The government has blessed us with the ability to max out our 401k to $18,000 a year starting in 2015, up from $17,500 in 2014. If you are 50 or older, you can add up to $6,000 extra per year from $5,500 in 2014. Although $500 isn’t that big of an increase, it’s still better than a sharp stick in the eye!
I always recommend trying to max out your 401k as fast as you can. Once you get into a max habit you’ll rack up some nice bucks in no time.
So many people don’t even bother to try because they don’t feel like it’s possible. But once they try, they kick themselves for wondering why they didn’t max out sooner. Remember, the contribution to your 401k is pre-tax so an $18,000 contribution is more like $13,500 less from your paycheck a year if we use a 25% effective tax rate.
Here’s a simple chart to see how much you can accumulate in your 401k by age or years worked if you contribute $18,000 a year starting today. The chart is obviously more helpful for younger folks, given older folks had lower maximum contribution limits in the past. For example, when I first started maxing out my 401k in 2000, the contribution limit was only $10,500.
I’ve also included my high-end 401k target amount by age based off continued maximum contributions plus a constant 4-8% annual return. My high-end 401k savings target can also be considered your overall total savings target, which includes after tax savings as well. The numbers are for “ideal” conditions. We all know that life, recessions, and buying things we don’t need get in the way of savings and returns all the time.