How to Start a 401(k) at Your Workplace

A 401(k) starts with your employer, not with you going somewhere to sign up

You do not open a 401(k) the way you open a bank account. Your employer sets up the plan with a financial services company, and you join it through your workplace. If your company offers a 401(k), you will receive plan documents — usually during onboarding or annually — that explain how to enroll. The enrollment process itself is typically online through your employer's benefits portal, by phone with the plan administrator, or on paper if your company still uses that method. You choose how much of your paycheck to contribute (within legal limits), pick your investment options from the menu the plan offers, and name a beneficiary. That is the entire setup.

If your employer does not offer a 401(k), you cannot get one through them. You would need to look at other retirement account types — an IRA (individual retirement account) is the most common alternative for self-employed people and employees whose companies do not sponsor a plan. A SEP-IRA or Solo 401(k) are options if you are self-employed or own a small business.

Key Takeaways

• Your employer must offer a 401(k) plan for you to have one; you cannot open one on your own.
• Enrollment happens through your company's benefits portal, by phone with the plan administrator, or on paper, usually within your first 30 to 90 days of employment.
• You will choose a contribution amount (a percentage of your paycheck or a dollar amount), select investments from the plan's menu, and name a beneficiary.
• If your employer does not offer a 401(k), an IRA or SEP-IRA may be available to you instead.
• Your employer may match a portion of your contributions, which is information programs — the plan documents will state the match formula.

When you can enroll and what documents you will receive

Most employers let you enroll during your first 30 to 90 days of employment, though some have set enrollment windows once or twice a year. Your HR or benefits department will tell you the important date. You will receive a Summary Plan Description (SPD), which is the legal document that explains the plan rules, contribution limits, vesting schedules (when employer contributions become yours), and withdrawal rules. You will also get an investment prospectus or fact sheet for each fund option in the plan, so you can see what you are investing in and what the fees are.

Keep these documents. You will need them to understand your withdrawal options later, and the SPD is the source of truth if you have a question about how the plan works. If you do not receive them during onboarding, ask your HR department or the plan administrator (the company name is usually in your welcome email) to send them to you.

Choosing how much to contribute from your paycheck

You decide what percentage of your gross paycheck goes into the 401(k), or you can choose a flat dollar amount per paycheck. The 2024 contribution limit is $23,500 per year for people under 50, and $31,000 for people 50 and older (the higher amount includes a catch-up contribution). Your plan may have a lower limit, so check your SPD. You can change your contribution amount once a year during open enrollment, or when ready if you have a may have access to life event (marriage, birth of a child, loss of health insurance, or similar).

If you are unsure what to contribute, start with what your employer matches. If your company matches 3 percent of your salary, contribute at least 3 percent so you capture that match. You can increase it later. Your contributions come out of your paycheck before federal income tax is calculated, which lowers your taxable income for the year.

Picking your investments from the plan menu

Your 401(k) plan offers a set menu of mutual funds, index funds, or target-date funds. You do not pick individual stocks. You will usually see between 10 and 30 options, ranging from conservative (bonds, stable value funds) to aggressive (stock-heavy funds). Many plans include a target-date fund, which automatically shifts from stocks to bonds as you approach retirement — you pick the fund labeled with your expected retirement year, and the fund does the rebalancing for you.

Read the fact sheet for each fund to see its fees (called the expense ratio) and what it invests in. Lower-cost index funds are often a reasonable choice if you are not sure where to start. You can split your contribution across multiple funds, and you can change your allocation once a year or after a may have access to life event. If you do nothing, some plans will put your money into a default fund, usually a target-date fund or a stable value option — check your SPD to see what the default is.

Understanding employer matching and vesting

Many employers match a portion of what you contribute. A common match is 50 percent of the first 6 percent you contribute — meaning if you contribute 6 percent of your salary, your employer adds 3 percent. That is when ready information programs. The match formula varies by employer, so check your SPD or ask HR what yours is.

Matching money is subject to a vesting schedule, which determines when the employer's contributions become yours to keep. Common schedules are when ready vesting (the match is yours right away), cliff vesting (you get 100 percent after a set number of years, usually three or four), or graded vesting (you get a percentage each year). If you leave your job before you are fully vested, you forfeit the unvested portion of the match. Your SPD will state your plan's vesting schedule.

What happens after you enroll

Once you enroll, your contributions start coming out of your next paycheck. You will see them listed separately on your pay stub. Your employer sends the money to the plan administrator, who invests it according to your choices. You will receive statements — usually quarterly or annually — showing your balance, how much you have contributed, how much your employer has contributed, and how your investments have performed.

You can log into your plan's website or app to check your balance anytime, change your investments, or update your contribution amount (during open enrollment or after a may have access to life event). If you have questions about your balance, your investments, or plan rules, contact the plan administrator — their phone number and website are on your statements and in your SPD.

If your employer does not offer a 401(k)

You have other options. An IRA (individual retirement account) is a personal retirement account you open yourself at a bank, brokerage, or credit union. The 2024 contribution limit is $7,000 per year for people under 50, and $8,000 for people 50 and older. A Roth IRA has the same contribution limit but different tax rules — contributions are made with after-tax money, but withdrawals in retirement are tax-free. A traditional IRA may offer a tax deduction for your contributions, depending on your income and whether you have access to a workplace plan.

If you are self-employed or own a small business, a SEP-IRA or Solo 401(k) allows you to contribute much more than a regular IRA. A SEP-IRA contribution limit is 25 percent of your net self-employment income, up to $69,000 in 2024. A Solo 401(k) has higher limits and more flexibility but requires more paperwork to set up. You would open either of these accounts yourself at a financial institution that offers them.

Frequently Asked Questions

Can I enroll in a 401(k) if I am part-time?

That depends on your employer's plan rules. Some plans require you to work a minimum number of hours per week or have been employed for a waiting period before you can enroll. Check your SPD or ask HR what the may be able to access rules are for your company's plan.

What if I do not know which investments to pick?

Many plans offer a target-date fund that matches your expected retirement year — you pick that one fund and it handles the rest. If your plan has a financial advisor or educational resources, use them. You can also change your investments later, so starting with a target-date fund is a reasonable first step.

Can I contribute to both a 401(k) and an IRA?

Yes. You can contribute to a 401(k) through your employer and also open and contribute to an IRA on your own. However, the tax deduction for a traditional IRA may be limited if you have a 401(k) at work, depending on your income. Check the IRA rules or speak with a tax professional about your specific situation.

What if I leave my job before I am fully vested?

You keep your own contributions and any vested portion of the employer match. The unvested portion is forfeited and goes back to the employer. Your vested balance can stay in the plan, be rolled over to an IRA, or rolled over to a new employer's 401(k) if you move to a company that offers one.

How often can I change my contribution amount?

You can change it once per year during open enrollment. If you have a may have access to life event — marriage, divorce, birth of a child, loss of health insurance, or significant change in income — you can change it when ready. Contact your plan administrator or HR to make a change outside of open enrollment.