over time.

• If you’re over 50, making catch-up contributions can boost your retirement savings.

• Paying attention to asset allocations, investment performance, and fees can help you make regular adjustments to target your goals.

What’s the Average 401(k) Balance?

The average 401(k) balance for all ages is $134,128, according to Vanguard’s How America Saves Report 2024. However, the average 401(k) balance by age of someone in their 20s is very different from the balance of someone in their 50s and 60s. That’s why it’s helpful to know how much you should have saved in your 401(k) at different ages.

Seeing what others are saving in their 20s, 30s, 40s, 50s, and beyond can be a useful way to gauge whether you’re on track with your own retirement plans and what else you can do to maximize this critical, tax-deferred form of savings.

Average and Median 401(k) Balance by Age Group

Pinning down the average 401(k) account balance can be challenging, as only a handful of sources collect information on retirement accounts, and they each have their own methods for doing so.

Vanguard is one of the largest 401(k) providers in the U.S., with nearly 5 million participants. For this review of the average and median 401(k) balance by age, we use data from Vanguard’s How America Saves Report 2024.

It’s important to look at both the average balance amounts, as well as the median amounts. Here’s why: Because there are people who save very little, as well as those who have built up very substantial balances, the average account balance only tells part of the story. Comparing the average amount with the median amount — the number in the middle of the savings curve — provides a reality check as to how other retirement savers in your age group may be doing.

Age Group	Average 401(k) Balance	Median 401(k) Balance
Under 25	$7,351	$2,816
25-34	$37,557	$14,933
35-44	$91,281	$35,537
45-54	$168,646	$60,763
55-64	$244,750	$87,571
65+	$272,588	$88,488

Source: Vanguard’s How America Saves Report 2024

Average 401(k) Balance for Ages 25 and Under

• Average 401(k) Balance: $7,351

• Median 401(k) Balance: $2,816

• Key Challenges for Savers: Because they are new to the workforce, this age group is likely to be making lower starting salaries than those who have been working for several years. They may not have the income to put towards a 401(k). In addition, debt often presents a big challenge for younger savers, many of whom may be paying down student loan debt, credit card debt, or both.

• Tips for Savers: While being debt-free is a priority, it’s also crucial to establish the habit of saving now — even if you’re not saving a lot. The point is to save steadily, whether that’s by contributing to your 401(k) or an investment account, and to automate your savings.

By starting early, even small contributions have the potential to grow over time because of the power of compounding returns.

Average 401(k) for Ages 25 to 34

• Average 401(k) Balance: $37,557

• Median 401(k) Balance: $14,933

• Key Challenges for Savers: At this stage, savers may still be repaying student loans, which can take a chunk of their paychecks. At the same time, they may also be making big — and expensive — life changes like getting married or starting a family.

• Tips for Savers: You’ve got a lot of competing financial responsibilities right now, but it’s vital to make saving for your future a priority. Contribute as much as you can to your 401(k). If possible, aim to contribute at least the amount needed to get your employer’s matching contribution, which is essentially free money. And when you get a raise or bonus at work, direct those extra funds into your 401(k) as well.

Average 401(k) for Ages 35 to 44

• Average 401(k) Balance: $91,281

• Median 401(k) Balance: $35,537

• Key Challenges for Savers: While your late 30s and early 40s may be a time when salaries range higher, it’s also typically a phase of life when there are many demands on your money. You might be buying a home, raising a family, or starting a business, and it could feel more important to focus on the ‘now’ rather than the future.

• Tips for Savers: Even if you can’t save much more at this stage than you could when you were in your early 30s, you still may be able to increase your savings rate a little. Many 401(k) plans offer the opportunity to automatically increase your contributions each year. If your plan has this feature, take advantage of it. A 1% or 2% increase in savings annually can add up over time. And because the money automatically goes directly into your 401(k), you won’t miss it.

Average 401(k) for Ages 45 to 54

• Average 401(k) Balance: $168,646

• Median 401(k) Balance: $60,763

• Key Challenges for Savers: These can be peak earning years for some individuals. However, at this stage of life, you may also be dealing with the expense of sending your kids to college and helping ailing parents financially.

• Tips for Savers: The good news is, that starting at age 50, the IRS allows you to start making catch-up contributions to your 401(k). For 2025, the regular contribution limit is $23,500, but individuals ages 50 and up can make an additional $7,500 in 401(k) catch-up contributions for a total of $31,000. For 2026, while those under age 50 can contribute up to $24,500, individuals who are 50 and up can contribute an additional $8,000 for a total of $32,500.

Under a new law that went into effect on January 1, 2026 as part of SECURE 2.0, individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account, meaning they’ll pay taxes on catch-up contributions upfront, but can make qualified withdrawals tax-free in retirement.

While money may be tight because of family obligations, this may be the perfect moment — and the perfect incentive — to renew your commitment to retirement savings because you can save so much more.

If you max out your 401(k) contributions, you may also want to consider opening an IRA. An individual retirement account is another vehicle to help you save for your future, and depending on the type of IRA you choose, there are potential tax benefits you could take advantage of now or after you retire.

Average 401(k) for Ages 55 to 64

• Average 401(k) balance: $244,750

• Median 401(k) balance: $87,571

• Key Challenges for Savers: As retirement gets closer, this is the time to save even more for retirement than you have been. That said, you may still be paying off your children’s college debt and your mortgage, which can make it tougher to allocate money for your future.

• Tips for Savers: In your early 60s, it may be tempting to consider dipping into Social Security. At age 62, you can begin claiming Social Security retirement benefits to supplement the money in your 401(k). But starting at 62 gives you a lower monthly payout for the rest of your life. Waiting until the full retirement age, which is 66 or 67 for most people, will allow you to collect a benefit that’s approximately 30% higher than what you’d get at 62. And if you can hold off until age 70 to take Social Security, that can increase your benefit as much as 32% versus taking it at 66.

In 2025 and 2026, those in their early 60s can also take advantage of an additional catch-up to their 401(k). Specifically, those aged 60 to 63 can contribute an additional $11,250 in catch-up contributions (instead of $7,500) to their 401(k) in 2025, and an additional $11,250 in 2026 (instead of $8,000), thanks to SECURE 2.0. Again, because of the new law regarding catch-up contributions, individuals aged 50 and older with FICA wages exceeding $150,000 in 2025 are required to put their catch-up contributions into a Roth 401(k) account.

Average 401(k) for Ages 65 and Older

• Average 401(k) balance: $272,588

• Median 401(k) balance: $88,488

• Key Challenges for Savers: It’s critical to make sure that your savings and investments will last over the course of your retirement, however long that might be. You may be underestimating how much you’ll need. For instance, healthcare costs can rise in retirement since medical problems can become more serious as you get older.

• Tips for Savers: Draw up a retirement budget to determine how much you might need to live on. Be sure to include healthcare, housing, and entertainment and travel. In addition, consider saving money by downsizing to a smaller, less costly home, and continue working full-time or part-time to supplement your retirement savings. And finally, keep regularly saving in retirement accounts such as a traditional or Roth IRA, if you can.

Recommended: When Can I Retire?

How Much Should I Have in My 401(k)?

The amount you should have in your 401(k) depends on a number of factors, including your age, income, financial obligations, and other investment accounts you might hold. According to Fidelity’s research on how much is needed to retire , an individual should aim to save about 15% of their income a year (including an employer match) starting at age 25.

To get a sense of how this looks at various ages, the chart below shows the average 401(k) balance by age, according to Vanguard’s research, as well as Fidelity’s rule of thumb for what your target 401(k) balance should roughly be at that age. Note that these are just guidelines, but they can give you a goal to work toward.

Age Group	Average 401(k) Balance*	Approximate Target 401(k) Balance**
Under 25	$7,351	Less than 1x your salary
25-34	$37,557	1x your salary by age 30
35-44	$91,281	2x your salary by age 35 3x your salary by age 40
45-54	$168,646	4x your salary by age 45 6x your salary by age 50
55-64	$244,750	7x your salary by 55 8x your salary by 60
65+	$272,588	10x your salary by age 67

*Source: Vanguard’s How America Saves Report 2024
**Source: Fidelity Viewpoints: How Much Do I Need to Retire?

Tips for Catching Up If You’re Behind

If your savings aren’t where they should be for your stage of life, take a breath — there are ways to catch up. These seven strategies can help you build your nest egg.

1. Automate your savings.

Automating your 401(k) contributions ensures that the money will go directly from your paycheck into your 401(k). You may also be able to have your contribution amount automatically increased every year, which can help accelerate your savings. Check with your employer to see if this is an option with your 401(k) plan.

2. Maximize 401(k) contributions.

The more you contribute to your 401(k), the more growth you can potentially see. At the very least, aim to contribute enough to qualify for the full employer matching contribution if your company offers one.

3. Make catch-up contributions if you’re eligible.

As mentioned, once you turn age 50, you can contribute even more money to your 401(k). If you can max out the regular contributions each year, making additional catch-up contributions to your 401(k) may help you grow your account balance faster.

4. Consider opening an IRA.

If you’ve maxed out all your 401(k) contributions, you could open a traditional or Roth IRA to help save even more for retirement. For 2025, those under age 50 can contribute up to $7,000 to an IRA or up to $8,000 if they’re 50 and older. For 2026, they can contribute up to $7,500 to an IRA or up to $8,600 if they’re 50 or older.

5. Make sure you have the right asset allocations.

The younger you are, the more time you have to recover from market downturns, so you may choose to be a little more aggressive with your investments. On the other hand, if you have a low risk capacity, you may opt for more conservative investments.

Either way, you want to save and invest your money wisely. Consider using a mix of investment vehicles, such as stocks, bonds, exchange-traded funds (ETFs), and mutual funds, to help diversify your portfolio. Just be aware that investing always involves some risk.

6. Pay Attention to Fees.

Fees can erode your investment returns over time and ultimately reduce the size of your nest egg. As you choose investments for your 401(k), consider the cost of different funds. Specifically, look at the expense ratio for any mutual funds or ETFs offered by the plan. This reflects the cost of owning the fund annually, expressed as a percentage. The higher this percentage, the more you’ll pay to own the fund.

7. Conduct an Annual Financial Checkup.

It can be helpful to check in with your goals periodically to see how you’re doing. For example, you might plan an annual 401(k) checkup at year’s end to review how your investments have performed, what you contributed to the plan, and how much you’ve paid in fees. This can help you make smarter investment decisions for the upcoming year.

The Takeaway

The average and median 401(k) balances and the target amounts noted above reflect some important realities for different age groups. Some people can save more, others less — and it’s crucial to understand that many factors play into those account balances. It’s not simply a matter of how much money you have, but also the choices you make.

For instance, starting early and saving regularly can help your money grow. Contributing as much as possible to your 401(k) and getting an employer match are also smart strategies to pursue, if you’re able to. And opening an IRA or an investment account are other potential ways to help you save for the future.

With forethought and planning, you can put, and keep, your retirement goals on track.

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FAQ

What is a good 401(k) balance?

A good 401(k) balance is different for everyone and depends on their age, specific financial situation, and goals. The general rule of thumb is to have 401(k) savings that’s equivalent to your salary by age 30, three times your salary by age 40, six times your salary by age 50, 8 times your salary by age 60, and 10 times your salary by age 67.

How much do most people retire with?

According to the Federal Reserve’s most recent Survey of Consumer Finances, the average 401(k)/IRA account balance for adults ages 55 to 64 was $204,000. Keep in mind, however, that when it comes to savings, one rule of thumb, according to Fidelity, is for an individual to have 8 times their salary saved by age 60 and 10 times their salary saved by age 67.

About the author

Rebecca Lake

Photo credit: iStock/kate_sept2004

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