Historical 401(k) Contribution Limits: Employer Profit Sharing Is Significant

Knowing the historical 401k contribution limits is important for understanding how much you can really save in your 401k each year.

When most of us think about how much we can contribute to our 401(k), we only think about how much we can contribute as an employee. Instead, think also about how much an employer can contribute to your 401(k) through company profit sharing.

For 2024, an employee can contribute a maximum of $23,000 and the employer can contribute a maximum of $46,000 for a total of $69,000. Take advantage!

For 2023, an employee can contribute a maximum of $22,500 to their 401(k), up from $20,500 in 2022 and $19,500 in 2021. The 401(k) contribution limit will likely go up by $500 every two years based on history. I really hope everyone maxes out this year and every year for the rest of their working careers.

The next time you look for a new job, make sure to inquire what the employer 401k match or profit sharing plan is. Retirement benefits can really add up over time!

Generous 401(k) Profit Sharing With My Previous Employer

Yes, some of us get paltry company 401(k) matches up to a certain percent of income or up to a particular absolute dollar limit. But for the most part, we're left fighting for our own retirement well-being since the pension system is going the way of the dinosaur.

The reality is an employer can contribute a heck of a lot more than 3% of your salary or whatever their company match may be. They just need to have the profits and the desire to do so!

After about the fifth year at the firm I retired from, I started receiving “profit sharing.” This was on top of my $5,000 401k company match. I always maxed out my 401k while I was there from 2001 – 2012.

During good times, such profit sharing bumped up my overall company 401k match to $25,000 during some years. Ah, those were the good old days.

For those of you who are employed, I suggest familiarizing yourself with your company's pre-tax retirement savings programs ASAP. You might be leaving free money on the table.

For those of you looking to join a new firm, inquire about their retirement savings program. It could be worth a fortune over time. Let's look at the historical 401(k) contribution limits over time.

Historical 401k Contribution Limits

The following is a chart I put together on the historical 401k contribution limits. They are the same for those of you with 403b plans, and most 457 plans. The 401k was first enacted into law in 1978, but didn't gain popularity until around the mid-1980s.

Historical 401(k) contribution limits through 2024

As you can see from the historical 401k contributions limit chart, your employer has the ability to contribute $46,000 to your 401k for a total pre-tax contribution of $69,000 for 2024. Again, the 401(k) contribution limit will likely go up by $500 every year or two.

Great employers tend to also make great profits and want to attract and retain the best people. Profit sharing is one of the biggest benefits of working at a blue chip company.

For those of you working at startups, know that you are not only foregoing a higher salary working at an established firm, you're also foregoing potentially hundreds of thousands of dollars in employer profit sharing as well.

Given most startups are loss-making or barely profitable, many don't even offer any 401k matching, if they have a 401k plan at all. Therefore, please be fully aware of all your company benefits before making a decision. That equity component best be worth something!

401(k) Income Limits

In 2023, the IRS limits the amount of compensation eligible for 401(k) contributions to $330,000, up from $305,000 in 2022, and up from $290,000 in 2021. The IRS adjusts this limit every year based on changes to the cost of living.

It's an important distinction that the limit is based on total compensation, which includes employer contributions to a 401(k) plan, and not just salary.

This income limit doesn't mean anyone making over $330,000 in 2022 is ineligible to contribute. It only means any amount of compensation above the limit isn't eligible for contribution. You can still max out your 401(k) if you want to.

Employees making more than the limit can still contribute the maximum salary deferral to their employer's 401(k) plan. However, the employer's matching contribution will apply only up to the limit.

For example, if you're paid $500,000 and your employer also offers a 5% match on your 401(k) salary deferrals, you can contribute $22,500 in 2023. Your employer match will only be $16,500, though, or 5% of $330,000 instead of the full $22,500. That's because your employer 401(k) contribution is limited by the $330,000 compensation limit for 2023. Even though 5% of $500,000 is $25,000, 5% of $330,000 is only $16,500.

Highly Compensated Employees

There are additional contribution restrictions for highly compensated employees as defined by the IRS and your 401(k) plan.

A highly compensated employee (HCE) meets at least one of these qualifications:

  • They owned more than 5% of the business sponsoring the plan at any point during the past year. This 5% ownership is based on individual holdings, plus those of immediate family members and grandchildren working for the company.
  • They make more than the annual compensation limit designated by the IRS. The limit for 2022 is $135,000. The 401(k) plan may also specify that the individual must be in the top 20% of employees when it comes to compensation.

In order for a plan to remain compliant with ERISA, HCEs cannot contribute more than 2% more of their salary than non-HCEs. So if the average non-HCE contributes only 5%, the HCE group cannot contribute more than 7% of their combined salary.

This can make planning contributions extremely difficult since the limit is based on other employees' contributions and compensation. And, if you don't make a contribution in the calendar year, you lose the opportunity to do so even though you won't find out your actual contribution limit until the early part of the next year. 

401(k) Savings Potential By Age

The 401k should just be only one leg to a modern day four-legged retirement plan. The other three legs include: social security, after-tax stock and bond investments, and real estate.

Your estimated social security check should be discounted by 30% because the program is underfunded by 30%. Your after-tax stock and bond portfolio should try to match the amount you accumulate in your 401(k). Finally, it's a good idea to at least get neutral real estate by owning your primary residence due to inflation.

After listening to more feedback from the community, I've updated my 401(k) savings potential by age for the new decade. It's now broken up into three columns.

This is because maximum 401(k) contribution limits were lower in the past. Further, everybody reading this article is a different age. Here's how much you should have in your 401(k) by age.

401k savings targets by age

Older savers are defined as those of you over 45. Middle age savers are defined as those of you between 30 – 45. Younger savers are defined as those of you under 30-years-old.

You can also look at the columns in terms of performance, too. Some of you will inevitably invest better than others. As a result, you may have $2,000,000 in your 401(k) on the high end instead of just $500,000 at age 50. Meanwhile, some of you may work for more generous employers who share more of their profits with you.

The low-to-high end amounts by age should encapsulate 80% of you who've consistently maxed out your 401(k) contributions every year you've been employed. If you want, you can use the table as a guide for your total savings by age.

401(k) Contribution Limits And Contributions Should Be An Afterthought

Once you've decided to max out your 401(k), there's nothing more you can do except be a loyal employee. You've got no control over how much your company contributes. But we can assume there is a correlation between the length you are at your firm and the amount of benefits you will receive.

There's a real issue today where employees job hop like children afflicted with attention deficit disorder. Can you blame employers for creating a vesting period or delaying their 401k profit sharing until after a certain number of years?

Your goal as a financial freedom seeker is to control what you can control. Actively work to bolster your income to your maximum potential. Then aggressively build an after-tax investment portfolio that spits of gross passive income. This way, you don't have to wait until you are 59.5 to withdraw money.

Once you have a robust after-tax investment portfolio, you gain the option to retire early. You can also become an entrepreneur or travel the world. In my case, I've used my passive income to be a stay at home dad full-time. So far, it's been a great experience.

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Build Wealth And Earn Income With Real Estate

Contributing to a 401k is a must. However, to retire before 59.5, you must build a steady stream of passive income to live off. Real estate is my favorite asset class to build wealth. It is a tangible asset that is less volatile, provides utility, and generates income.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.

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The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends. 

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Historical 401(k) Contribution Limits is a Financial Samurai original post. I've been helping people financial independence since 2009. Join 60,000+ others and subscribe to my free weekly newsletter.

63 thoughts on “Historical 401(k) Contribution Limits: Employer Profit Sharing Is Significant”

  1. Financially Literate

    Advise needed

    My mom is a self-employed personal trainer out of our garage. Her business is an S-corp, earning only about $34,000 a year. My dad is a chef who used to earn about $24,000 a year. They have been renting our house, but our landlord wants to sell the house. We have about 1 year to save up enough before he will sell it to somebody else. My dad took on another two jobs to be able to earn the additional money we need. He currently works 80-90 hours a week! The problem is that killing himself off working three jobs substantially increases our taxes so we still might not be able to afford the house.

    What suggestions do you have to reduce our taxes?

    Currently, they file their taxes separately. The S-corp has a lot of expenses so my mom pays little taxes. Would filing jointly allow us to transfer some of those expenses to my dad?

    If you have any questions please ask!

  2. Wow I had no idea the contribution limits were so high in the late 70s – early 80s. That’s impressive! And then they axed them. I don’t have a 401k anymore but I remember how satisfying it was when I first started maxing it out. Now I have a SEP plan that has been working out fairly well and is certainly extremely easy to fund and maintain.

  3. No 401k since I am a long-term temp. I’m planning on setting up a SEP IRA through my business once it becomes profitable, but I am not certain it will be profitable enough to give $54000 in retirement savings a year.

  4. Financialbloke

    Tax season is upon us and you really make me want to max out my 401k. My employer matches 4%, so I contribe 4%.

    When I’m about to pull the trigger and up my contributions I freeze. I always have in the back of head the thought of other vessels or investments that I could benefit from that liquid cash. Last year I didn’t up my contributions, but instead, I bought an investment property and started investing in peer-to-peer lending.

    Do you or anyone else have the same vexing thoughts? Is it a matter of ROI? Diversification?

  5. Man, I’ve gotta stop reading these recommended 401k projections. I’ve got practically nothing in mine. Thank God I spend so little and invest so much of my after tax money.Because I have no idea how my 401k balance is so low.

    Having less than $50,000 at my age and making roughly $45,000/year is not the way to go. I’m looking for a higher-paying–not to mention more tolerable and not customer facing–job in finance, but I don’t think that’s going to be enough to undo the damage, especially considering how I’d like to retire early. Better get my side hustles into overdrive.

    I really wish the government would remove the limits for 401k contributions. Even though I can’t afford to contribute $18,000, it just feels like sabotage for the government to dictate how much you can save for retirement. Especially when Social Security is so underfunded. It’s like drafting people into the military and then telling them they will have to pay for their own guns.

    ARB–Angry Retail Banker

    1. I’d challenge yourself to try and contribute $18,000 on a $45,000 salary. $18,000 is $1,500 pre-tax contribution a month. Give it a go for 3 months to see how you feel, and whether you can adapt and survive. Make it hurt! I think you’ll surprise yourself at what you can do. When you have little money left over, your HUSTLE MACHINE goes into overdrive.

      I’m constantly trying to make myself poor to keep my motivation alive to earn in order to take care of my family.

  6. The main problem with 401ks is that it cuts into your current income. If you max it out every year indefinitely during your working years you are putting more money into 401k then you will reasonably need for retirement.

    1. But the money going into your 401k is then getting invested in assets that should hopefully beat inflation. Most people don’t even bother to invest their savings at all.

      Care to elaborate on your comment?

      1. Not much to elaborate on. I’d rather invest it myself than max out and do a smaller present day investment.

  7. Sam,

    I max out my Roth 401(k), Roth IRA and HSA. Should I be moving either of those first two to the Traditional version?

    I am 26, make 90k and will probably aspire to retire early / or at least remove the golden handcuffs, but may have a future spouse who would keep working. Does the math in your opinion always suggest Traditional for both 401(k) and IRA?

    1. I have a very similar situation – 27, 90k and am looking forward to early retirement. I’m currently maxing out a 401K, Roth IRA and HSA.

      My thinking was that i was diversifying by having a Traditional 401k and a Roth IRA but I’ve read about the advantages of the Roth over Traditional for us early retirement folks. What do you recommend?

  8. At my first employer I was not able to max out my 401k because of highly compensated employee rules. My current employer allows every employee to max out. Even though my first employer had a match for up to 3%, not being able to max out was a big negative. I would take being able to max out over a small match any day of the week.

    While “conventional” financial wisdom says employees should contribute up to the match, I look at the match as gravy on top. The focus should be maxing out your 401k and not worrying about the match. Compound interest from maxing out your 401k will make you rich, not contributing 3%.

  9. Delivery Boy

    Long time reader here and infrequent commenter. I keep coming back because your charts and perceptions on finances are so accurate. You have improved this 401(k) chart tremendously for us old guys because of what were much smaller limits in the past. I am 50 years old but my graduate degree studies puts me in the years worked column of 23. I have worked with the same employer my whole career. My first contribution to the plan was in the final quarter of 1993. I have maxed out my salary deferral every year since. My employer has changed its amounts over the years but has been at least 3% of my salary. My account at year end 2016 stands just a bit over $1,000,000.00.

    I am envious of younger workers who can put in vastly more now than what I was able to do at their age. However, the good new is I now get the additional “old man catch-up” amount of $6,000.00 per year! Keep the good work coming Sam!! I have access to many newsletters and publications which charge exorbitant fees to receive, but none of them are near what you put out for free. Thanks.

    1. Really great to hear! Nothing makes me happier than being able to share some advice and thoughts for free and help others in the process.

      Congrats on getting to the 7-figure mark in your 401k and being able to add extra catch-up money! Pretty fun and addicting to contribute yeah?

      When the time comes to pull the ripchord, check out this post to give you some more confidence!


  10. My company matches 12% on a 10% employee contribution. It is one of the few reasons to work there.

    They started with a fantastic plan to convince workers to switch over from a pension plan in the early 2000s, and have gradually been eroding it ever since to come more in line with the industry. For example, they used to give a 5% lump sum each March no questions asked.

    I can literally feel the consultants’ grimy touch every year when they tweak how the match is calculated “for our benefit” when really it is a company cost saving if you do the math. 10 years from now, I guarantee they will be matching 3% on an employee’s 6% (and I will be working elsewhere).

  11. Sam, have been maxing out my 401k for quite a few years and have stayed with the same employer for most my career so I am pretty set on the 401k front. As you continue to look to add topics that are of interest to us working stiffs and also relateing to employer benefits you could consider a topic regarding ESPP. This is a benefit that many employees are offered at all levels in an organization but can be a risky proposition. A few years ago I went all in on the ESPP plan in my company (selling the shares as soon as tax advantageously possible) and have done really well. I would be interested in your thoughts and if the discount is worth the risk, considering concentration risk with any RSUs/options available as well. Just a thought. Thanks for this keep up the good work!

    1. I echo this comment. I think a lot of it depends on what company / industry you’re in and how much concentration you have tied up to your company. I work for a megacorp that is a close proxy to the market, so for me I’ve maxed out my ESPP every year and it’s down wonders for me – 15 to 20% discount to the market every month. Over time I’ve sold off some positions so I’m not concentrated more than 10 to 15% of my net worth in my company.

    2. It’s a no-Brawner to max out ESPP when a discount is offered. I’ve often thought of starting up a company that does 6 month loans to those who don’t take advantage of ESPP. Companies I’ve been at offer a 15% discount min. That’s 30%/yr. split that and that’s a guanranteed 15% annual return!

      1. Nothing is guaranteed about it. You have to hold the stock at least a year and hold for another year after that for preferred tax treatment (differience between marked and discount stock treated as long term capital gain as opposed to regular income). A 15k yr investment that means that at a given time you may have 37.5k of after tax money invested in your employers stock. Couple this with your paycheck and any other stock comp you get (rsu, pbs, options, etc.) and it is not a no brainer. I caution against giving out loans (even if collatorlaized with the equity) for employees to take the discount. If the market falls, resulting in job loss and devaluation of equities and you may have quite a bit more bad debt than you thought.

  12. There are limits for how much a company can contribute to income earners above $270k. Let’s say the company match is 5%. The company can only contribute $270k*5% to your 401k. Make $500k? Unfortunately, you don’t get the 5% on the other $230k. They can still contribute to a Seperate deferred Comp, but that is treated differently than a 401k.

    Link: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
    … Scroll down to ”
    Compensation limit for contributions ”

    Compensation limit for contributions
    Remember that annual contributions to all of your accounts – this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to your accounts – may not exceed the lesser of 100% of your compensation or $54,000 for 2017 ($53,000 for 2016). In addition, the amount of your compensation that can be taken into account when determining employer and employee contributions is limited. The compensation limitation is $270,000 in 2017 ($265,000 in 2016).

  13. My company matches 6 percent of my salary. We have profit sharing but it comes in the form of a cash bonus, not a tax advantaged input. I definitely agree with your message here. In parts of my career I’ve seen extra benefits in the 30-40 percent of my salary range (limiting the discussion to extras applicable to all employees, not special bonus for my performance). The value has reduced from 2008 at the retirement of HSA match, pensions, and special vacation benefits. Still any employee working where I do can potentially capture- 6 percent 401k, 1.5 percent ESPP, and up to 10 percent profit sharing just by being an average employee and electing to receive them.

  14. My company gives me $6k and I contribute $18k, and Mr. BITA’s company gives him $9k if he contributes $18k (which he does). Nowhere near how much they _could_ give us, but we’ll take it. Mr. BITA’s company also allows him to put in after tax dollars into his 401k and do a roll over to a Roth IRA every pay period, so we will fill up the $54k – $27k gap with a mega backdoor Roth.

    I should be jaded but it still surprises me how few of my colleagues max out their 401ks.

  15. Hi Sam,

    Would you also say that after maxing out your 401K for the year, you should also contribute to after-tax plans if available within the 401k to do in-plan conversions to Roth? My employer’s 401k plan allows for this (up to $20,000), however no match is provided on the after tax contributions. Or, is it better to just save this 20k in an after-tax brokerage for shorter-term use?

    Employer matches 50% on the first 18,000 in traditional or Roth 401k.

    So for the year I could contribute $18,000 + $9,000 from my employer, or add an additional $20,0000 to make it $47,000 for the year.

    Thank you,


    1. Sure. If you’ve got the cash flow, why not contribute pre-tax max and take advantage of after-tax. You won’t regret it 5+ years later. Double check the Roth / after tax contribution withdrawal rules, just in case you do need the money.

      One thing though. If you can contribute $18K + $20K, your salary must be decent (33% federal tax bracket?) if so, it makes doing a Roth less appealing.

      See: Disadvantages of a Roth IRA: Not All Is What It Seems

      1. Finance Nerd

        Sam, I understand your healthy skepticism with regards to Roth IRA accounts however as long as unqualified withdrawals from a Roth IRA account do not exceed the invested principal amount, there is no penalty/taxes incurred. I understand that the earnings are stuck in the account till one turns 59.5 (to prevent taxes/penalties) but that is definitely better than paying taxes on the earnings from an after tax investment account. Can you please provide your insight on the shortcomings of such a strategy.

        Cheers mate.

  16. Finance Nerd

    Although Company Match aka free money is always great, one can also max out the 54k limit for 2017 using the Mega Backdoor Roth IRA approach if the respective 401k plan allows for after tax contributions.

    Keep up the good work.


  17. Smart Provisions

    Great article, Sam.

    I currently max out my 401(k) and contribute to the after-tax 401(k) to do the Mega Backdoor Roth at my firm. One of the gripes I have with my firm is that our % match is very low and would only net me a total of $600 after 3 years of vesting. It’s not much and job-hopping to increase my salary by 15-20% would definitely be better than staying a few years to vest that amount. However, the ability to contribute to the after-tax 401(k) isn’t that common, so it definitely is a reason at why I’m staying at my firm for now.

  18. If you work at the HQ of a retailer, hospitality or company that otherwise employs a lot of hourly workers, a lot of 401k Plans are not safe harbor and you are limited to contributing 2-5% of your pay into a 401k if you make more than 120k/yr. This has limited my ability to contribute to a 401k for the last 5 years unfortunately.

  19. Profit share changed my financial life. I get 17% of my salary in retirement each year without me contributing a penny, but since i contribute 1.8 million pennies as well to my retirement accounts I will easily have a million dollar retirement account. As important as it is to find a good job, find a company that loves it’s employees and wants you to retire a millionaire. They are out there. My first 7 years of work out of college I had $43,000 in retirement. The last 10 years with my current company I now stare at over $500k in my retirement account. These companies are out there.

    1. 17% is great! That has to be a top 5% profit sharing plan in the country. Just know that your employer can actually increase that percentage to 20% or the max $36,000, whichever is greater.

  20. I like the table. It’s a great idea, but is it a bit too optimistic? I’ve maxed out my 401k for 20 years and I’m a bit below the middle column. My investments didn’t do so well in the early years so maybe that’s the problem. The numbers just look too big to me.

    1. Joe, but what’s wrong with being a bit below the middle column? You’re in the older side of what I define as a Middle Saver (age 30 – 45), so that would put your number between the Low and Middle columns for your age since you couldn’t contribute as much earlier on.

      Also depends on how good your company shared in their mega profits and your performance.

  21. I’ve been thinking lately about putting together a chart that shows historical 401k contribution limits so that I can compare them to inflation and project how much my retirement plan will grow if I contribute the (estimated) max limits for the next 20 or so years.
    It’s helpful to see that projection of where you could be on your retirement balances-I definitely will be doing some more analysis on mine in the near future!

    1. When you’re done w/ the chart and inflation comparison, I’d love to see it!

      It would be great for 401k plan employees to see the maximum contribution go higher, like up to $50,000 for the employee portion. Why not give employees more incentive to save for their retirements so the gov’t doesn’t have to bail folks out right?

  22. Great article. I was unaware that employers could contribute so much over the 18k limit. We just it a non-match 401k at my start up and try don’t match. I feel like the no match thing is becoming a trend especially out here in the bay. Interesting what you said about job hopping: Usually I job hop o make more money somewhere else because tech skills are in such high demand these days. I can totally agree with you about working for a Profitable (public) company though.

  23. Re “You can’t withdraw from your 401k until 59.5 anyway without incurring a 10% penalty”.

    From The Balance and other such web sites:

    Age 55 to 59 1/2
    If you are retired, most 401(k) plans allow for penalty-free withdrawals at age 55 instead of having to wait until 59 1/2. To use this 401(k) retirement age 55 provision your employment must have ended no earlier than the year in which you turn age 55, and you must leave your funds in the 401(k) plan to access them penalty-free. (For many police, firefighters and EMTs, this provision makes funds accessible as early as age 50, rather than 55.)

    Watch out for the two ways you can void this age 55 liquidity provision:

    If you retire the year prior to reaching age 55, the 401(k) retirement age 55 provision will not apply. Your withdrawal will be subject to a 10% early withdrawal penalty tax. For example, assume you retire at 54, thinking in one year you can access funds penalty-free. Nope, sorry. You needed to wait one more year to retire for that provision to apply.
    If you roll your 401(k) plan over to an IRA, the retirement age 55 provision will not apply. The earliest age at which you can withdraw funds from a traditional IRA account without penalty taxes is age 59 ½.

    1. Good to highlight the 55 provision. Just don’t count on the provision actually happening due to various 401k rules per company and life circumstances. Expect 59.5 or even later actually, to be able to withdraw penalty free. Conservative expectations is always better for retirement.

  24. Hi Sam,

    I’m not looking forward to retirement (even though I got many years left). I feel like I’ll get bored in a week. As far as your chart for 401k savings above, can we count after tax savings as well – like in a brokerage account as part of our total if we don’t plan on taking the money in that until retirement?

    1. I would think that if you don’t plan on taking it out until retirement then it should be in a ROTH IRA (assuming that you’ve always maxed out your employer sponsored 401k) since you don’t pay tax on dividends or capital appreciation in a ROTH.

  25. <>

    The rule of 55 states that if you are separated from your employer on the year you turn 55, whether by termination or quitting (something we all know not to do), then you can take the money penalty free. Unfortunately I found that the plan rules for each 401k supersede this rule so you may be out of luck -check your plan.

    Our strategy for getting out early @ 55 is having enough post tax and passive income streams to cover the 5 year gap between 55 and 60. This way the 401k money continues to compound. My thinking is we probably would have level-set to the new spending threshold before touching that money anyway and that coincides with the first 5 years of retirement supposedly being the most expensive. Then comes Social Security as a bonus (if it is even there) and any other side hustles we do for FUN. Can’t wait… :)

    1. “Surviving the gaps” is a great way to see things indeed. I thought about the gap between 34 – 60 wrt my passive income streams.

      I see my 401k and Social Security as bonus #1 and bonus #2 money!

  26. Here’s some real life feedback for your chart…

    I’ve been contributing to my 401k for the past 15 years, starting the day I turned 25. I’ve been with the same company, and have maxed out my 401k every year. My total contributions during that time were ~$225k. My employer matched ~$80k during that same time period. My total 401k balance stands at ~$440k today. It would have been higher had I not parked most of it in cash for the past few years. Guess that puts me at the middle-age/mid-end spectrum. I’m not including a cash balance plan that my employer also contributes to which stands at ~$110K, I guess that could be counted since it’s a form of Profit Sharing. If I include that, it puts me squarely at $550K relative to your chart.

    1. Thanks for the feedback. Good to know. In another 15 years, the balance has a great chance of going over $1,500,000 at your pace and historical returns. Check the profit sharing portion to see if it increases with seniority.

      1. Wonder, how much “Max Your Freedom” has non 401k. Max and I, have similar work years. The difference being I chose not to max 401k and instead invest the difference post tax myself.

  27. Danielle@wenthere8this.com

    I didn’t realize employers had the option of contributing so much. The company I work for does not match, and I can’t even contribute the max because of the IRS’ Highly Compensated Employee law. Every year, our plan fails the discrimination test and I receive a check back from the plan, typically about $9K.

    It is important to take retirement plans into consideration when switching jobs. There are many small companies and start-ups that just don’t offer the retirement benefits that a large established company offers. The small company I work for a is a perfect example. While I love what I do, and get paid well to do it, I do sometimes consider looking for a position at a more established company.

    1. It’s funny, but I just read a blog post from a private company startup who thought the MAXIMUM 401k contribution from both employee and employer for 2017 is $18,000! And the reason the author thought this is because her employer doesn’t offer any 401k match. Quite the irony since the company is in the fintech space.

      There is a whole generation of younger folks working at private companies or startups that have NO IDEA about the employer contribution part, or the true max. Hope this article helps shed some light.

  28. What are your thoughts on Roth vs. Traditional 401(k)? I’ve been reading that taxes in the future may be higher, so I’ve been going with the Roth 401(k). (For those of you who don’t know about Roth, you are taxed today and when retirement comes, you don’t pay taxes on your withdrawals.)

    Would you recommend having a split of those two? It’s an interesting to think about since we have no idea were the world will be in 20-30 years.

    1. It’s likely that taxes for the next 4 – 8 years, taxes will be lower. In general, I don’t like paying taxes up front for anything. Further, it is UNLIKELY you will make more money in retirement than while you are working.

      You’ve got to make your own income trajectory assessment as well. If you’ve got a lot more income upside left, and therefore expect to pay higher taxes, than the Roth route now is much better than later.

      See: https://www.financialsamurai.com/disadvantages-of-the-roth-ira-not-all-is-what-it-seems/

  29. The Green Swan

    This chart was really helpful to see. Just goes to show how important investing and maxing out your 401(k) truly is. Nice to see the growth over time. Thanks!

  30. Well said- one of the downfalls of contributing the the US military’s Thrift Savings Plan is no “company” match. For new hires in 2018+ the government will be matching their contributions up to 5%. However, it seems they have paid for this match by reducing the total amount of the pension after full retirement by 10%.

    Your exhortation to fully investigate your company’s plan should be well heeded for current military members considering the switch to the new blended retirement system. Anecdotally, most military folks don’t know their max pre-tax deduction is 18,000 for those under 50 (this may also be true for the private sector).

    If you are a military member considering leaving for the private sector before 20 years of service, it behooves you to examine the benefits of both retire plans available, especially considering the new availability of the 5% contribution match. I am awaiting the government provided calculators to see where the break even point is for those who plan on staying for 20, and for those who may or may not max their contribution annually.

    1. Is there a point of no return (leave) in the military? If the pension is after 20 years, I would think that anybody who has served at least 10 years should probably just got it out for another 10 years, from a financial point of view.

      1. Sam, you are correct. The current system is cliff vested after 20 year. I agree that those with 10 years in are probably best served with sticking it out until 20.

        The real tough nut to crack is those junior members with less than ten. If you are going to stay for 20, stick with the old system, probably- or do you hedge your bets, assume you won’t make it till 20, and take the match over your career. I calculate that someone who takes this deal, then makes it to 20 years will have between 52-92K extra from the government match, but will miss out on 200-350K of pension benefits over 35 years. (E7 & O4 pay grades, 20 years)

        I’ll be at 8 years in May. Risk versus gain, I suppose.

  31. Great article and charts, Sam. I’ve maxed out my 401(k) for 31 years, and am a “401(k) Millionnaire”. As my Dad used to say, it’s easy to get rich, just “Spend Less Than You Make, And Do It For A Long Time.”

    The 401(k) is a huge tool for folks to use for Financial Independence, especially with the demise of pensions. I can’t imagine anyone not contributing at LEAST enough to get the employee match. How do folks not understand this stuff!? Great post.

  32. I really like that you updated your 401k chart to show how much you could have made each year. Did you get a chance to read the article in the WSJ talking about how those that came up with the 401k now have come to regret it as a 401k was suppose to supplement a pension not completely replace it. At the time they were telling Congress that individuals would only need to save 3% into their 401k to have adequate retirement. HAHHAHA.

    Anyway I thought that was really interesting the unintended consequences of a 401k.

  33. Action Economics

    Wow, I didn’t realize employers could contribute that much to an employees 401K. This certainly adds another aspect to look for when making employment decisions. As far as 401K limits as a whole are concerned what I would like to see is the limit on IRAs increased to match the 401K limits. For every company that offers extremely large profit sharing there are probably 5 that don’t offer a 401K at all. This puts employees at a big disadvantage for saving for retirement. Thankfully one of my employers just started offering a 401K, but until this year I was limited to only an IRA and an HSA for tax deferred savings.

  34. Both my wife and I have been able to max out our 401ks for the last several years and its amazing to see the growth to our Net Worth through the contributions and the investment earnings. Meanwhile – we’ve both stayed in our jobs for a long time to be sure to fully vest and take advantage of additional employer benefits while many friends bounce around. Sometimes moving to a new place can be a great way to increase earnings, but from what I’ve seen it is often short lived. Those who stay loyal often do get compensated for this loyalty.

  35. Go Finance Yourself!

    I left a company a couple of years ago that has one of the top ESOP plans in the nation to take my current job. They’re always listed near the top of best places to work because of the plan. Profit sharing from the plan typically works out to 12-14% of salary each year. It was one hell of a perk. Many people have become wealthy just by working there for 25 years, but the opportunity to become an executive and higher income potential was too much to pass up.

    I’m maxing out my 401k currently, but not contributing to my wife’s 403b plan. I’m electing to leave that tax-deferred money on the table to focus on building my after-tax portfolio in order to achieve FI sooner. Going by your chart, I’m between the mid and high range. Even if I never contribute another penny to our tax deferred savings accounts, they will grow into the multi-millions by the time we’re 60.

  36. Good stuff Sam! I’m an “older” saver with closer to a mid-end 401k balance. There’s no better message than maxing out your 401k and taking the maximum company match as well. Every year, you get closer to your financial goals.

    Thinking of leaving your blue-chip company for a start-up or starting your own gig? You better add up all of the compensation you are really getting before you do, so you can make an informed decision about what you are walking away from. I did, and I stayed!

  37. It gets even better if you have unrelated employers, since you get a separate $53K limit for each unrelated employer. Of course the employee can only contribute $18K max among all of his 401(k) plans, but if your employer is generous, it can make additional contributions for you, thus allowing you to beat the $53K limit. Have you written about that before Sam?

    1. Here’s an article that discusses this topic: How To Contribute More Than $100,000 A Year Pre-Tax

      One has to have a 401k + SEP IRA, if you can be an employee and freelancer at the same time. The combination can’t be employer sponsored 401k + solo/self-employed 401k to get to the $54,000 contribution limits each for a total of $108,000 in 2017. I looked into this with Fidelity small business and Mass Mutual when I was setting my self-employed retirement plan up. In other words, $54,000 is the max contribution across all 401k plans. If your employer is providing a SEP IRA, then open a solo-401k and vice versa.

      Being able to contribute $100,000+ a year tax-free if your side business makes enough money (~$180,000 in operating profits X 20% = $36,000) is just another bonus to profitable entrepreneurship.

      If any CPAs want to chime in, feel free!

      1. I’m an llc as S Corp paying myself $64k/year. I deferred $18k employee contribution to 401k, $16k employer contribution to 401k (Max based off salary) and normally that would be the max.

        But this year I used a tpa and set up my own plan docs to allow in plan Roth rollover or ‘mega back door roth’ which means I can do another $19k as a Roth and Max out at $53k.

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