The Maximum 401k Contribution Limit: What You Could Have If You Max Out Every Year

Mega yacht in Hawaii - The Maximum 401k Contribution Limit: What You Could Have If You Max Out Every Year

The maximum 401k contribution limit for 2023 increases to $22,500, up from $20,500 in 2022, and up from $19,500 in 2021. Your 401k is one of the three legs of the new retirement stool: you, you, and you.

Historically, the 401k contribution limit usually increases by only $500 every two to three years. However, thanks to inflation, the contribution limit has increased by $2,000 versus last year.

Inflationary pressures are likely the main reasons for such a high contribution limit increase. For example, the Social Security Administration raised its cost-of-living-adjustment in 2022 by an impressive 5.9% to account for inflation.

If you are 50 or older, you can add up to $7,500 extra per year from $6,500. This is the government's way of allowing older workers with typically higher incomes to catch up.

Further, the maximum 401k contribution your employer can contribute for 2023 is $43,500. This brings the total maximum 401k contribution between employee and employer to an impressive $66,000 for 2023.

Always Take Advantage Of The Maximum 401k Contribution Limit

I always recommend maxing out your 401k as fast as you can. Once you get into a max habit, you'll rack up some big bucks in no time.

Maxing out your 401k is a learned habit that gets easier over time. Given the contributions are pre-tax, you won't feel as much pain compared to saving with after-tax dollars. In other words, at a 25% effective tax rate, contributing $20,500 will feel more like you're contributing $15,375.

So many people don't even bother to try maxing out their 401k because they don't feel like it's possible. But once they try, they kick themselves for wondering why they didn't max out their 401k sooner.

Below is a simple chart to see how much you can accumulate in your 401k by age or years worked if you contribute $19,000 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 historical 401(k) contribution limit was only $10,500.

I've also included my high-end 401k target amount by age. It is 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. It can include after tax savings as well.

The numbers are for “ideal” conditions. We all know that life, recessions, and buying things we don't need gets in the way of savings and returns all the time.

What You Could Have In Your 401(k) If You Max It

Here's what you could have in your 401k if you contributed $19,000 a year for 38 years. You will end up with at least $722,000 and most likely over $1,000,000 by the time you reach 60.

The Maximum 401k Contribution Limit: What You Could Have If You Max Out Every Year

Having $722,000 at least by age 60 doesn't sound too shabby to me. The numbers don't take into account any positive returns or employer match either. If we do take into account reasonable market returns, you could have about $2,500,000 in your 401k by age 60.

Given the stock market has provided a historical ~10% annual return, everyone who maxes out their 401k every year will likely have well over $1 million by the traditional retirement age. That's right. The majority of us should be 401k millionaires by age 60.

Unfortunately, thanks to inflation, in 38 years it will probably take $6 million or more to replicate the wealth of $1 million dollars today! Good thing the maximum 401k contribution limit will probably continue to go up every two or three years. By 2044, we could be looking at a $50,000 annual employee max contribution limit.

You'll notice that starting at 35-40 years old, the 401k amounts really starts to rocket higher. This is because you have now amassed a large financial nut. Once you get to at least $250,000, your investment returns may start surpassing your contributions. That's an amazing feel.

For example, a 8% return on a $300,000 portfolio = $24,000. That's greater than the current maximum 401k contribution limit. If you add on a $19,000 contribution, you've just increased your 401K by $43,000.

Once you've built a sizable investment portfolio ($250,000+), focusing on a proper asset allocation of stocks and bonds is very important. You want to continue making money during a bull market. But you also don't want to give up more gains than you are comfortable losing.

What You Could Have In Your 401k With A Bigger Contribution And 8% Annual Returns

Given the maximum 401k contribution limit is $20,500 in 2022, here's another chart that shows how much you could have in your 401k if you start maxing it out in 2022. In the right column, I've assumed an 8% compound return. Just a $1,500 increase a year makes a huge difference!

If you contribute $20,500 a year starting in 2022, you could end up with close to $5 million by age 60. But given the maximum 401k contribution limit will increase over time, you will likely end up with even more money.

More of you will achieve the ideal net worth for retirement than you think. The power of compounding and consistency is real. Don't scoff at the numbers and think they are unachievable. These past two years alone have demonstrated that tremendous wealth accumulation is possible for those that continue to invest.

The Maximum 401k Contribution Limit: What You Could Have If You Max Out Every Year

Tips For Maxing Out Your 401(k)

1) Remind yourself a 401k is only one leg of the retirement stool that is already broken. 

The other two legs of the retirement stool are a pension and Social Security. According to the Bureau of Labor Statistics about 22% of full-time private industry workers have a defined pension benefit compared to 42% in 1990.

Although most public sector employees still get pensions, public sector employees account for only around 10% of the population. In other words, most people don't have pensions anymore.

As for Social Security, the realistic calculation is that we will still all receive Social Security checks in our mid-60s, but at 70% of what is promised if nothing is done.

Given most people don't have pensions and Social Security won't be paid in full, the 401k is the baseline defense for retirement. Thus, we must build upon our after-tax investments and alternative income streams to develop financial buffers for maximum financial security.

The new three-legged retirement stool consists of You, You, and You. Mentally forget about Social Security or a pension taking care of you in retirement. If you can get either, consider yourself blessed.

2) Calculate a budget based on a reduced gross income equal to the maximum 401(k) contribution limit

Nobody really sits down and writes out their expenses. We're either afraid or lazy for some reason, yet we can spend hours doing research on our next big screen TV or laptop.

But for your own sake, take your current income, subtract $22,500, and multiply it by one minus your effective tax rate to calculate your disposable income e.g. $100,000 – $22,500 = $78,500 X (1-25%) = $58,875 after taxes and 401k max.

Divide the annual income by 12 to get a monthly disposable income figure and work your budget from there. The bigger the buffer you can have from spending all your disposable income, the better. Making your contributions automatic will make savings so much easier.

Your goal is to now fund your taxable investments, such as a brokerage account or rental property portfolio. The larger you can build your taxable investments, the more you have the potential to generate passive income and retire early if you want to. After all, your 401k(k) can't be touched without penalty before 59.5 under normal circumstances.

Related: I Could Have Been A 401k Millionaire By 40 If I Stayed At My Job

3) Envision your 65-year-old self greeting customers at Walmart.

The biggest inspiration I get for saving and paying down debt is when I see senior citizens working minimum wage jobs. I admire them dearly for working. I'm also scared straight into saving more because I don't want to be them someday.

I want to be relaxing on a beach with a Mai Tai or eating an eggs Benedict with a mimosa on a yacht in the Mediterranean. The more we can envision ourselves in poverty, the more motivated we'll be to, at the very least, max out our 401k.

Once you start contributing like a champ to your 401k, run your 401k through a free 401k fee analyzer to see how much in fees you are paying. I discovered I was paying a whopping $1,700 in annual 401k fees I had no idea I was paying!

I quickly sold out of a couple actively managed mutual funds that weren't performing great and into some low-cost alternatives. Remember, the more you have, the more they will want to make off you. Now I'm only paying about $600 a year in fees on a ~$400,000 portfolio.

401k savings targets by age

4) Think About Your Legacy In Retirement

You either plan to spend all your money before you die (YOLO Retirement Legacy) or you plan to create a perpetual giving machine after you die (Legacy Retirement Philosophy). There is no right or wrong retirement philosophy to choose from. Only the one that best aligns with your beliefs.

However, if you plan to do good after death, then you will be more motivated to max out your 401(k) and build as many passive income streams as possible. This way, you can ensure your legacy lasts long after you are gone.

Personally, I would like to leave enough money for two charities that will given them money from my estate for 100 years after I'm gone. Wanting to leave a legacy is also why I've been writing on Financial Samurai since 2009. Helping people after I'm gone while also making my kids proud feels good.

Take advantage of the maximum 401k contribution limit every year. You won't regret your contributions 10 years from now.

X-Ray Your 401k For Excessive Fees

Sign up with Personal Capital and analyze your 401k for excessive fees. They are a free online platform which aggregates all your financial accounts in one place. This way, you can see where you can optimize your money.

I ran my 401k through it 401k Fee Analyze and found out I was paying $1,748 a year in portfolio fees I had no idea I was hemorrhaging. As a result, I switched my funds to low-cost Vanguard funds with similar strategies. Since the switch, I've saved over $14,000 in fees.

There is no better financial tool online that has helped me more to achieve financial freedom. It only takes a minute to sign up.

How To Reduce 401k Fees - maximum 401k contribution limit

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139 thoughts on “The Maximum 401k Contribution Limit: What You Could Have If You Max Out Every Year”

  1. HSAover401k

    There are a lot of articles on maxing out your 401k, but if you have an HSA with an investment option, I think that is too often overlooked.

    I have coworkers who are contributing highly to their 401k, but fail to contribute enough to their HSA and I think that’s a mistake. If you only have enough income to max out one or the other, I think the HSA should have a higher priority. It’s pre-FICA, so its tax benefits are even greater, and it has the potential to be tax-free upon withdrawal, which a 401k doesn’t.

    There are a couple drawbacks (20% unqualified distribution penalty, must be 65 to make regular income withdrawals) so it’s definitely smart to invest in both HSA and 401k. Maybe I’m missing something, but it seems to me like we should be encouraging the average person to invest enough in a 401k to get company match, then max out HSA contributions, THEN max out 401k contributions.

    1. I’m pretty sure this is the order of operations that’s recommended by most financial pros that are really in touch. It’s probably not as common though since most people don’t have access to a HSA- it gets glossed over.

  2. Thanks for sharing, Sam, as always. Your thoughts are appreciated and insightful.

    I would note that the 10% avg. return is not reality. This does not take into account major drawdowns like 2008 and prolonged bear markets like we had in the 70s/80s. Protecting against major loss is key to generating positive returns over decades. Given everyone’s timeline is different, the 10% avg. return thing is really just a fantasy and not “reasonable” to assume.

    1. I agree that it would be aggressive to assume average 10% returns a year, especially since the vast majority of retirement portfolios are not 100% in equities. I would use more of a 6% to 8% percent return assumptions when modeling for retirement.

      1. In my retirement analysis I have used a conservative 5% and 3% inflation.

        This year my inflation number is probably low. The prices in the grocery store and fuel is WAY over 5% this year.

    2. That’s very true, the 10% average return is just an average and everyone will be different based on timing. Averages are not often the reality, some will be higher and some will be lower. Assuming past returns hold true in the future (not necessarily a given), the longer your time horizon you have to invest the more likely it is you’ll hit the 10% return. So for someone just starting their career now and maxing their 401(k) I think it’s reasonable to expect, on average, a 10% return, so long as you are aware that it could end up slightly higher/lower in the end.

      And you’re right that there are protected bear markets and recessions, which can drag down the average, but it’s also worth noting that there are also prolonged bull markets as well. So you could very well end up above the 10% benchmark as well, depending on timing. Averages work both ways.

      Of course, this is exactly why people generally shift out of equities and into bonds or other more stable investments as they approach retirement age.

  3. Keep in mind the catch-up contribution available to workers who are at least 50 years old. The 401(k) catch-up contribution is $6,500 for 2021 and 2022, bringing the total max contribution to $26K.

    A person who maxed out the contribution + catchup contribution at $26K per year, along with a employer match of $3K per year, and who did this for 9 years, starting back in 2010, ceasing the contributions in 2019, and coasting since then, today has $500K.

    Another person who contributed $26K per year over the last 2.5 years (but without the 3K employer match) has already accumulated $100K due to the great market returns we’ve seen, in this case using a fairly conservatively allocated diversified portfolio.

    Both of these examples are without resorting to aggressive portfolio allocations.

    This is one of the best tax benefits that is available to most middle income folks — if your state and federal marginal rate is 25% then you would have had to pay $6500 on that $26K, whereas instead that amount goes into your account. Even better for those in the higher tax brackets.

  4. So nice to see they increased the max contribution by $1,000 for 2022! That’s unusual as you mentioned, but is a very good thing. I remember not believing I could max out my contributions myself just like a lot of people, but once I started I managed just fine. We often fear change and pushing ourselves financially, but it can really pay off in droves. Compounding is powerful!

  5. This math looks like it’s using some very aggressive numbers.

    18 years for $1M?

    The math I used –

    -quarterly compounding interest at 1.5% – That’s a 6% annual return, assuming 19k for 5 years

    -quarterly compounding interest at 1.5% – That’s a 6% annual return, assuming 21k for 5 years

    -quarterly compounding interest at 1.5% – That’s a 6% annual return, assuming 23k for 4 years

    -quarterly compounding interest at 1.5% – That’s a 6% annual return, assuming 25k for 4 years

    That, more or less, is 6% a year return, and bakes in some limit growth from 19-25k over the next 15-20 years.

    A time value of money calculator puts this at $674,405.
    The employer portion would be $227,958, assuming same math as above, but using a $6,000, 7,200, 8,000, 8,800 and employer contribution a year. This assumes you’re getting 6% (you probably aren’t) and have salary growth from 100-150k over the 18 years.

    That’s 900k.

    I dunno. Assuming 6% earnings is pretty high. Assuming high salary (six figures + growth) and a high match at 6% is pretty high and I still didn’t make it to $1M.

    This third column basically seems like the path for people that honestly don’t need to think twice about matching their 401k.

    1. Actual case in point: A person starting at age 49.5, working until age 58.5 and coasting for 2 years accumulated $500K.

      This is someone who contributed $29K per year starting back in 2010, ceasing the contributions in 2019, and coasting since then. This was held in a fairly diversified (i.e., not very aggressive) portfolio.

      Coasting the rest of the way, i.e., without any further contributions, and at 7% return, this should double in 10 years bringing the total time to $1M at 21 years. At 6% it should double in 12, bringing the time required to 23 years.

      Positioned more aggressively and/or with the benefit of another bull run, 18 years to $1M is not a huge stretch. At 10% the $500K that took 11 years to accumulate doubles in only 7 more years, in a total time of 18 years. So, it’s doable even if you start late, even while coasting for much of the time.

  6. Hi. I have been curious about the maximum limit of $56K. I thought until recently the gap between $19K and $56K was all (very generous) employer contributions that I would never attain. Now I am thinking I can actually contribute this myself through ‘After-Tax’ 401k contributions?

    I currently max out the Roth 401K option (19K). It seems that maybe I should be maxing out the Traditional 401K to reduce taxes and be able to contribute a few thousand more a year to the ‘after-tax’ 401K option. Then once I leave my employer I can do a Roth IRA conversion for this additional portion of 401K money only paying taxes on the gains not the investment.

    Is this correct? I have only found a few articles speaking about it and I am not sure I understand completely.

    1. That is correct, but I guess quite rare. Boeing allowed me to do just that. The year before I retired, I transferred the post-tax amounts to an IRA and then immediately converted it to Roth. One former co-worker would make that transaction at the end of each year, and in that way shield most of the gains from taxation as well.

      1. Thanks for the information. I can’t believe it is so hard to find out, it isn’t even spelled out on my company’s benefit site even though the ‘after-tax’ option is there. I guess I should have started to ask questions sooner – but really have only been in a position to max out the (~19K) for the last couple of years. Now I can start to bump it up even more :-).

        Hope retirement is super awesome. Can’t wait to be there myself!

        1. Try searching for Mega Backdoor Roth conversion and you’ll probably find more info. I currently do this with my employer. My spouse’s 401k doesn’t allow it.

          One other consideration is that there is a bill currently being drafted that would eliminate the option of After Tax 401k contributions. I’m not speculating on what will happen, but if passed as written it would stop After Tax Contributions at the end of 2021.

    2. The downside of After-Tax 401k contributions is that even though you’re contributing after-tax dollars, you still owe taxes on the earnings.

      The main value of After-Tax contributions for me would lie in a “Mega Backdoor Roth IRA Conversion.” If your 401k also allows in-service distributions (or you anticipate separating soon) After-Tax contributions become much more appealing to me if you can quickly get them into a Roth IRA.

    3. Yes! You can do this. Indeed, the best case scenario is if your company allows in-plan Roth conversions on after tax 401(k) contributions. This can be automatic (however I had to call my vendor and request it be activated), but basically it immediately makes all my after tax 401(k) contributions and growth as tax free in a Roth. If I leave the company, I would take that money and roll it into my Roth IRA.

      One thing to watch out for is at least with my company the way they do the pre tax match (via a true-up) is they automatically stop my pre tax 401(k) contributions at the limit specified by the IRS. However, they do not automatically stop my after tax contributions. So I have to actually calculate the total IRS limit – pre tax – employer match = after tax contributions. I hope this helps. I actually called my payroll representative to understand this and it’s likely different with every company.

      I wrote a few posts on this for further reading as I’m a huge proponent:

  7. My wife and I max out our Roth 401k’s.

    -$18,500 for me (going to $19,000).
    -$24,500 for my wife (going to $25,000).

    I get a 4% Match and she gets a 7% Match.

  8. Is there a maximum amount you can contribute to 401k based on your salary? If I make enough to support my family and my wife makes $25,000, can she contribute 19,000 to her 401k?

    1. There’s no law against it, but some companies choose to cap at a certain percentage of wages. Before I retired, my former employer capped employee contributions at 25% (under age 50). It may also depend on how ‘diversified’ their participation rate is.

  9. I think it’s bad advice to save pretax unless of course you need the reduced tax bill to max out. I am doing a Roth conversion now while taxes are low. It’s not fun coming up with $320,000 to convert. If you have $2,000,000 in a pretax 401K, my financial planner describes you as a lamb going to slaughter. This guy needs to explain that.

    1. Everyone’s tax situation is different. The lower your current tax bracket compared to your expected tax rate in retirement, the more attractive Roth investments get.

      But for high earners currently in the top tax bracket, especially if they anticipate some lower-income years later in early retirement, traditional pre-tax investments now with roth conversions later in those low-income years make a lot of sense to me.

      1. “But for high earners currently in the top tax bracket, especially if they anticipate some lower-income years later in early retirement, traditional pre-tax investments now with roth conversions later in those low-income years make a lot of sense to me.”

        In early retirement before RMDs kick in is what I hear you saying.

        Me too, even though we are not in the top tax bracket. It especially looks attractive if we retire to a state with no state income tax (which we would have already paid without a 401k).

        On the other hand. Congress seems more and more determined to limit Roths, to apply RMDs to them, etc. They are also looking for ways to tax us not just on what we made, but on what we might have made. They can certainly change the rules faster than I can implement long-term investment strategies.

      2. Also it seems to me if your tax bracket is pretty low now and will be low later, doesn’t make a huge difference- lets things grow now while also giving you a higher tax refund and lowers your student loan payment if enrolled in an income-based one. There’s not one quick answer for everyone.

  10. Is taking out a 401K loan and repaying back immediately (or within the same year) a loophole in the contribution limit. I’m maxed out of the TSP this year and am looking to take out a loan. To take out $50,000 I would have to pay $2,441 of interest to myself. Minus the $50 loan fee and being post taxed money isn’t the $2,441 of interest contribution beyond the $18,500 limit?

    1. 4.89% is a lot less than the earnings you could potentially miss out on. And you would be converting after-tax money back into pre-tax funds and eventually be double taxed on that interest (and its earnings.)

      But the even bigger downside to a 401k loan for me is the risk of owing taxes and penalties on it. If I were to separate from my employer and not be able to repay it within like 30 or 60 days it would become an early withdraw.

  11. I’ve contributed 18K to the pretax this year, now I am planning to contribute to few bucks to Roth 401k. My age is 29 years old. I started my pretax 401(k) last year and so far I could save only $25000 all together in pretax

    Now, I would like to contribute after-tax dollars to Roth 401k. How much more can I save to avoid tax penalty for the Roth 401K.. I know that we cannot use the money till it completes 5 years. Any suggestions over here.


    1. Check with your employer. I found that my former employer has the same limits on Roth 401k as a regular 401k, so you can’t double dip that way. My former employer still allows post-tax contributions to the 401k, they just don’t go into a Roth. It’s up to the employee to roll them over to a Roth IRA either at the end of each year or when you retire.

      1. Yep, traditional and Roth 401k contributions share the same limit.

        An IRA would be the simplest option after that but if your 401k plan allows After-Tax contributions & In-Service distributions, look up “Mega Backdoor Roth Conversions.”

        Also do you have an HSA? If you have relatively high qualified medical expenses, consider maxing it out, paying your expenses out of pocket, and saving your receipts until retirement. HSA’s have the best tax treatment of any plan (when used for QME) but worst-case you can treat it like a second traditional IRA.

  12. Michael Henry

    I am 66 and am currently trying to max out my 401K (to it’s federal limit of $60K). I am contributing $18K from salary + $6K from salary for catch-up. My employer matches up to $6800 of salary + an extra $11K because pension system is being terminated. That adds up to approximately $42K. The Federal limit is $60K. How do I get the extra $18K ($60K – $42K) into the 401K, or other tax deferred account?

    1. Does your employer allow additional contributions on an after-tax basis? Mine did, and that’s how I hit the maxes the last few years of my employment.

    2. If they allow After-Tax contributions, that’s the answer. But the earnings on your after-tax contributions will be taxable if you leave them in your 401k.

      The after-tax contributions become much more attractive if you plan allows in-service distributions and you are able to roll them into a Roth IRA. Google “Mega Backdoor Roth Conversion” and double check to make sure your 401k is compatible. Also double check the total 401k limit.

  13. This is a great article and i love reading the comments for the education. As a public sector employee in local government in NY we have access to both a 457 and 401k and I max both each year. Being over 50 this allows for a 48,000 contribution (of course no match). I will have a pension as well so i now start to question…as others have…..does it make sense to maximize both plans? Thoughts?

    1. I think it makes sense to maximize both, but that’s from my frame of reference. I just retired at 55. I have a pension (discounted due to early retirement) and I spent the last 20 years contributing “the max” to my 401K. Since my company allowed for post-tax contributions (in addition to pre-tax), my final contributions were in excess of $50K a year.

      You have to do some basic math to “check yourself” on whether you’re contributing too much. For me, I wanted to maintain roughly the same income stream in retirement – taking into account that I wouldn’t be making contributions anymore of course. I use a 4% withdrawal rate in my calculations, as I feel a properly diversified low fee portfolio can return that in perpetuity. So, $1M saved = $40K / year forever.

      If you’re contributing so much that you’ll have way more income in retirement than you do now, that would be a good indicator to slow down. Otherwise…

      1. Thanks so much for the information. I will probably have significantly more in retirement due to the taxation treatments of my pension and that I will be relocating to a lower tax state.

        By the way i am jealous of you – the plan is to retire sometime in the next 2-4 years but of course i want to now haha

        Thanks again!

  14. I realized I did not max out my 401K at $18K, so can I send in after-tax funds from my personal savings account to my 401K account that would then reduce my tax liability on my tax returns for the year (and in effect result in $18K pre-tax investment)? or have I entirely missed the opportunity to max out my 401K this year?

    1. You still have time to contribute! Deadline is Dec 31, and you presumably have another paycheck for the month? See if you can contribute 100% of it to your 401k at least.

  15. Daniel Novick

    Great post, I just have a couple of questions:

    What are your thoughts on regular 401k vs Roth 401k? It seems that for me I will likely move up in tax rate by the time I’m retiring, however the difference I’ve calculated (for current tax rates) seems negligible in the bigger picture. The one advantage I see for the regular at this point is that I can save to the max with it being a smaller portion of my gross income. Just wondering what your opinion is.

    Second, I’m interested to find out how you plan on reducing risk as you get closer to retirement age. For example my employer offers 5 funds, and I have my 401k fully allocated to a schwab index with the lowest fees. However, because it’s tied to the market what options do we have to reduce that risk (i.e. moving into bonds, etc.) as we get closer to retirement. Worst case scenario being we have a substantial nest egg, and right as we retire , a significant economic downturn occurs, reducing the value of the investments.

    Thanks for the great resource, look forward to continue to follow your site.

  16. Mark Gerardy

    Today at age 47, I am within a few percentages from making the maximum contributions to my 401k and Roth IRA. Next year, I plan to make maximum contributions.

    HOWEVER let me tell you a story: I graduated with my degree in Accounting in 1990, during the height of a recession, and the best job I could find at Norwest Bank paid me $14,100 per year.

    If I had contributed the maximum 18% that my employer allowed and maxed out contributions to a Roth IRA, I would have been living on $216.12 per month. It was already a struggle to live in Denver on $822.00 per month, net. I did the best that I could and once things go better (earning in the high teens) I contributed 6% which was the max my employer matched.

    This year I should earn around $103,000 – $115,000 per year. However, I have deep resentments of anyone harping on young people to save such audacious amounts. It is absolutely ridiculous to think that almost any young person is going to be able to save $18,000 per year. Are they supposed to live in a homeless shelter?

    I know all about compounding interest. I remember many well-intentioned adults, who were living in their own wealth & income bubble, preaching to me about “maxing out my 401k contributions”. This is when I could not afford to barely eat. No, I was not taking trips to Aruba or buying lattes. I was starving and had not taken any actual vacations for nearly a decade.

    In a perfect world, college graduates would ALL start out earning $50,000, and then be willing to live in the ghetto in order to make maximum contribution to their 401k. But these unrealistic idealistic goals that are preached to the poor 20-something who is earning $20,000 is only going to discourage him or her into being resentful and scorn those who make such presumptions. When I was earning $822.00 per month, some financial advisor told me that if I could only set aside $200.00 per month… I was furious. After rent, utilities and food – I had about $20.00 left over every month.

    This lofty advise rubbed me the wrong way and for many years, I contributed less than I could have out of pure resentment. Sure, I may have hurt myself, but I also got myself into a nice home in a safe neighborhood with a reliable car and established as a professional.

    So before anyone goes preaching about contributing $18,000 to ones 401k at age 23, please consider that the person earns first and then take the time to do the math and be realistic. It does not make any sense if a person has to live as destitute to make such outrageous goals. There is a difference between living with dignity and a full stomach versus buying a brand new car and taking international vacations in your 20s at the neglect of a 401k – and it starts with actual earnings to be able to fund such realistic or unrealistic 401k goals in the first place.

    Please stop with the presumptions when it comes to young people. It is often wildly-unrealistic to even think that a young person will earn enough by age 30, or even age 40, before they can begin to make maximum contributions to their 401k. Such expectations or even suggestions can easily have the opposite effect and turn young people off to saving anything at all.

    1. Check out the title of my post. It says what you COULD have if you max out your 401k every year of you start now.

      I understand the world is not perfect. My chart provides a guide, and perhaps some motivation of you choose to take it the right way. But I’ve noticed some people choose to take the pessimistic or angry point of view. And that is a reflection of one’s disposition towards life.

      I’m a super optimistic. Sprain my ankle, thank goodness I didn’t break my ankle.

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  21. Cash Cow Herder


    First of all thanks for writing your great website; it’s part of what’s inspired me to start my own blog. We have a much higher limit in the UK (£40k / $60k) which would clean me out if I tried to match it. I guess I could match the US limit and raise it when I can afford to, or am I just not being brave enough? The other option I have is just put enough in to take me out of the painfully high 40% income tax bracket (which is pretty much what I’m heading towards, gradually increasing from just meeting the company match). Hopefully I’ll earn enough (or get good enough at saving) to meet the limit later.


    1. That’s great you guys have such a high limit! I would always try to max out until you can’t stand the pain anymore. Make it a game and live within your lower means. Your 10 year older self will thank you for the tremendous safety net you’ll provide!

      1. Cash Cow Herder

        Well yes and no on the high limit – we also have a lifetime limit of £1.25m (which they’re threatening to drop to £1m) on the pot size NOT the contributions, so if you put too much too early into your pension your interest could take you past the limit (even if you stop contributions) and you can get taxed on the excess at 55%! I’d actually much rather have no lifetime limit and a lower contribution limit.

        Makes it trickier as if you’re going to invest well and earn lots later it makes sense to lower your contributions to avoid hitting the limit (which leads to lots of extra taxes and potentially missing out on company match), but if you’re going to earn little later it makes sense to put in loads now as with NI most professionals have a 42% income tax rate (which is usually then 20% in retirement when you’re drawing your pension). You basically have to be able to correctly guess whether you’re going to be being paid well in 20 years time.

  22. Good stuff here. I have a couple points / observations to make:

    Catch up contributions can start in “the year you turn 50”, not after you’re 50. A small point, but I have a December birthday, so that’s a whole year of enhanced contributions I would have missed.

    As some other commenters have noted, the total ‘max’ contribution to 401k in 2015 is $53k, $59K if you’re making catch up (50+) contributions. I’m doing this, aided by a 6% company match. I am of course blessed with a high earning job (engineering manager) and I’m late in my career. To the point of this blog, I didn’t wake up one day in my 50’s and go, ‘Hey, I can afford to shovel 25-30% of my income into my 401k!’ – I started with ‘capturing the match’ as a young engineer, and progressed to ‘maxing out my contribution’ by putting half of each raise into increased contributions until I hit the company imposed limit.

    Post-tax contributions to a 401k can be rolled over into a Roth IRA (yearly, if your plan allows), so this is another way to ‘juice’ your IRA contributions.

    As large established companies unwind their pension obligations, we will see ‘company match’ percentages go up on 401k contributions, with first year bumps of 9% (over and above the match and employee contribution) not unheard of. I worry that the younger cohort sees this and thinks, ‘No problem, *I* don’t have to bump my contribution up, because I’ll hit the 18K max anyway.’ Without a pension, they need to think bigger. $52K is the new $18K.

  23. Thanks for another informative post! I was wondering about your opinion on annuities. I recently read a book called ‘The Annuity Stanifesto’ by Stan Haithcock. It got me really motivated and excited about the possibilities of how to fit annuities into my portfolio. The topic can be confusing and intimidating at times, so hearing about different strategies (like leveraging, laddering and splitting contracts) was refreshing. Check out his website ( and let me know what you think!

    1. Annuities tend to be great for those selling annuities due to the fat spread. But buying annuities now is tough given interest rates are so low.

      My bias is towards keeping your principal and keeping liquid.

  24. I have a SIMPLE-IRA at my workplace. Unfortunately, the plan is held with Edward Jones, all high expense ratio funds. My current fund has no front load but on expense ratio of 1.43%!! I currently just contribute to the max match (3%) and invest the rest elsewhere. I have a hard time putting money in an account that is going to take so much in fees when say Vanguard funds exist that have an expense ratio of 0.05%

    I have been looking into the possibility of trustee-to-trustee transfers to contribute the max then immediately transfer the money every month to say Vanguard. Keep only $100 or so at Edward Jones at any given time. I’m sure this would tick the adviser off like no other, but seems to be my only option if I want to avoid the fees and contribute the max.

    Still trying to decide what is best… thoughts?

    1. UPDATE (from the last 2 days):

      I asked my Edward Jones financial adviser if he could offer me any no-load, low expense ratio funds, I told him for example I invest in vanguard funds in my other accounts.
      His response: I think it’s best if you open a SIMPLE with Vanguard and transfer your money there!! I was surprised he didn’t even try to keep my business (although as of now I’m a “small fish”)

      Given my employment situation I am able to start a SIMPLE at vanguard! Good bye EJ!!

  25. I’m almost 34 years old and have about $80k in my 401k. By looking at the graph, I’m well below the 401k curve for my age. Would you guys recommend maxing out my 401k and also contributing the maximum to a roth at my age and current state of amount invested? Thanks!!

  26. I contribute only enough to get the match. I’m not as convinced aas others that 401ks are a great deal. Income tax rates are historically low. By deferring tax payment on that income, you are essentially gambling that taxes will be similar or lower in the future. Given the state of the debt and the fact that multiple entitlement programs are grossly underfunded, I’ll withdraw my money at tax rates I know are low and make investmentsure post-tax.

  27. Sam, I have been thinking about changing my Roth 401k to a traditional 401k. I am sick of being taxed at 35% or more because I put in 80-90 hours a week in the summer months. This might be a good way to shelter that money, right? I would probably bump my contributions up to 50% for 6 months then back down to 5 or 10% for the winter months when I work 45 hrs/ week. A lot of my coworkers don’t like working overtime anymore because you get such a little return on the extra hours (but 1.5X Pay) when OT gets taxed like crazy. Your thoughts?

    1. Typically companies will pull out more taxes on bonuses and overtime than they do for your normal working hours, but at the end of the year it’s all the same. I would suggest adjusting your withholding exemptions and try to zero out your end of year taxes. Then you don’t really need to worry about what your individual paychecks look like, it’s all the same at the end of the year.

  28. I’m still paying off my student loans so I don’t max out the 401k yet. My company doesn’t offer great choices and the fees are high if you use their brokerage account. I feel like I could find better investment options outside the 401k.

  29. does your chart include putting in extra money once you turn 55 years old? I think the limit is $23k?

  30. We’ve been fortunate to be able to max out both of our 401ks for the past 2 years. Before that, we were getting pretty close.

    The really fortunate part is that we both started 401ks in 2007. When the recession started, we didn’t have enough money in them to engender panic. But we have ridden the recovery like a surfer on the wave of the century!

  31. We started maxing out our 403 two years ago plus we have pension too. I have a 457 account but I am thinking if I should maximize that too? Our other investments are individual stocks & 529. I would like to start investing in municipal bonds at some point. Sam what do you think?

  32. I earn about 80k salary, and I’m maxing out my 401k for the first time this year. My lower paycheck was kind of disappointing in the beginning, but after a few months, I got used to it and I living on this lower paycheck is the new normal. The great thing now is that this is the lowest I will have to live with. I expect my salary to raise, along with bonuses in the future, so it only gets easier from here!

    I was skeptical of maxing my 401k out as well with only a 4% company match, but my company started allowing us to buy individual stocks and bonds like a normal brokerage, which is awesome. Activating this feature costs $100 per year in the account, but that’s a small fixed fee to pay since I’d be paying fees on the mutual fund alternatives anyway.

  33. Dividend Harvester

    You kids today with your high contribution dollar limits and not having a max 25% of your paycheck restriction :) I’ve always tried to put in 15% of my paycheck into my 401k. A few year of unemployment here and there hurt it’s compounding as did the crashes in 2001-2003 and 2008-2009, but I’m still putting in 15% and we’re looking to retire in 7 years.

    1. Great job. If you put 15% into retirement savings over a long period of time, you will be just fine.

  34. I think our system is a little different in Australia – it’s a mandatory 9.5% out of your gross pay (and will be increasing steadily to 12% over the next few years). I think it’s possible to contribute more, but this is already a pretty big chunk to me, and I do like to have some funds to invest now, given I won’t be able to access these retirement savings until at least 65 (and who knows, the government might decide to increase the accessible age to 75 by then!).

    Must admit though, it is pretty nice when I receive my annual statement, after only 10 years of working, with 9% contributions – it already seems like a ton of money saved away! It feels like free money since I have never thought about it all those years, which I guess is one of the main messages here!

  35. We only started maxing our 401K about 5 to 6 years ago….however we have always contributed a decent amount. I ended up becoming more educated when I was 30 and because of the pay increases, we both now max out our 401K’s and have been for about 6 years I guess. We did this all while paying for daycare for two kids. Now daycare is finished at least until summertime and we max our 401K’s, our Roth IRA’s (though we may not be eligible this year) and put money into the kids college funds and taxable accounts. Plus, my husband has some “play” money. We have done very well the past couple of years and save about 47% of our income.

      1. I LOVE that we both can max out the 401K and save on top of that as well. We are very fortunate that we have what we have. By the way, we started volunteering at the food pantry at our local church this morning. I loved being able to help others and am looking forward to going back.

    1. Haha, yeah. What a hilarious comment he used to say all the time.

      I don’t think he ever mentioned where he came up with that figure but it it was “historical” it must have been for as long as they’ve been collecting data – 100+ years or so? And to replicate that historical average you’d have to have the same amount of time to invest going forward, which obviously none of us do.

      I think he’s backed off that comment pretty quickly these days.

      1. I don’t think Dave has ever backed off from using 12% in his example cases. People will frequently misinterpret that as a suggestion that they make their forward-looking plans based on 12, but that’s not what he’s saying at all (a dofus Motley Fool writer accused Dave of this once … it was entertaining when Dave set him straight). Rather Dave’s trying to encourage the rather large portion of Americans who think the small guy just can’t get ahead. So he uses 12% examples to encourage them.

        Dave often states that this number comes from the historical return of the S&P 500. For grins I looked up the S&P 500 on Wikipedia. It shows 5 year, 10 year, 15 year, 20 year and 25 year annualized returns from 1970 to 2013. Median values were all above 12%, though CAGR was “only” 10.4% for the whole period.

        So I’d say Dave’s not misleading anyone. Especially when he always ends the example by saying something like “if I’m half wrong you’ll still be okay”. People who nitpick his example numbers are sucking energy out of his positive influence. There’s no perfect example number that will make everyone happy so get over it. If you applaud FS for encouraging people to save and invest then think how much more of that same good work Dave has done over the decades.

  36. Hey Sam-

    I decided it makes most sense to max out + “front load” it. I want that $ in there ASAP so it can collect dividends and capital gains. It is a painful way to start the year, but once it’s over…it feels great!

    I am pretty young and think about a snowball analogy with my 401k. I feel like the first 5-10 years are like picking up snow and packing it into a dense snowball. It takes a lot of effort, feels like you keep adding and adding and the ball doesn’t really grow. But once you get a “dense” snowball, you can just start rolling it on the ground for it to grow in size, which is a lot easier than packing but still requires some effort (the rolling is dividends + cap gains). Eventually (25+years), the ball will be large and allow compounding to really take place which would be like pushing the ball downhill and letting it roll and grow on it’s own- no effort required and it grows fast! I envision the same for my 401K and although I am in the “packing” stage, it’s exciting.

    1. So true. In the early years it feels like you are doing all the work, but at some tipping point the capital starts carrying its share of the work. Later on, your capital is doing almost all the work and you are along for the ride, just steering a bit as needed.

      Maybe you were forming the snowball going up a hill, then it’s time to roll down the other side.

      Sam, have you written about self-directed IRA’s and 401K’s? Opportunities to reduce fees, but more importantly, to juice returns.

    2. Dividend Harvester

      If you have a company match, you might be missing out on that. Most companies don’t figure the match on the first X% contributed per year, but it’s x% per monthly/weekly/semi-weekly contribution. If you hit the yearly max in April, you lose out on all that company matching from May-Dec…be careful about giving away free money.

      1. webbersworld

        Is this true? Are you saying I shouldn’t be putting 100% of my paycheck into my 401k to start out the year so that I can max out my 401k quickly? Should I spread it out over 6 months?

        1. Depends on the company, but it’s a pretty common way of doing a company match. My company matches 75% of the first 8% of contribution, essentially a 6% match. If I put in 30% (my current max without the over-50 catch up), they match 6%. If I put in nothing, they put in nothing. This is on a pay period by pay period basis. It’s important to contribute enough to capture the match each pay period if you want to wring every last employer dollar out of this benefit.

          My wife on the other hand worked for a handful of companies that did not have a match. Since she bounced around jobs a lot (C.P.A.; she worked many jobs for just a couple years where she set things up and then moved on), she was always checking to make sure she could contribute to her 401k early. Her last job she did 95% contribution and ‘filled up’ the 401k account in the first few months.

          1. webbersworld

            What are your thoughts…

            My wife’s company offers 75% up to 8%. She works in sales, so hard to say what she’ll make every year, although last year she made just north of $130k. I’ve always just had her max out her 401k as quickly as possible. What would you say I should put her contribution at so that I can maximize the company match? Should I just have her contribute 8% for now and wait until the last few pay periods of the year to contribute 100% so that I completely max out the 401k?

            1. First, does your wife’s company not have any after-tax contributions? My company does, and if your selected contribution rate takes you above $18k, they just toggle you over to after-tax and keep matching. That’s a sweet deal, and would help with your uncertainty.

              If not, it’s pretty simple math, complicated by some uncertainty. If her high year was $130K, I’d probably start with an 18% contribution rate (i.e. $18k in a $100k year) and just look at it each quarter with her. If you’re ahead of ‘rate’ ($4.5k / qtr), you can step it down a few points, and if you’re behind, you can step it up. Obviously she gets to tell you if she thinks some contracts are going to come home or if things will dry up.

              When you get to the 4th quarter (or so), I’d err a little towards “ending strong” and hit that $18k, even if you lose the last paycheck (or two) of “match”.

            2. Wow that’s nice they switch you over to after tax and let you keep going. My wife’s shuts off at 18K and you can mix it between the 401k and Roth401k. I learned at a young age to not frontload because odds are the company just matches per pay period. The only reason you should front load is if your salary/bonus is going to hit 265K or you have to potential of being tagged as a Highly Compensated employee.

    3. Yes, max it out as every year as young as you can but don’t do it in spurts. Its very important to maintain a consistent contribution in order to take advantage of dollar cost averaging. Instead of putting it all in in the first few months, put in $692/ paycheck to get to the 18k. Many people may disagree with me here but consider doing Roth 401k. If you can max out after-tax dollars, you effectively increase your contribution limit 25-30%. I choose to take the tax hit now while I’m single and have a very low cost of living and am able to max out my Roth 401k.

  37. SavvyFinancialLatina

    This year I maxed out my 401K and have already maxed out our IRAs. Hubby doesn’t have a company sponsored retirement plan. Plan to do the same and invest some cash in a taxable brokerage account from now on.

    1. I’m very amazed too! 50% is a great number. I bet the national average for those with 401ks probably is at less than 20% who max.

      What retirement savings crisis? More wealth and discipline than the media and people know.

  38. I don’t currently. I’m only getting the full match and nothing more, focusing instead on buying investment property. I’m currently focused on ways to increase my income and would rather have that cash flow going to that particular effort.

  39. It took me until 26, but I finally have an income that allows me to stay afloat in NYC while contributing to a retirement account. I maxed out my 401k for the first time this year, and it was easier than I anticipated, since I started withholding from day one. It also helps me spend less throughout the year, as I’m admittedly prone to lifestyle inflation if my cash flow increases too quickly. Oddly, I went from not making enough to contribute anything to overshooting the IRA threshold, so the 401k and HSA are my only pretax options.

    I’m going to keep contributing the max for the foreseeable future, and my company’s generous matching and profit sharing programs are just icing on the cake.

  40. Yeah, I always max out my 401k contribution. I’ll do that as long as I make enough money to do so. The 401k is the core of our investments. The funds are stable and won’t fluctuate too much. I’ll experiment a bit with my other accounts, but I’m pretty conservative with my 401k.

  41. On March 3, 2009 I had a meeting with a retirement consultant at work. They flew them in because everyone was freaking out. Everything he told me ran counter to what I was feeling at that time. I was watching my account disappear before my eyes. I was contributing 5% of my income because the market was tanking. He laid out several plans of what happens if the market comes back now, four years or if it flat lines forever (which it has never done). He said I had the buying opportunity of a lifetime. Once he showed me the numbers on paper and what would happen if I maxed a 401k and Roth starting at that time. It finally clicked and I decided from that day forward I would max out. 6 days later on March 9, 2009 the market hit the bottom.

    Full maxes on Roth and 401k the last 6 years has changed my life financially forever. My company also kicked in an average of $10k a year as well. Never going back to doing the minimum. I realized I maxed at an amazing time, but it makes a huge difference when you can contribute an extra $10-12,000 a year to your investments. It is financially life changing.

    1. I’m pretty sure I was buying Citibank around a buck per share that week. Money is made when there is blood in the streets if you are willing to go against the crowd.

      1. This statement is true only for something like an index fund, but not for individual stocks. With picking stocks you actually have to know what you’re investing in. It’s easy to say with the benefits of hindsight, but investing in Citi back then was pure gambling. There was good chance of nationalizing the banks and wiping out shareholders or a bankruptcy with many financial firms at the time. Just ask the Washington Mutual shareholders or even the old GM shareholders.

        My track record with picking stocks is average at best. The only financial firms I invested in back then in early 2009 were American Express and Goldman because I knew Buffet held a big stake in those firms. I bought Bank of America also when I read he bought them around $5 share. I think unless someone’s willing to dedicate full time to stocks including researching and truly understanding, it’s better to just buy index fund.

        1. Like buying Lehman Brothers at $3, and having it go to $0.1 the next day when the government decided not to help them out. Was a shock to all of us working on The Street.

  42. I max out only because my 401k offers brokerage option instead of just fee based mutual funds. I’m paid bi-weekly where I can contribute anywhere from 1% to 75% towards my 401k per pay period. I know timing the market doesn’t work, but in early 2009, I considered switching to 75% contribution in order to buy the most shares for my money because I felt the market was so cheap, but didn’t. That’s my biggest regret. Conversely I now feel the market is somewhat high, so thus am considering decreasing my contribution rate from my current 12% to 4%(my company match rate) at the start of 2015 and wait for a market drop before increasing the contribution rate. Overall agree with you though, maxing out is the best way to go.

  43. Wall Street Playboys

    While you should always max out your 401K for tax purposes the math is actually quite depressing.

    $2.5M is based on ~7% returns. That is a nominal number and doesn’t reflect inflation.

    If we assume a 2% inflation rate (conservative) that means the value is ~1/2 of the stated amount in real purchasing dollars. $1.25M.

    In short, once you run the math you realize 401Ks have never made anyone rich and never will. You have to save at least 50-100K a year as early as possible. Otherwise you will only have money at age 60…

    Oh and btw, the government can increase the age to 65.

    After working in the healthcare industry, you find that those who reach 60 and are “retired” rarely have he chance to spend a dime.

    Anyone reading the post should quickly be motivated to earn more income, the march above proves you’re treading water. Not trying to be a Debbie downer here, just realize that maxing a 401K isn’t going to do much. Especially when the author himself only reached FI earlier because he earned MORE money. That really is the key. Once your 5% match from the company eclipses 18K ($360K in annual income) then your 401K finally gives you momentum.

    Good luck out there!

    1. I agree. Maxing out a 401k is like setting up a baseline amount you will need to live a decent life in old age, but even if you max it out every year until retirement and get a company match, the balance will not make you rich.

      I still think 401k savings needs to be a number #1 priority on everyone’s list (after paying off high interest debt). You can’t afford to save for kids’ college, a new car or a new house until after this first threshold amount is fulfilled. Or at least that’s my black and white view of the world. :)

  44. I was maxing out my 401K for a number of years but then college hit and I wanted more cash flow to support my end of the deal with the kids. I reduced my retirement savings starting 2009 just as things were looking up investment wise, of course. So between the college costs, refinancing of the house, new roof, the wage freezes, the spouse’s cut in hours, etc. it has been a slower slog back to maxing out than I’d originally planned. Despite it all I am putting more in every year and should start maxing out again in 2017 (assuming they raise the max every year by $500 so it’d be $19,500 by then).

    While it would be great for someone to be able to max out thier savings every year, I think the more practical way is to start with something you can afford, say 5-10% of salary, and add a percentage amount every time you get a raise or promotion. So say you start at 5% and get a 4% raise, split it, 2% for you today, and 2% for future you. The argument has swayed a few in-laws to start saving because $18K a year would be half their salary and 75% their take home. They’ll likely never max out, but they could easily get to 15-25% of their salary saved if they do it right and that should help them out when they retire.

    1. Life gets in the way, for sure.

      But how does one know how much they can afford without pushing the limit? I would say start with $18,000 max and go BACKWARDS by reducing if it is too painful. But keep up the pain until the pain is no more.

  45. First year maxing out 401k! Partly because of a new job, 50% employer match, and reading this website. Totally agree with your comment about kicking myself for not maxing out before.

    Now I want to save even more; but already living pretty frugally, so time to find more income!

  46. My wife and I have been maxing our 401ks since our first year working out of college. Back then (mid 90s) the max was considerably less at our employer.. Maybe $8K or so? When the max contribution got bumped to $13,500 (I think..) we were very excited to have the additional tax-advantaged savings.

    Now, ~16 years later, our 401ks are worth a combined ~$800K. Including employer matches (these go into a profit sharing account, separate from the 401k), it’s well over $1M. Not too shabby! To any new workers in higher paid professions (engineering, finance, etc…) I’d strongly urge them to just make maxing their 401k part of the budget.

    Of course we have no pension, so that ‘leg’ of the stool isn’t there, and we’re certainly not counting on SS being as generous in 30 years as it is now, so our tax-deferred savings is not going to cut it. We’re also working on our after-tax savings, which will have to hold the stool up, particularly if we choose to retire early.

    1. Well done and EXACTLY what I’m talking about can happen if you just start maxing early and consistently. Let the markets do the rest.

      I bet you didn’t feel much if any pain from that “missing” income either.

      With a $800,000+ 401k, I’d definitely run the accounts through a free 401k Fee Analyzer. I was paying $1,700 a year in fees on only a $330,000 account. Scared to know how much you might be paying.

  47. Sam,

    Love the blog! First time commenting but have been reading for years. Based on your past experience, do you think it’s possible to max out a 401k making 65k in NYC? Just starting out at 22 but really want to get into the habit of maxing it out!

    1. Anything’s possible bro. I started working at 22 at 58k and had 401k, roth and hsa maxed by 24 on 70k but living in SoCal and had a couple other sources of income. I’m 27 now and in 3 years I’ll have around 300k saved up across all three accounts. Assume I never contribute again once I turn 30 and a 7% growth rate, 300k (1+.07)^35 = $3.3 million Sounds like a no brainer to me :)

    2. Why didn’t you comment earlier? So many good discussions over the years!

      Yes, I absolutely believe you can max out 18K with a 65K income. You’ll adapt to a $45K gross income for sure. You won’t live it up from age 22-26 perhaps, but your 27 year old self will thank you for it!

      Given you are 22 and in NYC, exactly as I once was, here’s an article that should help you save at least $5,000 a month!

  48. Getting married and combining finances really helped make it easier for both of us to max out our 401K contributions. Sharing housing costs and consolidating utilities, insurance, grocery bills and cell bills can really free up money to save for retirement.

    The key is to max it out as soon as possible and try to live off the rest. Its much easier to start out trying to live off a lower salary (minus the max 401k deduction) rather then grow accustomed to living off your full salary and then ramping up your 401K contribution. If you start out with less, you won’t even know what your missing.

  49. I still am unable to convince myself that I should max out. I am only contributing bare minimum to cater to the company match. I still have a problem parting with it due to the penalty etc. I always think that I should save some within my reach instead. Convince me otherwise :-)

    1. I think he just did. I dont understand what you are saying about a penalty. If anything, there is a tax incentive to dump money into the 401k now.
      I think the best way forward is max out the 401k AND save money “within your reach” in an after-tax account.

    2. Read commenter Dave’s comment,

      “Getting married and combining finances really helped make it easier for both of us to max out our 401K contributions. Sharing housing costs and consolidating utilities, insurance, grocery bills and cell bills can really free up money to save for retirement.

      The key is to max it out as soon as possible and try to live off the rest. Its much easier to start out trying to live off a lower salary (minus the max 401k deduction) rather then grow accustomed to living off your full salary and then ramping up your 401K contribution. If you start out with less, you won’t even know what your missing.”

  50. Samurai,

    I contribute only up to the match – simply because I would rather take that excess and invest it into other assets that produce cash flow NOW, instead of pro-longing the 60 years age requirement to touch these accounts without a penalty hit (obviously can be waived if funds are used for other life situations). I don’t think pouring the max of $18K (say if you make 50-80K) into a 401K account is the best option, truthfully. You are pigeon holed into investments that your company can provide (which can be either few or many, also can have high expense ratios, etc.).

    Why not max it up to the match by your employer, take the excess – max out your Roth IRA in any investment that fits you the best (Stocks, etfs, etc..) and then take those extra funds and place it into your individual taxable account and/or invest into rental properties or another side business? I think this helps you get to financial freedom… well faster. Thoughts?

    Thanks Samurai, would love a discussion!


    1. I don’t follow your strategy, but I think it is very sound. I like the tax savings now on contributing to a 401k, but it does lock my money away for a long time. There are advantages to this of course: difficult to misuse those assets and creditor protections. But I am also potentially missing out on better uses of those funds (e.g., buying/starting a business, investing in real estate).

      The key is to save and invest. How you do it and through what vehicle becomes very personal.

    2. Lanny,

      I don’t think your strategy is a bad one. I just think it overcomplicates things for most people. It’s so much easier to just max out your 401k, and then trying your best to save/invest the other disposable income. If you want more money, you’ll figure out a way to work harder, smarter, or do something on the side.

      There’s something amazing about automatically maxing out the 401k, never living off that income, or having the temptation to use the income, and THEN using the liquid money to try and save/invest some more.

      The 401k, now rollover IRA I have now feels like total BONUS money b/c I’ve been spending 90% of my efforts building all my other assets. And there’s around $400,000 in this account, which is quite a bonus.

      Trust me on this one! Max it out and focus your money attention elsewhere!


      1. Anthony Pape

        I would say the advantage to the max out is convenience and you don’t have to be disciplined it just comes out.

        The disadvantage of going over company match is the 401k at your work likely has high fees and limited investment options unless it’s run by Vanguard.

        I personally contribute 6% of my salary which is matched at 100%. I then save an additional $300 per month into a Roth IRA. Now if you have Roth 401k at work as some forward thinking companies are doing just max that out for sure! The tax advantages on the traditional 401k are dubious at best. First taxes are at a 100 year low. So you are avoiding cheap taxes now and will likely be hitting with a higher tax rate later as you go to take out your money in retirement.

        The Roth allows you to pay tax now and then the account grows tax free and whatever is in that account is your money. Much easier to budget and with our Fed Debt issue I think it is certainly reasonable to think taxes will be higher in the future. Finally don’t do any type of savings into 401k until you get your 6 months living expense in a savings account for emergency. Ensure you have health insurance, disability insurance, and life insurance if someone is depending on your income. Once those bases are covered 401k save away!

        1. Absolutely wrong here. Maxing out the 401k is a waste in this day in age. As a feduciary RIA, the OP here is correct. Meet your match regarding the 401k, Max your Roth, do a LIRP if applicable, or explore expanding your portfolio further.

          Avoid maxing the 401k unless you desperately need the tax advantages now. Aside from that specific case, it’s a terrible idea in almost 100% of cases.

  51. Pursuing Financial Freedom

    I go back and forth on whether I should contribute the max. I currently need to contribute 20% of my income to reach the max in my Roth 401K. Currently, I contribute 13.5% and use the remaining funds in my personal brokerage. As a note, I do save about 30% of my total income at the moment. I struggle with the idea that by the time I retire (30years ish) the government may have passed legislation to increase the withdrawal age. 59 1/2 seems ok now, but who knows in 30 years. It might be 65, 70 who knows. So now I blend my savings. Any thoughts? Do my concerns make sense or should I just save the max? Thank you!

    1. I don’t see them increasing the withdrawal age because that delay when the government gets its income. Could the government change the rules on 401ks and IRAs – sure. But it is more likely that they will change the tax rules on income outside of those plans. No one knows what the future will hold, but there is an old rule of thumb to avoid paying taxes when you can. That means taking advantage of the tax savings today.

    2. I would just max it out and THEN try and save as much in your after tax accounts.

      There will be a revolution if the government tries to mess with the already weak 401k system that does a woeful job in caring for people’s retirement.

  52. This is the first year I’ve maxed out our 401k and it’s quite an emotional victory. However, it dawned on me that perhaps it’s not the best strategy for me right now and I’d like to get everyone’s thoughts:

    I’ve become obsessed with saving in 401k because I HATE taxes and will do anything to pay less, and I LOVE saving. However about 95% of my net worth is wrapped up in IRAs. Additionally I’m currently in the 15% tax bracket and as an engineer, I expect my future taxes to escalate with my salary, so maybe I should stop being so cash-poor right now and contribute more to the 401k later on when the tax savings is higher?

    Or would this negate the benefits of compounding?


    1. Not sure what kind of engineer you are but I’m one too and salaries start high in the 60k range but plateau quickly around 100-125k after 10 years or so. Other option would be roth ira or roth401k if offered.

    2. To be able to max out your 401k while in the 15% tax bracket is a GREAT accomplishment. Great job. Hope others who earn in your tax bracket can get inspired by your example.

      I wouldn’t try and nickel and dime the 401k contribution system. Just max it out no matter what and get in the habit. You’ll be amazed at home much you will have 10 years from now.

    3. If you really hate taxes, get some advice on doing a Roth conversion. You can pay now or pay later.

  53. Even Steven

    I currently contribute up to my company match, the remaining money is being allocated to my student loans, which are on track to be paid off in April 2015. I’m really excited to say I will be maxing the $*** out of my 401K after that. It’s a big milestone for me and while I’m currently behind the Financial Samurai Savings Plan(my real estate plan is far ahead), I plan to catch up quickly with 401K, HSA, and IRA.

    1. Dividend Growth Investor

      Plus, it is possible to put more than $18K limit in pre-tax or Roth 401K. One can potentially defer as much as $53K in total/year

      1. DGI, any contributions past the $18K limit would be made as “after tax post 1986” contributions which offer effectively no tax advantage. You pay taxes on the contributions upfront and any returns are taxed as regular income. The only reason anyone should have more than the $18k limit contributed to their account is if their employer has been matching. If your employer is extra nice they could “match” you up to the $53k limit off of your $18k contribution.

        1. Dividend Growth Investor


          You are correct to point out the 401K contribution above the limit to be the after-tax one. However, there might be reasons other than the match to do this. I am exploring those, and will soon write about it.

          Best Regards,


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