How to Start a 401(k) Through Your Employer

You get a 401(k) by enrolling in your employer's plan if one is offered

A 401(k) is a retirement savings account that your employer sets up and manages. You do not get one on your own — you enroll in the plan your company offers. If your employer has a 401(k) plan, you will usually be invited to join during your first few weeks of employment, or you can ask your HR or benefits department when enrollment periods happen.

Not all employers offer a 401(k). Small businesses sometimes use a different retirement plan, like a SEP IRA or a straightforward IRA. If your employer does not have a 401(k), you have other options, but they work differently and are not covered here.

The enrollment process is straightforward: you fill out a form (usually online now), choose how much of your paycheck to contribute, and pick how your money is invested from the options your plan offers. Your employer then starts deducting that amount from each paycheck before taxes are taken out.

Key Takeaways

• You enroll in your employer's 401(k) plan during an open enrollment period, usually once a year, or when you are first hired.
• You choose what percentage of your paycheck to contribute, and your employer deducts that amount before income tax is calculated.
• Your employer may match a portion of what you contribute — for example, matching 50 cents for every dollar you put in, up to 3 percent of your salary.
• You pick from a list of investment options (usually mutual funds) that your plan offers, and your contributions are invested in those funds.
• You cannot withdraw the money before age 59½ without paying a penalty, with limited exceptions.

When your employer opens enrollment and how to sign up

Most employers have one open enrollment period per year, usually in the fall. During this window, you can enroll in the plan for the first time, change how much you contribute, or switch your investment choices. If you are hired outside of open enrollment, your employer may let you enroll right away as a new employee.

To enroll, contact your HR department or benefits administrator and ask for the enrollment materials. Many companies now handle this through an online portal where you log in, review the plan documents, choose your contribution amount, and pick your investments. Some still use paper forms. Either way, you will need to decide on a contribution percentage before you submit.

If you miss the enrollment window and your employer does not allow new-hire enrollment, you will have to wait until the next open enrollment period. Mark your calendar so you do not miss it again.

How much you can contribute and what your employer might match

You decide what percentage of your paycheck goes into the 401(k), up to a yearly limit set by the IRS. That limit changes each year — it was $23,500 in 2024 for people under 50. Your employer will tell you what the current limit is when you enroll.

Many employers offer a match, meaning they contribute money to your account based on how much you contribute. A common match is 50 cents for every dollar you contribute, up to 3 percent of your salary. This means if you earn $50,000 and contribute 3 percent ($1,500), your employer adds $750. If you contribute less than 3 percent, they match only what you put in. If you contribute more than 3 percent, they still only match up to 3 percent of your salary.

The match is information programs, so most financial advisors recommend contributing at least enough to get the full match. If your employer matches 3 percent, contribute at least 3 percent. If you cannot afford that right now, contribute what you can and increase it when you get a raise.

Choosing your investments from the plan's options

When you enroll, you will see a list of investment options — usually 10 to 30 different mutual funds or target-date funds. You do not pick individual stocks. Instead, you choose which funds your contributions go into, and your money is invested in those funds automatically.

A target-date fund is the simplest choice for most people. You pick the fund that matches the year you plan to retire (for example, "Target Date 2055" if you think you will retire around 2055). The fund automatically adjusts its mix of stocks and bonds as you get closer to retirement, becoming more conservative over time. You do not have to think about it again.

If you want more control, you can pick individual funds from the list. Your plan will show you what each fund invests in, its past performance, and its fees. If you are unsure, ask your HR department or a financial advisor — many employers offer free guidance sessions.

Understanding vesting and when the money is truly yours

Money you contribute is yours when ready — you own it from day one. Money your employer contributes (the match) may not be yours right away. Vesting is the schedule that determines when your employer's contributions become yours to keep.

Some employers use a cliff vesting schedule, where you own 0 percent of the match until you have worked there for a set number of years (often three), then you own 100 percent. Others use graded vesting, where you own a percentage each year — for example, 20 percent after one year, 40 percent after two years, and so on until you own it all.

Your plan documents will tell you the vesting schedule. If you leave your job before you are fully vested, you lose the unvested portion of your employer's match. Your own contributions always go with you.

What happens to your 401(k) if you change jobs

When you leave your job, your 401(k) stays in that employer's plan unless you move it. You have several options: leave it where it is, roll it into your new employer's plan (if they allow it), or roll it into an IRA. Each option has different rules and tax consequences.

A rollover means moving the money from one account to another without cashing it out. If you roll it to an IRA or a new employer's plan, you do not pay taxes or penalties. If you cash it out and take the money yourself, you will owe income tax on the full amount plus a 10 percent penalty if you are under 59½.

Do not leave your old 401(k) sitting with a former employer longer than necessary. If the balance is very small (under $5,000), some employers will force you to move it or cash it out. Talk to your new employer's benefits department about rolling it over when you start your new job.

Early withdrawal rules and exceptions

You cannot withdraw money from your 401(k) before age 59½ without paying a 10 percent penalty on top of income tax, with a few exceptions. The IRS allows penalty-free withdrawals (though you still pay income tax) for hardship situations like medical bills, home purchase, or education expenses. The rules are strict, and you have to prove the hardship.

Some plans allow loans instead of withdrawals. You borrow from your own 401(k) and repay it with interest. This avoids the penalty and the when ready tax bill, but if you leave your job before repaying the loan, the unpaid balance is treated as a withdrawal and taxed.

At age 59½, you can withdraw money without the 10 percent penalty, though you still owe income tax. At age 73, you must start taking required minimum distributions — the IRS forces you to withdraw a certain amount each year.

Frequently Asked Questions

Can I have a 401(k) if I am self-employed or a freelancer?

No, a 401(k) is only for employees of companies that offer the plan. If you are self-employed, you can open a Solo 401(k) or a SEP IRA instead. These work similarly but are set up differently and have different contribution limits.

What if my employer does not offer a 401(k)?

You can open an IRA (Individual Retirement Account) on your own through a bank or brokerage. An IRA has lower contribution limits than a 401(k) and no employer match, but it gives you the same tax advantages for retirement savings.

Can I contribute to a 401(k) and an IRA at the same time?

Yes, you can contribute to both. However, there are limits on how much you can deduct from your taxes if you have both. Talk to a tax professional or your benefits department about how this affects your specific situation.

What happens to my 401(k) if I am laid off?

Your 401(k) is yours to keep. Your employer cannot take it. You can roll it to an IRA, leave it with your former employer, or roll it to your new employer's plan if they allow it. You have 60 days to complete a rollover without owing taxes.

Can I change my contribution amount after I enroll?

Yes, but usually only during open enrollment or if you have a may have access to life event (marriage, birth of a child, major change in income). Ask your HR department what changes are allowed outside of open enrollment.