How to Set Up a 401(k) Account

Since their inception in 1987, 401(k)s have become the private sector’s most common employer-sponsored retirement plan. By the end of 2025’s second quarter, $780 billion was held in private defined contribution plans, including 401(k)s. Participating in your company’s 401(k) is a key component of saving for retirement, allowing you to divert a portion of your pre-tax income into an investment account. If you recently switched jobs or simply have never before contributed to a retirement plan, this is how to set up a 401(k) account.

A financial advisor in your area can answer questions about retirement planning and help you create a plan for your financial needs.

Step 1: Enroll in Your Company’s Plan

If your company offers a 401(k) plan, you may already have an account set up for you. This can use a default contribution amount or percentage, which you can change.

If your employer doesn’t offer automatic enrollment, you will likely need to contact your human resources department for instructions on setting up an account.

You should also find out if your company has a waiting period to join its retirement plan. The IRS stipulates that employees ages 21 and over with at least one year of service must be permitted to participate in a qualified retirement plan.

Step 2: Choose How Much to Contribute

When deciding how much to contribute to your 401(k), consider whether your company offers a matching contribution.

Financial advisors will typically recommend taking advantage of the company match and using that percentage as a starting point. For example, if your company offers to match up to 5% of your contributions, you should contribute at least 5% to qualify for the match.

However, there are limits for how much you can set aside each year. An employee can contribute up to $24,500 to their 401(k) in 2026, up from $23,500 in 2025 and $23,000 in 2024. Employees who are at least 50 years old can make an additional $8,000 catch-up contribution.

Step 3: Pick Your Investments

When it comes time to pick your investments, remember that you aren’t picking individual stocks to buy.

Instead, you’ll be selecting mutual funds, which use pooled money invested in different types of assets, including stocks, bonds and cash. Unlike an individual retirement account (IRA), a 401(k) plan will offer a limited set of investment options, fewer than 30 on average.

While more hands-on investors may split their 401(k) contributions between multiple funds, more and more investors are using target-date funds. These collections of assets are tailored to a specific time horizon; in this case, the year an investor plans to retire. As the target date approaches, the fund’s portfolio will automatically rebalance and shift to assets with less risk.

It is no wonder that target date funds remain popular. As of 2025, 92% of target date funds are held in retirement accounts.

When picking funds, you should also compare the fees and expenses associated with each by referring to a fund’s fee disclosure notice. The investor is usually charged an asset-based fee, known as an expense ratio, for the management of their investments. There is also typically a plan administration fee to cover other services, such as bookkeeping and legal expenses. The asset-based fee will typically be charged as a percentage of the account’s total assets, while the plan administration fee can be assessed as a flat rate or percentage.

Step 4: Set It, But Don’t Forget It

Once you’ve decided how much to contribute and have selected your investments, your retirement savings will begin to grow.

Monitoring your 401(k) on a daily basis likely isn’t necessary. However, tracking the performance of your investments over an extended period can help maximize your returns.

Also, consider increasing your contributions, especially after receiving raises.

What to Review After Setting Up a 401(k)

Once you set up a 401(k), you'll choose your investments.

After enrolling in a 401(k), it’s useful to confirm that contributions are being deducted correctly from each paycheck and that any employer match is posting as planned under the plan’s terms.

Early account statements can help verify contribution percentages, investment selections and beneficiary designations. This is critical because catching errors at this stage is much simpler than correcting them later.

It’s also helpful to look at how the 401(k) fits with other savings accounts you may have, such as IRAs, HSAs or taxable investment accounts. While contribution limits apply separately, your overall cash flow does not. Coordinating contributions across accounts can help balance short-term needs with long-term retirement savings.

If you switch jobs, your 401(k) remains in place, but new contributions stop. At that point, you may be able to leave the balance in the former employer’s plan, transfer to a new employer or roll it over to an IRA. Each option has differences in investment access, fees and administrative rules.

Over time, plan features and personal circumstances may change. Employers sometimes add Roth 401(k)s, adjust matching formulas or revise investment menus.

Changes to your salary, family or retirement timing can all affect how the account is used. Periodic check-ins allow the account to stay aligned with your situation without requiring frequent changes.

Bottom Line

There are four basic steps for setting up a 401(k).

Setting up a 401(k) is a relatively easy process that can reap major benefits later in life. Once you enroll in your plan, you’ll be tasked with choosing how much to contribute and what kinds of mutual funds to invest in. Target-date funds are popular options for hands-off investors who want their risk exposure to automatically diminish as retirement nears.

Tips for Retirement

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Make sure you take employer match into account when choosing how much to contribute!