“You can become a 401(k) millionaire,” my husband and I recently told our 26-year-old daughter.

That statement perked her up and helped us start a discussion on contributing to her first 401(k). It’s a conversation we’ve been eager to have since she started working full time.

After getting her undergraduate degree, our daughter Olivia decided to go straight to graduate school to get a master’s in social work. Once she completed her studies, she worked for a nonprofit group in a low-paying internship for 14 months. She started her first full-time job earlier this year and — after a probationary period — she is now eligible to contribute to her company’s workplace retirement plan.

Although we’ve been having preliminary talks about her need to save right away for retirement, this was it — her first 401(k). Once she received the information packet, my husband and I sat down with her to figure out how much she should contribute to her retirement plan.

Our talk involved four major questions she had about this next phase of her financial life.

  • Should I take full advantage of my employer matching contribution?
  • How much should I contribute from each paycheck?
  • Should I invest in a traditional 401(k) or Roth 401(k)?
  • How should I invest my contributions?

First up, we discussed her company’s matching contributions. Should she contribute enough to get the full match?

It was a resounding “yes” to this question.

In her case, her firm offers the most popular 401(k) match formula. Fidelity Investments says the most common formula is a 100 percent matching contribution for the first 3 percent of an employee’s contribution and then a 50 percent match for the next 2 percent. Under this formula, a 5 percent employee contribution of $100 would be eligible for an $80 employer match, Fidelity points out.

This was an easy sell for our daughter. She saw the wisdom in not leaving money on the table. Fidelity looked at the 401(k) millionaires in the plans the company manages and found that if there’s a company match, these investors take advantage of it. During their working career, the most successful investors in workplace retirement plans always contribute enough to get the full match.

Next: Could she afford to push herself and contribute more than what it took to qualify for the full company match?

This was a harder sell. But in the end, Olivia decided to save 10 percent of her salary. And she can, because she has chosen to live at home, something her dad and I wholeheartedly encouraged. It’s a smart money move for young adults who have this option. We agreed not to charge her any rent if she saved aggressively. (Plus, she doesn’t have any student loans because of the college choice she made.)

Fidelity Investments says that many employers are designing their company retirement plans to help their workers save more by using auto-enrollment. The most common default savings rate for auto-enrolled employees is 3 percent, according to Fidelity. But a growing number of companies are pushing this rate up. One in five employers auto-enrolled employees at a 6 percent savings rate in the first quarter of 2021, Fidelity said.

Of course, workers can opt-out or set their own lower rate of contribution.

I was amazed that our daughter’s company automatically enrolls new employees in their 401(k) with a default contribution rate of 10 percent.

For many young adults, saving that much might not be possible. But in Olivia’s case, she could stretch because she plans to live with us for some time, which allows her to keep her expenses low, freeing up more money to invest.

We also pointed out that her employer match of 5 percent combined with her 10 percent contribution, would put her at the 15 percent contribution level that Fidelity recommends for retirement savers.

Then there was the decision about which type of retirement plan to use. Her company offers a traditional 401(k) and Roth 401(k).

The difference between a traditional and a Roth 401(k) comes down to when you pay the taxes. With a traditional 401(k), your contributions are made with pretaxed dollars. You pay income taxes when you withdraw your funds. With a Roth, the taxes are taken out upfront.

I suggested she follow the advice of Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation and a fierce advocate for financial literacy.

Typically, Schwab-Pomerantz wrote in a blog post, “upfront tax deduction of a traditional retirement account is less valuable now than the tax-free withdrawal of a Roth down the road.”

Olivia went with the Roth.

Finally, we talked about how to invest her contributions. Because she has plenty of time until she wants to retire — her goal is age 55 — she opted to invest aggressively, mostly in stock mutual funds.

Starting with her next paycheck, our daughter is now well on her way to building a secure retirement.