I’m 23, working part-time — should I start contributing to a 401(k) now or wait?

Key Points from 24/7 Wall St.

• The sooner you get contribute to a 401(k), the more opportunity your money has to grow.
• It’s especially wise to contribute to a 401(k) if there’s an employer match to be had.
• Think about what you can afford, but be mindful that there may be other savings needs you should address first.
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When you’re 23 years old, retirement may be the last time on your mind. At that age, you may be primarily focused on paying off student debt and trying to build up some type of emergency fund for the unexpected. But that doesn’t mean you shouldn’t start putting some thought into retirement savings. That could mean contributing to a 401(k) if you have one available to you.

The importance of starting young

In a recent Reddit post, a 23-year-old part-time worker asked if it pays to contribute to their employer’s 401(k). They noted that they’ve been with their employer for three months and don’t plan on staying long-term. They also wondered how they could find out about an employer match and noted they were contributing 3%, which may be the result of automatic enrollment.

There are a number of important things to unpack here. First, let’s address the broader question: Does it pay to contribute to a 401(k) at age 23?

The answer is yes, if you can afford to. Many people that age can’t. And you shouldn’t fall behind on your bills or obligations (like student loan payments) to fund a retirement plan.

You should also put emergency savings ahead of your 401(k) — because if you lose your job, you can tap your savings to pay your bills while you look for work. Getting at your 401(k) funds could mean facing a steep penalty for taking an early withdrawal.

The reason it pays to fund a 401(k) at an early age is you’ll be giving your money that much more time to grow. Think about it this way: If you starting making 401(k) contributions at age 43 and retire at 63, your money will be invested over 20 years. If you start at 23, you get a 40-year investment window.

Next, let’s talk about how much you should contribute, which ties into your employer match. The answer many financial experts will give you is “contribute as much as you can up to the annual limit,” which is $23,000 for someone your age in 2024.

The realistic answer is that if you’re 23 and working part-time, there’s probably only so much money you can afford to part with. And chances are, $23,000 isn’t going to happen.

Contributing 3% of your pay to a 401(k) is certainly respectable. But it absolutely pays to see what match your employer offers and if you’re eligible for it. If you can’t find that information in your benefits package, just ask your HR coordinator. Someone at your company will know the answer.

From there, try to contribute enough to claim that match in full. Otherwise, you’re giving up free money for your retirement.

Thinking long-term

You may be wondering whether it pays to contribute to a 401(k) if you’re not planning to stay with your employer long-term. If there’s a match involved that you’re able to vest in right away, then it’s a good idea to contribute to your workplace plan, claim your free money, and move on once you’re ready.

Even if your 401(k) is subject to a vesting schedule that makes it so you’re unable to keep your match, any funds you contribute out of your own paycheck are yours to hang onto no matter what. You’ll just need to be mindful of rolling your 401(k) into another retirement plan once you part ways with your current employer. That could mean rolling that money into a new employer’s 401(k) or opening an IRA.

It’s a good thing to start saving for retirement from as young an age as possible. But don’t just take my word for it.

Since everyone is different, your best bet is actually to sit down with a qualified financial advisor, discuss your personal situation, and see what they recommend. They may have a reason to suggest that you skip out on participating in your company’s 401(k) and go directly into an IRA instead, so it’s worth having that conversation.