The U.S. retirement system passed an important milestone earlier this year when The Wall Street Journal reported that for the first time ever, half of private sector workers are saving in 401(k) plans.
Not signing up for a 401(k) when you have access to one is a major financial no-no, according to Robert Johnson, Ph.D., CFA, chairman and CEO at Economic Index Associates, professor of finance at Creighton University, and co-author of “The Tools & Techniques of Investment Planning.”
“One of the most important financial decisions anyone makes in their life is the decision to participate in an employer sponsored retirement plan,” Robinson told GOBankingRates. “Perhaps the worst financial mistake anyone can make is turning down free money. [But] many people put such a high priority on paying down debt or buying a home that they do not participate in their company 401(k) plan.”
If you are enrolled in a 401(k) plan, check out these four things you’ll never regret doing with it.
The best time to sign up for a 401(k) is when you first enter the workforce. The earlier you get started, the more you can take advantage of compounding that helps your nest egg grow faster.
Once you do sign up, Johnson recommended putting at least part of your money into a low-fee, diversified equity index fund.
“Dollar-cost averaging into an index mutual fund or ETF is a terrific lifelong strategy,” he said. “[You] should be 100% invested in stocks and have no bond exposure [early on].”
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Another important step is to make sure your contribution qualifies for a matching contribution from your employer. That match essentially means you are getting free money.
“People should do whatever it takes to participate in their company’s 401(k) plan to the level to get the full employer match,” Robinson said. “The opportunity loss of not electing to participate in an employer matching program is substantial. If you have a 100% employer matching program, you are essentially electing to turn down the equivalent of 100% of what your own contributions would grow to.”
The maximum annual contribution you can make to a 401(k) will rise to $24,500 in 2026 from $23,500 in 2025, according to the IRS. If you have the financial resources to do so, aim to max out your contribution every year.
Doing so not only increases your retirement savings but “also reduces your tax bill,” according to Robinson.