Understanding Your 401(k)
- Spectrum Investment Advisors
- 22 minutes ago
- 3 min read
A Guide to Saving for Your Future

When it comes to preparing for retirement, one of the most powerful tools available is your 401(k) plan. Whether you’re new to the workforce or well into your career, understanding how your 401(k) works can help you make the most of this important benefit.
What is a 401(k)?
A 401(k) plan is a type of retirement savings and investing plan offered through your employer. Your employer may also offer matching contributions. Essentially, when you contribute to your 401(k), your employer may match up to a certain percent of salary. If you contribute less than your employer matches, you are missing out on free money.

How a 401(k) Works
A 401(k) is a retirement savings plan offered by many employers that allows you to set aside money directly from your paycheck. You choose how much to contribute, and the money is invested in the plan’s available options, such as mutual funds, stocks, or bonds. Your savings grow with the potential for compound returns over time, and many employers also offer matching contributions to help you save more.
Traditional vs. Roth Contributions
When you put money into your 401(k), you may have the choice of contributing in one or both of these ways:
Traditional (Pre-Tax) – Contributions are made before taxes are taken out of your paycheck. This lowers your taxable income now, but you’ll pay taxes on withdrawals in retirement.
Roth (After-Tax) – Contributions are made after taxes are taken out of your paycheck. There’s no immediate tax benefit, but withdrawals in retirement can be tax-free if certain requirements are met.
Combination Approach – Some plans allow you to split contributions between Traditional and Roth, giving you flexibility for both now and in the future.
Want to dive deeper? Check out our webinar: Explore Pre-Tax & Roth Retirement Options
How Much I Can Save?
Each year, the IRS sets a maximum contribution limit. For 2025, you can contribute up to $23,500 if you’re under 50. If you’re 50 or older, you can make catch-up contributions of up to $7,500 more, and if you are between the ages of 60-63, you can save an extra $11,250 with super catch-up contributions.
How Much Should I Save?
We generally recommend you save around 12 to 15% of your income for retirement. But remember, you do not have to start at that percentage right away. Even starting small is a step in the right direction.
But remember, you do not have to start at that percentage right away. You can gradually increase your contribution over time, and if your plan allows, automatic escalation can help make the process easier. The earlier you start, the more you can benefit from compound growth, where your earnings generate their own earnings over time.
Savings Benchmarks
Here’s a general guide for how much you might aim to have saved at different ages (based on annual salary multiples):
Age Recommended Savings Goal*
30 1x your annual salary
40 3x your annual salary
50 6x your annual salary
60 8x your annual salary
65+ 10x your annual salary

*These benchmarks are general guidelines and can vary based on your personal circumstances, lifestyle goals, and retirement age.
The Bottom Line
Your 401(k) is a powerful way to build toward a secure retirement. By understanding how it works, contributing consistently, and aiming for the recommended savings rate, you can set yourself on the path toward a more confident financial future.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
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