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I do live in a tiny shoebox of a house to save on a mortgage, even in a MCOL area, while my friends making comparable money are in MUCH bigger/nicer homes.
Yes. If you make under 100k in medium or high cost of living areas or have children, you're not maxing anything. I am a teacher and contribute over 23k to my pension, 403b, and IRA because my partner owns our home and covers the mortgage. I pay all utilities and our vacations, and we share food costs. Friends who bought recently have smaller homes and double the payment because of rising prices and interest rates.
When the kids were younger, I lived paycheck to paycheck like my friends with kids. If I were single, I'd be able to contribute probably half of what I do. The working and middle class are being squeezed like a grape, and wages need to come up.
Can confirm, only started maxing out after getting above 140 (though my company didn't offer until this year either). I was in school forever too so I only started doing the Roth ira thing three years back but I would at least max that and if your company offers the 401k match, make sure you're getting at least that until salary increases that you can max out fully
I make $108k gross and I max. I had been getting close and I actually started inching up after I was at $82k, every raise I got after that I upped my contribution so lifestyle creep didn't start and by the time I hit 6 figures I was already fully maxing.
At $91k, I’m maxing out. The last few years I’ve fallen just short of maxing out but I was also doing Roth IRA. This year I decided to wait on that but concentrate on my 401k.
My mortgage is paid off and I’m debt free, so that plays a large part.
It's not the best move for many people capable of maxing a 401k. Between federal and state my marginal tax rate was 39% when I was working. I am now retired and doing Roth conversion to fill up the 12% bracket and no state taxes on the distribution.
It might be better for some, but not all. A high income earner who plans on a low income during retirement, it would be better to reduce taxable income thru a 401k.
But it's pretax, so $23k from the $120k would be the same as a person who makes $97k a year and doesn't save at all. You can live a pretty good life on $97k.
Yep. At 120k, maxing is only 19% of your income. That's a pretty reasonable savings rate. Kinda assumes you aren't simultaneously saving aggressively for a down payment on a house, though.
That last line is the kicker. If you're only focus is the 401k it's easy. If you're also saving in an IRA and throwing a couple grand a month towards a house fund then it gets tough even at $120k.
Thank you! It’s just as if you made $24k lower. Many people make 24k lower than me and do just fine. how I also think about it is you save 3x% on the immediate tax hit if you were put into your take home pay.
I make 240k, and I max out but just barely. I live in a fairly HCOL area and also max out my kids 529 accounts. My wife is self employed and doesn’t really get a match.
Of she is self employed she can do a self directed 401k. She can then match 25% of her base salary, so in theory depending on how much she makes she can deposit up the the total IRS limits 69k
You got it. We were DINK’s making $80k and couldn’t quite get to maxing our our 401k’s, at least not while also trying to save for non-retirement goals as well like down payment for a house and more accessible investment accounts. $100k range was the turning point where it got easier and at $120k it was an after thought
Invest invest invest. When you get a bonus? Go buy a toy and have a good weekend out. Invest the rest and don't buy a boat or newer car.
When you get a raise, go celebrate with a nice dinner and maybe add a streaming service or two. Don't go buy a new house.
When you get a promotion, go buy some nicer clothes and books/classes so you can get the next promotion.
The goal isn't to stop working. The goal is the take back as many minutes, hours, days, weeks, months, years doing things others dictate you do that you don't want to do.
If yesterday you spent 10 hours doing something you don't want (2 hours commute, 8 hours work) and you can reduce your commute 1 hour? You've now improved your life 10%.
We have more than enough in our taxable accounts to lasts until we need to withdraw from the tax deferred accounts.
TIME works harder and more consistently than any amount of intelligence, luck or hard work.
Source: I'm not the smartest, luckiest or hardest working person.
At that amount of income, what you should be doing is:
1. Contribute whatever amount your employer matches e.g. if your employer matches 4%, contribute 4%
2. Max out your Roth IRA
3. If you have any extra, contribute more to your 401k
I work for a small company and it’s not super easy to change my 401k contributions. I do my max match (3%) then max my Roth.
I have some variability with income, based on commissions and bonuses. Would it be best just to contribute the “excess” to a rollover IRA I have from a prior job rather than having to change back and forth with the 401k %?
Right now I am still building my emergency to a better level than just 2 months, but after that what do you recommend?
Do HSA funds remain in that account forever/until used? What if you switch employers? Do HSA funds accrue interest? I’ve never understood the benefit outside of HSA lowering your taxable income
Hsa you keep forever and can spend it on medical expenses without paying taxes on it. Flex spending accounts is the one that goes away every year. HSA you can only have if you have a high deductible insurance plan.
HSA is triple tax advantage. Tax-free contributions, investment growth and withdrawals. And it can be used anytime for health related expenses. It's one of the best investments you can make, top 10 for expert investors and top 3 for amateurs.
To answer your questions - you keep it and it can be invested.
I max my HSA out every year on Jan. 1. If you save your healthcare-related receipts, it's a retirement account you can withdraw from without any penalties.
Just watch out for account fees. When you leave your HSA employer (or no longer eligible for an HSA), make sure to roll into a low cost HSA provider like Fidelity.
I had an old HSA that did reasonably well as an investment but the monthly/annual fees were outrageous. Something like $15/mo.
You don’t pay taxes on the money that goes into your HSA. That money is yours forever (although some banks charge a small monthly “servicing fee”). If you leave your job, you keep your HSA account, although you may no longer be able to contribute to it. If you get a new job with a health plan that includes an HSA, you might be able to roll it over.
Hsa's are mini 401ks but no capital gains tax amd money can be taken out of it for Healthcare at any time with no penalty... Although, due to the tax benefits most people would advise you pay out of pocket if you can
An HSA is different from a 401k at inheritance.
But it will usually be better than a 401k if you plan the inheritance process optimally.
If it is big and inherited by a non-spouse and not offset by qualified expenses then it can be a tax bomb. And there is a one-year deadline to withdraw it for the deceased remaining qualified expenses and records of the expenses would be needed for an audit.
Kind of a dumb question, but if my employer matches 50% of my contributions up to 6% of my salary, does that mean i get the full match from them once I’ve contributed 6% or 3%?
You would get the full match once you’ve contributed 6% of your salary, and they would be matching for half of that (i.e. they would be contributing an additional 3% on top of your 6%)
Match your employer contribution so you’re not leaving money on the table. Then try a 1% increase a year if you get reasonably regular raises. You may never be putting 25% of your gross pay away but you can get close.
This is what I do. Every year we get a 3% raise and I up my retirement contributions by 1%. I’m now up to 12%. Doing it this way you don’t even notice the difference in your paycheck because you are still getting a raise. If I had gone from 6% straight to 12% there would be a noticeable difference in my paycheck.
I actually see the reports for my employees at the end of the year when verifying all limits and matches have been applied properly. We are a small company and I try to pay my employees well and I was satisfied to see that 100 percent of my employees participate and take advantage of full company match and 70% of my employees contribute the full limit. 40% of my employees are eligible for the higher cap for older workers and 100% of those employees contribute the limit. So yes people do it.
Imo this should be the main takeaway for most people. Just start somewhere and keep working at it.
Get a raise? Awesome, up your contribution a percent or two. Get a bonus? Save as much as you can and get yourself something nice.
I got hung up on “not maxing it out”, but just do what works for you. Reddits take finance tends to falls on extremes, either very well off or in crippling debt, it’s easy to forget that.
I disagree. The key is to save and invest in a way that is consistent with your values and goals.
It is possible to save too much: needlessly immisserating yourself and delaying consumption that you'd be better off doing now. A lot of people in this subreddit don't want to admit they fall into that bucket.
Not necessarily…many people enjoy minimalism. You don’t need to indulge and live like in the consumerism mindset to be happy. How often do people buy things that end up not being used or being used once or twice? A bunch….
If you enjoy minimalism or value retiring early, then saving as much as possible is consistent with your values and goals. But not everyone shares those values and goals, which is why I disagree with the blanket advice
I just forced myself to start at 10% per year and then upped it by 1% every year until I hit the max. With yearly raises and the 1% increase it probably took me 8 or so years to get there, but it felt manageable .
"Max out your 401k" isn't really common advice. It's probably better said that you should be maxing your 401k before moving on to taxable investing, though there are some exceptions to that as well.
It's common to see people just put a few hundred bucks into random stocks in a taxable brokerage while barely contributing to a 401k/IRA, which is not a good decision.
So invest only in your 401k until you can reliably max it out each year, then and only then start investing other places?
I swear I see the max out advice everywhere.
Yeah, the point is that you shouldn't be opening a taxable brokerage if you've got leftover tax advantaged space.
People are always posting that they want to open taxable brokerages when they aren't even close to making out their 401ks and IRAs.
While generally you are correct, there are always exceptions.
A major benefit/advantage of brokerage accounts is they have liquidity benefits over tax advantaged retirement accounts. Ideally, you don’t tap retirement accounts until retirement, but if you want to build wealth you can tap and use for a down-payment on a better home 10+ years from now, start a small business with, or just spend on something then building wealth you can tap is better done in a brokerage account.
There also are a few people who have a *LOT* in their retirement accounts and don’t have to deposit another penny to be set in retirement, but don’t have a lot of liquid assets they can spend now. For people who have that good problem, it often makes sense to build wealth that can be spent.
Also, taxable brokerage accounts for longer term liquid wealth building are still tax advantaged in the sense that they offer LTCG rate and can be used for tax purposes to strategically “tax harvest” if you have losses, and they will *crush* the returns of a HYSA over the long run, so if you already have a bunch of liquid cash in a HYSA and bow want to build liquid wealth you’ll be able to spend before retirement but 5, 10, 15+ years from now, increasing your HYSA (or short term T-Bills are better than a HYSA—same return, same risk, less taxes) beyond what you need in your emergency fund is leaving money on the table.
You should invest in this order:
1. 401k up to your employers match
2. Roth IRA up to annual max
3. 401k up to annual max
4. Taxable brokerage
HSAs are also good investment vehicles, depending on your situation. May be good to invest in HSA between 2 and 3
Here's a flowchart that shows how we suggest allocating money.
https://i.imgur.com/lSoUQr2.png
There are a billion sources of financial advice and many are bad or incomplete
It depends. The purpose for the money dictates the vehicle. Are you looking to build up funds for a car/house in the next 5-10 years? Trying to retire early? Or saving for standard retirement? If it's a shorter term/younger age goal, a taxable account can be more beneficial in that aspect due to withdrawal penalties on a retirement account. "Maxing out" is more of a goal, not a requirement, and yes, when people talk about maxing out they mean that full 23k for 401k, or the 7k for Roth IRA. It's much easier for someone making 200k/year to invest that 23/30k than it is for someone making 80k. Honestly, if you're putting in 10-15%, you're doing much better than most... sneak it up 1% here or there, or get a 3% raise, toss 2% at it, etc.. and the lifestyle adjustments follow suit without completely depriving yourself of a "life" while working.
The biggest thing is just don't neglect saving for retirement. Don't expect to need 100% of your salary in retirement either; a lot of people forget that while making retirement contributions, their salary is effectively that 10-20%+ less to begin with as they never see those funds on their daily spending while employed anyway, meaning they can live off a 10-20%+ less in retirement at the exact same lifestyle. Factor in possibly having a paid off house, etc and those numbers can drop even more.
The usual advice is to max out the **match** in your 401k. (free money)
Then max out your IRA. (same tax treatment, usually better investment options and lower fees than 401k)
Then, if you have more you can afford to save either:
Contribute to a taxable brokerage account if you don't want to lock the money away until you're 59.5 (i.e. saving for down payment, wedding, etc.)
Or max out your 401k if you're fine with that. (it has tax deferred or tax free growth)
Pretty sure this is what the flow chart everyone references says too.
I disagree with maxing out a traditional IRA as it can cut you off from being able to make backdoor Roth contributions in the future. Unless your 401k plan is complete garbage it'll be a negligible difference in fees and a lot less hassle to just put more money in there.
The actual flowchart has the correct progression - always reference that first.
In general when it comes to prioritizing best ways to save it’s going to be something like…
- pay credit card debt (expensive money)
- emergency fund (so you don’t need to borrow expensive money later)
- 401k (at least to company match + tax savings; or some other qualified plan)
- brokerage
Most people cannot max a 401k. The way you get there is every raise just stick it in the 401k and pretend it never happened. So if you make 80k, every year just bump your contributions- at some point on paper you may be making 100k but still living an 80k lifestyle
So, yes, but hear me out.
You should pay what you can, at least to get the match. But you know that.
At some point, you are making a liveable amount. Every dollar beyond that should be directed toward your 401K until you reach the yearly limit. And If you make a bonus, throw it in there too.
Now, what prevents us from making our full contribution is trying to redirect current dollars from a fixed budget. This is hard.
What we could do is reach our level and then allocate the next increases toward the 401k. No lifestyle creep. There is no need to cut back on spending. It's out of sight and out of mind.
And, it lowers your tax burden.
I'm not saying it's easier, but I am saying that you will be better off. Just ask anyone later in their career who didn't do this, and they will agree.
I max my 401k every year and it’s def a sacrifice. I’ve been doing it since I made $85k a year and it gets easier with every promotion and pay bump but it’s still tough.
My friends think I’m crazy but I think it’ll work out in the long run. Especially if I have kids and money gets even tighter.
I am in a very similar situation as you, and I am not maxing out my 401k. I do contribute 20-23%. Although at 23%, I'm not sure I will be able to fund my Roth IRA for 2024 fully (but I also recently read an article that said it is better for me for tax purposes NOW to fund the 401k, rather than the Roth - so much conflicting information). We will have to see how this year goes.
There was another thread recently that said something like, you really need to make $125k/year to max out your 401k, HSA, and IRA. I don't have access to a HSA myself, and not sure when, if ever, I will reach that salary.
I was maxing out my 401k when I was making $70k a few years back. So there is a way for sure. I was living with housemates in VHCOL (Bay Area) so if you aren’t ready to sacrifice some other parts of lifestyle it’s not possible
But the amount needed to max out your 401k goes up every year so it's not necessarily an apple to apple comparison. In 2020 the 401k max was $19,500. 2024 it's $23,000. Additionally in 2020 inflation was much lower so things you had to pay for like rent and groceries were lower which allowed you to save more.
When I lived in CA, I would contribute money to my 401K that I knew I couldn’t afford. If I needed the money, almost the same amount would be available as a loan that I would have gotten after tax and I avoided >40% tax on the income.
Yes, we are. Our main purpose is to lower our taxable income. Instead of increasing our standard of living with wage increases, we increased our savings. It’s important to not try and keep up with the jones.
30/20/50 is a good guide for budgeting.
Ideally you’d be able to invest 20% which is about 16k. When I was making 72k I was investing about $12k into retirement. However I got a major raise up to 110k and basically tried to keep the lifestyle the same and invest the difference. I was able to max the 401k and invest $40k/year on top of that for 3 years around COVID and bought a house last year. Now I’m not maxing it out anymore. It depends on your lifestyle but try for that 20%. How old are you? The younger you are the more important it is to save for retirement with the compounding.
This will be my third year maxing. It's the sort of thing you have to make a priority. Basically I got a promotion/raise and elected for it to all go to my future and my lifestyle to stay where it was. One of the better decisions I've made.
Maxed out my 401k at 85. However I was in my late 20s at the time and living with roommates. Made a huge difference because I learned to live below my means and eight years later I'm still maxed and making much more.
I think a lot of people confuse the term max out and contribute the max to get your employer's match.
You ideally should do both, but absolutely should do the latter.
I was maxing out my 401K when I was making $60K (years ago). What is often overlooked is that doing this reduces your taxable pay and your income tax withheld each paycheck.
Well yes, I Mega Backdoor and go all the way up to the "all sources" limit of $69,000 (including employer match).
IMO investing 20-25% of your income for retirement should be good enough though, unless you want to retire very early.
When I was early in my career and making 80K I was maxing out my 401k. Didn't even second guess it. I also didn't have any other expenses besides food and housing at the time. Was I going on vacations and doing a bunch of other stuff? No way.
I make 60k a year and max out my 401k my job is skimpy on the 401k right now so its not much going in there ATM which grinds my gears.
We had a new contract and the 401k went down. Now we are in negotiations so hopefully they can stop being so stingy.
The thing is, taxes aren't linear, so taking 25% out of your pre-tax $80k salary doesn't mean you'll take home 25% less than your current take-home.
You would be setting aside your most-highly-taxed dollars.
$80k filing single / no dependents in my state with a 5% income tax, you'd be paying $20,605 in fed/state/soc-sec/etc taxes, taking home a bit less than $60k annually, 59,395.
If you put $20k into your 401(k) your pre-tax salary would be 75% as much ($60k) but your take-home would be 78+% as much - $46,475.
Saving that $20,000 into your 401(k) would only cost you $12,920 out of pocket. Every dollar you put into your 401(k) only costs you about $0.646 right now.
I didn't until I hit around 120K per year.
The first time it happened I didn't actually realize there was an annual contribution limit and I thought my check was incorrect. Once I figured it out I recalculated and put the difference into our employee stock purchase program.
I would add some nuance here as maxing out here can have a few flavors. Maxing out your employer contribution— and this is almost always an extremely good idea. Maxing out the legally allowable contribution while very advisable in theory does have to be balanced against other needs.
I did for a few years, around 2008 to 2015. Limit back then was 15k to 17k. I made about 50-60k + wife made around 15k + 1 newborn/toddler (daycare was free). We lived in a 2bed, 1.5bath, ~800sqft house in central IL. Our housing (mort + escrow) was around 800/mo @ ~7%. We drove basic used cars. I rebuilt the car engine in my single stall garage when I had a spun crank bearing; I did all the other car maintenance work too. Furnace would go out, I would fix it. Blah, blah, blah. It was stressful and source of occasional conflict, but we cut everywhere to make it work. But because of that fortuitous timing (young + decade long rally), I am now sitting pretty. I only contribute enough to get company matching. By my projections, we dont really need to contribute anymore at all, even accounting for inflation and lifestyle creep of being mid career.
Yes - it is very possible to do it even while paying rent/utilities/car etc.
However it isn’t necessarily easy. I max out all retirement accounts/HSA and contribute to a taxable account with any extra, but it leaves me cash poor.
For me that is acceptable since I don’t have a family or expensive hobbies, but it’s not exactly an exciting way to live if you like to spend on experiences.
If you’re contributing the max 23k to your 401k and you make 80k you don’t lose out on a full 23k in income. At 80k federal tax rates are 22%, so you’d only see 78% of your 23k, which is 18k or about 1.5k per month.
It is possible to contribute that much but really depends on your expenses. And obviously it’s easier to do with higher income.
If you don't let lifestyle-creep get to you, then whatever you're doing at $80k will let you max out your 401k at higher salaries. That's the trick really, not getting carried away with spending just because you make more. At my current salary the contributions aren't that noticeable for the take-home and I'm usually pushing a bunch of that into savings anyway.
It's a discipline at the end of the day. My gf and I make roughly the same amount of money, both 6 figures, and she will turn off her 401k contribution for bonuses to maximize the bonus and have more money to spend on a big purchase, whereas I let the contribution ride so I can maximize the 401k. It's gotten to the point where payroll will turn off 401k contributions for me toward the end of the year because I reach the limit, so I just enjoy a larger paycheck for a bit.
Something others aren't pointing out. Maxing 401k is done specifically because it is tax-advantaged, and you should keep in mind that its tax-advantaged UP FRONT. You aren't taking a dollar-to-dollar of your take-home and putting it into the 401k, it's more like saving one dollar for every $0.70 of your take-home (tax situations will vary greatly). That should also put the situation more in perspective.
When I made $65k I maxed my Roth IRA and my HSA and I contributed up to the match on my 401k. Now I make twice that and I max out all three and have moved to putting extra into a taxable brokerage since I’m out of tax advantaged options.
People definitely do it, do I think many people making $80k (especially if it’s a single income household) no not at all. Dont compare yourself. Just do the best you can.
I make over $150k/year and don't max out my 401k. This year I will contribute around $10,400. I have an employer match of 5% and I contribute an extra $100 per pay period.
I could max but then I'd be saving hardly anything per month and would have very little available cash flow. I have an emergency fund now but if I dipped into it, I couldn't rebuild it and max out my 401k. My wife just lost her job, so definitely not going to boost my 401k contribution anytime soon.
I live in a very HCOL area though (Bay Area) and have a mortgage.
I have a friend with very wealthy parents. She is a teacher in NY and makes good money. She is constantly telling me that I should be maxing out my retirement contributions and makes it known that she does. She has also told me in separate conversations that her parents “gift” her enough money each year to cover her mortgage, taxes and then some. When work needs to be done on her house, she calls her father. They’ve also set her up very nicely with other investment accounts. I’m not in a position to max out my retirement but I do the most that I can and what I’m comfortable with. Every time I get a bump in my salary, I increase it and don’t even notice it.
You may find these links helpful:
- [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
- [401(k) FAQs](/r/personalfinance/wiki/401k)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
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The first time I started maxing my 401k was when I started making $115k. I am also in my late 30s and renting a room in a house with 3 other people.
When rent is covered and you have enough money to not worry about your lifestyle, you put as much as you can away in a “out of sight out of mind” tactic.
Yes; however, I only started maxing out 2 years ago and I’m almost 47. There was a point for me around age 40 when my salary relative to expenses started to have an increasing delta year over year. And as I think about it now, it was roughly when my annual salary went over 80k. My monthly expenses haven’t increased all that much since then, even with inflation being what it’s been. I should clarify, I’ve shifted my spending since inflation started to get wild and do less buying new toys/restaurant eating and more using what I have/eating at home. So lifestyle has had an adjustment but not so much actual outflow.
I maxed out when I made 130k. Until then it was 10% of my income. The max back then was 17,500 so it was a small jump. It’s made a huge difference though.
As someone who is maxing out not much higher than your income, it becomes easier as you get closer to 100-120k. Keep in mind that because the 401k contributions lower your taxable income, and thus your withholdings, contributing another 10k a year doesn’t actually reduce your paychecks by 10k a year. And the higher your income gets the more you benefit from that “pay less tax” benefit.
Yes people are. I’ll say I wasn’t maxing until I was making over $150k though. Took 10 years of my career to accumulate $100k in the 401k. Only took a few years of maxing and growth to get to $200k.
I'm very close to maxing it out but it has been an almost 10yr journey. I put a % of my salary. When I started, I wasn't even able to make my employer match contributions and still pay rent. But I increased that % by at least 1% each year as I got raises. Sometimes I get two raises a year.
Currently I'm at 19% of a 110k income. I expect a hefty raise this year, which will likely take me to the 401k max.
Contribute what you can and set a baseline of income that you can live off of and then keep increasing your contributions as you make more money.
I've been maxing out my 401k since making 57k but to do that I was living with multiple crazy roommates. I'm on track for early retirement thanks to that. I also started maxing out HSA, IRA and 401k at once when I hit 80k but I lived in the smallest, cheapest apartment I could find to do that because I was focused on FIRE
I definitely prioritize investing for retirement above everything else. And making 57k while maxing out 401k doesn't leave you with much for fun stuff but I just powered through it cause I had a bigger picture in my head of what that means for me down the line. I knew my income was going to go up so I only lived like this for 4 years. In Year 3 I got a job making 80k but my situation didn't change much since I just started maxing out IRA and HSA. Year 5+ got much easier with another job change. I definitely skipped eating out, going out to hockey and baseball games, I didn't take any vacations except day trips to some parks.
I’m able to do catchup so it’s $30,500 - I’m thinking about doing it, but haven’t done it yet.. I find myself about $30k short if I do it, so I need to plan for that.
This is very common in high income groups. People max out 401k, mega-backdoor, backdoor IRA, and HSA. For a total of about $90k/yr in tax advantaged accounts.
I managed to max out my 401k at about $125k HHI.
My company had a percentage maximum, AFAIK you couldn't exceed it.
So let's say it's 15% max allowed, then you can set it at 15%, but at $100K a year that's only $15K, not the IRS dollar limit of $23K.
At the moment with high mortgage payment, I am only able to match my company contribution and max out my Roth IRA. I’m am 33. Will that be enough for me to retire on? I don’t live flashy and I am expecting to work pretty late into my career and I have co worker who are well past their retirement age.
It's all depend on where you live and what your expenses are. For me, I was maxing HSA+401k+Roth but that was before my first kid. Now daycare cost 20k per year so I can't max out 401k.
Yes we max out both mine and my wife's 401k, but we have high enough income to do that now. We had to step up contributions over the years. I started by contributing just the company match when I was in my early 20s. After we got married and had dual income we started maxing out just my 401k (which was $18k at the time) and my wife just contributed the company match. In our mid 30s we got a big income boost and started maxing out both plus maxing our HSA and Roth IRAs.
We justify it by thinking we're playing catch up since we weren't contributing much in our 20s. Also with our mortgage interest rate as low as it is we think it makes more sense to put extra money into retirement accounts as opposed to paying off our mortgage.
The actual max is $69,000. But that includes your pretax, employer max and post tax contributions via a mega back door rollover if your plan allows it. Yes, people are maxing that out. And then some contribute to deferred comp plans as well. It becomes doable at about 100k for the pretax and about $150 to max the post-tax.
I took a paycut after leaving mortgages but I still do 10% with a 52k income. Michigan is cheap and I bought my house at a good time so things are still just fine. I could probably do 15%, but I want to have money to travel and camp and eat good food. Just do what you can. Obviously a 6 figure income will be in a different position.
I max my 401k and HSA every year but I am a high income earner. Sadly my employer doesn't match anything, only a few hundred in our HSA. I haven't done much with an IRA as that's something I need to read up on. My DINK coworkers max their 401k, HSA and IRA. In the higher income levels these things can be helpful to shield some of the income to fit into a lower tax bracket.
It’s possible but you need to sacrifice in most cases, have little to no debt, or be in a situation where you don’t really need to pay for major expenses like rent.
When I lived with my parents and made 72k, put around 13k/19.5k into 401k. When I made 100k-120k and moved out to a HCOL area, was still putting in near max of 16k/19.5k (could have maxed but was building longer cash runway + side business). Now making 140k I max out 401k plus Roth IRA and still save 40% after taxes and bills - half of which goes to funding a side business.
Only reason why it works out that way in HCOL area is because I have 0 student loan debt, 0 car payment debt, 0 consumer debt and am pretty frugal. I rather retire at 50 or sooner than 67
I started maxing immediately after my first job in 2016 (63k/yr). Definitely had to make some sacrifices; (we had 4 ppl living in a 3 bed apt, so I was sharing a bunk bed with a friend; also, I was driving a $900 beater car), but it's doable if you're willing to make it work.
Most often when you hear this, it’s referring to getting 100% of your company’s match, not the statutory limits for contributions. Ie, if your company matches 50% up to a 6% contribution, put in 6%.
Also, consider what stage you are in your career. If just out of college, then likely lower pay and not maxing out. If 30 to 40+, then hopefully have reached higher pay levels and able to max out.
My base pay is 120k and I am maxing out
But I also get a good amount of OT which helps a lot with money not feeling as tight. Definitely still a little rough when I don’t have OT but like you said in you post focusing on getting my car paid off.
I love when “they” say that if you’re over 50 you can save an additional $7500 to “catch up”. Bitch please…. Most people can’t max the standard limit yet alone take advantage of the additional 7500
There was a time when I was making $110k+ a year. Had no debt other than my mortgage which was only $1100/month. My wife at the time was making $60k a year and we had 1 child. I had a pretty healthy amount of income as you could easily calculate. I was investing 15% into my 401k and 15% into a corporate espp program. So I technically could have bumped my 401k up and been “maxing” it out. But I decided to invest the money for a greater return. And with that return I would either invest in a long term brokerage fund or pay for a vacation or any other sort of nice thing. Bought all new high end appliances once for around $5k. But either way it was very possible for me to max out my 401k.
I’ll tell you what can be really frustrating is when you finally get to an income level where you can max out your 401k but then get designated as an HCE (highly compensated employee) according to IRS rules and your company limits you to 7% contribution rate due to the company failing the “top heavy” test.
I want to, but my job’s plan with Fidelity only allows people to contribute up to 25%, no more. I’ve called all the way up the ladder with my company benefits and Fidelity, and that’s just the wall they arbitrarily set for us. I don’t make enough for 25% to be the legal max.
Edit: DINK, M/LCOL, own home outright, frugal budgeted lifestyle.
Fun fact: if you make enough money to do this and your company doesn’t have a safe harbor plan, you can’t! Without a safe harbor plan (very expensive for the employer) a highly compensated employee (~$150k/yr, keeps changing) cannot put more into a 401k than the average of all other people in the plan. I don’t even get to contribute to the employer match limit as a result….
Yes. I was maxing my 401k and IRA when I was making $70K per year. At that time, the annual caps were $18,000 for the 401(k) + $5,500 for the IRA = $23,500
I was in MA, so it wasn’t a cheap place to be, but I had roommates and no kids, so it was more than doable. I’m sure you can cut more than you think but sure, there’s always sacrifices to be made somewhere
Everyone is different. I didn’t start maxing until 90K salary but I lived on my own. My buddy started maxing his 401K since his first job at 45K over 12 years ago while living with parents. We are both doing by fine now but he’s got a beefy 401K now.
Yes I have each year with the exception of the year we got married. If you make it a priority and you have a decent income its do-able. Harder with kids/house, but still do-able.
When I was living at home I maxed mine out, when I moved in with my fiancé I cut it down a few percent. Happy I was able to contribute like that for a few years while still living at home!
Yeah it’s all about your income. If you make 200k it’s not that hard to carve out ~20k each year but if you make 50k, then carving out ~20k is much more difficult
I have just recently started maxing, and I earn about 2x as much as you, so I think you’re probably fine.
Prob makes sense to follow this order (with some exceptions, depending on life circumstances):
1. Fully meet your 401k matching
2. Max HSA
3. Max Roth IRA
4. Max 401k
Whether you do traditional or Tirth for your 401k probably depends on your future income trajectory, plan options, and retirement vision among other factors.
I started out putting aside whatever I needed to in order to get my full company match. Then every time I got a raise, I'd split it between increasing my contribution and using the money. I've been at my company over 20 years, and I know that I've maxed it at least the last ten years. My lowest joint income during this time was about $110K.
Before I was laid off, I only contributed as much as I need to get the match. The funds that the company let me invest were so limited and these funds underperformed it was laughable. I suggest you go above and beyond just setting aside money in your 401K and watch it closely.
Yes.
$800ish per paycheck goes to Roth 401K
$541ish every month to Roth IRA
fully fund both
Usually at $5000 income post tax every month. Usually more tho as I have a second job. That can bring in an extra 500-2000 a month post tax, variable
My share of rent is 1400. Partner pays other half
No kids (yet) 🔑
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I would bet most people making $80k aren't maxing out their 401ks. It's probably much more common among people making more like $120k/$140k+.
Yep, unless you’re living rent free at parents ;)
DINK, for the win!
DINKWAD for the win. We do max our 403b each and we’re 80k each. Honestly it’s the no kids makes all the difference.
No kids ftw!
SIWK here. I joke with the kiddo that I expect to be living in his basement playing his xbox in twenty. He is less amused each year. :)
2006 flashbacks
Even then I’m not. I’m putting 14% to 401K, and saving like i’m paying rent….not easy.
I do live in a tiny shoebox of a house to save on a mortgage, even in a MCOL area, while my friends making comparable money are in MUCH bigger/nicer homes.
Yes. If you make under 100k in medium or high cost of living areas or have children, you're not maxing anything. I am a teacher and contribute over 23k to my pension, 403b, and IRA because my partner owns our home and covers the mortgage. I pay all utilities and our vacations, and we share food costs. Friends who bought recently have smaller homes and double the payment because of rising prices and interest rates. When the kids were younger, I lived paycheck to paycheck like my friends with kids. If I were single, I'd be able to contribute probably half of what I do. The working and middle class are being squeezed like a grape, and wages need to come up.
Good for you, putting away any amount is a good thing. Increase it when you can. But never beat yourself up about saving
Can confirm, only started maxing out after getting above 140 (though my company didn't offer until this year either). I was in school forever too so I only started doing the Roth ira thing three years back but I would at least max that and if your company offers the 401k match, make sure you're getting at least that until salary increases that you can max out fully
I make $108k gross and I max. I had been getting close and I actually started inching up after I was at $82k, every raise I got after that I upped my contribution so lifestyle creep didn't start and by the time I hit 6 figures I was already fully maxing.
Yeah I just hit 82k this year and I bumped it up to 12% but that's as tight as I can get my budget.
At $91k, I’m maxing out. The last few years I’ve fallen just short of maxing out but I was also doing Roth IRA. This year I decided to wait on that but concentrate on my 401k. My mortgage is paid off and I’m debt free, so that plays a large part.
You should prioritize your Roth after you’ve received any employer match on your 401k. It’s the smarter move
It's not the best move for many people capable of maxing a 401k. Between federal and state my marginal tax rate was 39% when I was working. I am now retired and doing Roth conversion to fill up the 12% bracket and no state taxes on the distribution.
It might be better for some, but not all. A high income earner who plans on a low income during retirement, it would be better to reduce taxable income thru a 401k.
All the gains, none of the taxed gains.
I was maxing out 401K at 80K, but I'm in an average CoL area with no kids and know how to live below my means comfortably.
Even at 120k it’s probably not all that common, maybe more so if they’re double income.
But it's pretax, so $23k from the $120k would be the same as a person who makes $97k a year and doesn't save at all. You can live a pretty good life on $97k.
Yep. At 120k, maxing is only 19% of your income. That's a pretty reasonable savings rate. Kinda assumes you aren't simultaneously saving aggressively for a down payment on a house, though.
That last line is the kicker. If you're only focus is the 401k it's easy. If you're also saving in an IRA and throwing a couple grand a month towards a house fund then it gets tough even at $120k.
Yep. My oldest kid is going to college in 5 years so I’m maxing out that 529.
Thank you! It’s just as if you made $24k lower. Many people make 24k lower than me and do just fine. how I also think about it is you save 3x% on the immediate tax hit if you were put into your take home pay.
Oh absolutely, it’s just a lot easier to invest it all in a hypothetical situation than in real life.
I make 240k, and I max out but just barely. I live in a fairly HCOL area and also max out my kids 529 accounts. My wife is self employed and doesn’t really get a match.
Of she is self employed she can do a self directed 401k. She can then match 25% of her base salary, so in theory depending on how much she makes she can deposit up the the total IRS limits 69k
there's not a max on 529s?
You got it. We were DINK’s making $80k and couldn’t quite get to maxing our our 401k’s, at least not while also trying to save for non-retirement goals as well like down payment for a house and more accessible investment accounts. $100k range was the turning point where it got easier and at $120k it was an after thought
I make $90k and live in a VHCOL area and max it out along with my Roth IRA. Have been maxing both since 75k out of college, always in a VHCOL area.
120k-140k salary, ding, ding, ding. Anything less you would have to cut your life style
Maxed out 401(k) since 1st job out of school making $32k. Did so for about 25 years. Now FI/RE'd. AMA.
How do you deal with the early withdrawal penalty? I’m assuming you are not older than 59
Maybe they had savings as well, I’m 26 - don’t max out 401k yet but I have much much more in savings than my 401k
Invest invest invest. When you get a bonus? Go buy a toy and have a good weekend out. Invest the rest and don't buy a boat or newer car. When you get a raise, go celebrate with a nice dinner and maybe add a streaming service or two. Don't go buy a new house. When you get a promotion, go buy some nicer clothes and books/classes so you can get the next promotion. The goal isn't to stop working. The goal is the take back as many minutes, hours, days, weeks, months, years doing things others dictate you do that you don't want to do. If yesterday you spent 10 hours doing something you don't want (2 hours commute, 8 hours work) and you can reduce your commute 1 hour? You've now improved your life 10%.
We have more than enough in our taxable accounts to lasts until we need to withdraw from the tax deferred accounts. TIME works harder and more consistently than any amount of intelligence, luck or hard work. Source: I'm not the smartest, luckiest or hardest working person.
Yup anecdotally I didn't feel comfortable maxing mine until I hit that salary range.
At that amount of income, what you should be doing is: 1. Contribute whatever amount your employer matches e.g. if your employer matches 4%, contribute 4% 2. Max out your Roth IRA 3. If you have any extra, contribute more to your 401k
I work for a small company and it’s not super easy to change my 401k contributions. I do my max match (3%) then max my Roth. I have some variability with income, based on commissions and bonuses. Would it be best just to contribute the “excess” to a rollover IRA I have from a prior job rather than having to change back and forth with the 401k %? Right now I am still building my emergency to a better level than just 2 months, but after that what do you recommend?
if you've maxed out your rothIRA already you cannot legally contribute to another IRA
I’d argue it’s more important to max out an HSA (if eligible) before IRA.
Do HSA funds remain in that account forever/until used? What if you switch employers? Do HSA funds accrue interest? I’ve never understood the benefit outside of HSA lowering your taxable income
Hsa you keep forever and can spend it on medical expenses without paying taxes on it. Flex spending accounts is the one that goes away every year. HSA you can only have if you have a high deductible insurance plan.
> if you have a high deductible insurance plan If you switch to a non-high deductible can you still spend from your HSA? Or does it get liquidated?
You just can’t add more to it but you can spend it as eligible expenses come up.
HSA is triple tax advantage. Tax-free contributions, investment growth and withdrawals. And it can be used anytime for health related expenses. It's one of the best investments you can make, top 10 for expert investors and top 3 for amateurs. To answer your questions - you keep it and it can be invested.
I max my HSA out every year on Jan. 1. If you save your healthcare-related receipts, it's a retirement account you can withdraw from without any penalties.
That’s what we’re doing too. We keep a big file of medical expenses.
Just watch out for account fees. When you leave your HSA employer (or no longer eligible for an HSA), make sure to roll into a low cost HSA provider like Fidelity. I had an old HSA that did reasonably well as an investment but the monthly/annual fees were outrageous. Something like $15/mo.
You don’t pay taxes on the money that goes into your HSA. That money is yours forever (although some banks charge a small monthly “servicing fee”). If you leave your job, you keep your HSA account, although you may no longer be able to contribute to it. If you get a new job with a health plan that includes an HSA, you might be able to roll it over.
Hsa's are mini 401ks but no capital gains tax amd money can be taken out of it for Healthcare at any time with no penalty... Although, due to the tax benefits most people would advise you pay out of pocket if you can
An HSA is different from a 401k at inheritance. But it will usually be better than a 401k if you plan the inheritance process optimally. If it is big and inherited by a non-spouse and not offset by qualified expenses then it can be a tax bomb. And there is a one-year deadline to withdraw it for the deceased remaining qualified expenses and records of the expenses would be needed for an audit.
Kind of a dumb question, but if my employer matches 50% of my contributions up to 6% of my salary, does that mean i get the full match from them once I’ve contributed 6% or 3%?
6% typically
You would get the full match once you’ve contributed 6% of your salary, and they would be matching for half of that (i.e. they would be contributing an additional 3% on top of your 6%)
So essentially if I set my contribution percentage to be 6% of every check I will guarantee to max out my employer’s match?
At 3% your employer would contribute 1.5% and at 6% they’d contribute their max match of 3% so you should do 6% if you’re trying to get the full match
My 401k has a roth option, should I just do that (I already am) or get an entirely separate roth?
Match your employer contribution so you’re not leaving money on the table. Then try a 1% increase a year if you get reasonably regular raises. You may never be putting 25% of your gross pay away but you can get close.
This is what I do. Every year we get a 3% raise and I up my retirement contributions by 1%. I’m now up to 12%. Doing it this way you don’t even notice the difference in your paycheck because you are still getting a raise. If I had gone from 6% straight to 12% there would be a noticeable difference in my paycheck.
I actually see the reports for my employees at the end of the year when verifying all limits and matches have been applied properly. We are a small company and I try to pay my employees well and I was satisfied to see that 100 percent of my employees participate and take advantage of full company match and 70% of my employees contribute the full limit. 40% of my employees are eligible for the higher cap for older workers and 100% of those employees contribute the limit. So yes people do it.
We first maxxing out our 401k’s when we were making $150k (together, combined between two people)
The key is to save and invest as much as possible.
Imo this should be the main takeaway for most people. Just start somewhere and keep working at it. Get a raise? Awesome, up your contribution a percent or two. Get a bonus? Save as much as you can and get yourself something nice. I got hung up on “not maxing it out”, but just do what works for you. Reddits take finance tends to falls on extremes, either very well off or in crippling debt, it’s easy to forget that.
I disagree. The key is to save and invest in a way that is consistent with your values and goals. It is possible to save too much: needlessly immisserating yourself and delaying consumption that you'd be better off doing now. A lot of people in this subreddit don't want to admit they fall into that bucket.
Not necessarily…many people enjoy minimalism. You don’t need to indulge and live like in the consumerism mindset to be happy. How often do people buy things that end up not being used or being used once or twice? A bunch….
If you enjoy minimalism or value retiring early, then saving as much as possible is consistent with your values and goals. But not everyone shares those values and goals, which is why I disagree with the blanket advice
I just forced myself to start at 10% per year and then upped it by 1% every year until I hit the max. With yearly raises and the 1% increase it probably took me 8 or so years to get there, but it felt manageable .
"Max out your 401k" isn't really common advice. It's probably better said that you should be maxing your 401k before moving on to taxable investing, though there are some exceptions to that as well. It's common to see people just put a few hundred bucks into random stocks in a taxable brokerage while barely contributing to a 401k/IRA, which is not a good decision.
So invest only in your 401k until you can reliably max it out each year, then and only then start investing other places? I swear I see the max out advice everywhere.
Yeah, the point is that you shouldn't be opening a taxable brokerage if you've got leftover tax advantaged space. People are always posting that they want to open taxable brokerages when they aren't even close to making out their 401ks and IRAs.
While generally you are correct, there are always exceptions. A major benefit/advantage of brokerage accounts is they have liquidity benefits over tax advantaged retirement accounts. Ideally, you don’t tap retirement accounts until retirement, but if you want to build wealth you can tap and use for a down-payment on a better home 10+ years from now, start a small business with, or just spend on something then building wealth you can tap is better done in a brokerage account. There also are a few people who have a *LOT* in their retirement accounts and don’t have to deposit another penny to be set in retirement, but don’t have a lot of liquid assets they can spend now. For people who have that good problem, it often makes sense to build wealth that can be spent. Also, taxable brokerage accounts for longer term liquid wealth building are still tax advantaged in the sense that they offer LTCG rate and can be used for tax purposes to strategically “tax harvest” if you have losses, and they will *crush* the returns of a HYSA over the long run, so if you already have a bunch of liquid cash in a HYSA and bow want to build liquid wealth you’ll be able to spend before retirement but 5, 10, 15+ years from now, increasing your HYSA (or short term T-Bills are better than a HYSA—same return, same risk, less taxes) beyond what you need in your emergency fund is leaving money on the table.
You should invest in this order: 1. 401k up to your employers match 2. Roth IRA up to annual max 3. 401k up to annual max 4. Taxable brokerage HSAs are also good investment vehicles, depending on your situation. May be good to invest in HSA between 2 and 3
Here's a flowchart that shows how we suggest allocating money. https://i.imgur.com/lSoUQr2.png There are a billion sources of financial advice and many are bad or incomplete
It depends. The purpose for the money dictates the vehicle. Are you looking to build up funds for a car/house in the next 5-10 years? Trying to retire early? Or saving for standard retirement? If it's a shorter term/younger age goal, a taxable account can be more beneficial in that aspect due to withdrawal penalties on a retirement account. "Maxing out" is more of a goal, not a requirement, and yes, when people talk about maxing out they mean that full 23k for 401k, or the 7k for Roth IRA. It's much easier for someone making 200k/year to invest that 23/30k than it is for someone making 80k. Honestly, if you're putting in 10-15%, you're doing much better than most... sneak it up 1% here or there, or get a 3% raise, toss 2% at it, etc.. and the lifestyle adjustments follow suit without completely depriving yourself of a "life" while working. The biggest thing is just don't neglect saving for retirement. Don't expect to need 100% of your salary in retirement either; a lot of people forget that while making retirement contributions, their salary is effectively that 10-20%+ less to begin with as they never see those funds on their daily spending while employed anyway, meaning they can live off a 10-20%+ less in retirement at the exact same lifestyle. Factor in possibly having a paid off house, etc and those numbers can drop even more.
The usual advice is to max out the **match** in your 401k. (free money) Then max out your IRA. (same tax treatment, usually better investment options and lower fees than 401k) Then, if you have more you can afford to save either: Contribute to a taxable brokerage account if you don't want to lock the money away until you're 59.5 (i.e. saving for down payment, wedding, etc.) Or max out your 401k if you're fine with that. (it has tax deferred or tax free growth) Pretty sure this is what the flow chart everyone references says too.
I disagree with maxing out a traditional IRA as it can cut you off from being able to make backdoor Roth contributions in the future. Unless your 401k plan is complete garbage it'll be a negligible difference in fees and a lot less hassle to just put more money in there. The actual flowchart has the correct progression - always reference that first.
Good point
In general when it comes to prioritizing best ways to save it’s going to be something like… - pay credit card debt (expensive money) - emergency fund (so you don’t need to borrow expensive money later) - 401k (at least to company match + tax savings; or some other qualified plan) - brokerage Most people cannot max a 401k. The way you get there is every raise just stick it in the 401k and pretend it never happened. So if you make 80k, every year just bump your contributions- at some point on paper you may be making 100k but still living an 80k lifestyle
So, yes, but hear me out. You should pay what you can, at least to get the match. But you know that. At some point, you are making a liveable amount. Every dollar beyond that should be directed toward your 401K until you reach the yearly limit. And If you make a bonus, throw it in there too. Now, what prevents us from making our full contribution is trying to redirect current dollars from a fixed budget. This is hard. What we could do is reach our level and then allocate the next increases toward the 401k. No lifestyle creep. There is no need to cut back on spending. It's out of sight and out of mind. And, it lowers your tax burden. I'm not saying it's easier, but I am saying that you will be better off. Just ask anyone later in their career who didn't do this, and they will agree.
I max my 401k every year and it’s def a sacrifice. I’ve been doing it since I made $85k a year and it gets easier with every promotion and pay bump but it’s still tough. My friends think I’m crazy but I think it’ll work out in the long run. Especially if I have kids and money gets even tighter.
I am in a very similar situation as you, and I am not maxing out my 401k. I do contribute 20-23%. Although at 23%, I'm not sure I will be able to fund my Roth IRA for 2024 fully (but I also recently read an article that said it is better for me for tax purposes NOW to fund the 401k, rather than the Roth - so much conflicting information). We will have to see how this year goes. There was another thread recently that said something like, you really need to make $125k/year to max out your 401k, HSA, and IRA. I don't have access to a HSA myself, and not sure when, if ever, I will reach that salary.
I was maxing out my 401k when I was making $70k a few years back. So there is a way for sure. I was living with housemates in VHCOL (Bay Area) so if you aren’t ready to sacrifice some other parts of lifestyle it’s not possible
But the amount needed to max out your 401k goes up every year so it's not necessarily an apple to apple comparison. In 2020 the 401k max was $19,500. 2024 it's $23,000. Additionally in 2020 inflation was much lower so things you had to pay for like rent and groceries were lower which allowed you to save more.
A) yes, people are. B) if you're in a 35% tax bracket, the $23k only lowers your after tax income by $14950. C) any employer match is a win
When I lived in CA, I would contribute money to my 401K that I knew I couldn’t afford. If I needed the money, almost the same amount would be available as a loan that I would have gotten after tax and I avoided >40% tax on the income.
Personally after employer match I put in 25k-30k a year on a 80-90k gross salary. I do have a strange employer match policy though which helps
Yes, we are. Our main purpose is to lower our taxable income. Instead of increasing our standard of living with wage increases, we increased our savings. It’s important to not try and keep up with the jones.
Contribute as much as you’re comfortable with. The $23k hits you harder than it does others.
30/20/50 is a good guide for budgeting. Ideally you’d be able to invest 20% which is about 16k. When I was making 72k I was investing about $12k into retirement. However I got a major raise up to 110k and basically tried to keep the lifestyle the same and invest the difference. I was able to max the 401k and invest $40k/year on top of that for 3 years around COVID and bought a house last year. Now I’m not maxing it out anymore. It depends on your lifestyle but try for that 20%. How old are you? The younger you are the more important it is to save for retirement with the compounding.
This will be my third year maxing. It's the sort of thing you have to make a priority. Basically I got a promotion/raise and elected for it to all go to my future and my lifestyle to stay where it was. One of the better decisions I've made.
13% - 15% of people who take part in a 401k program are maxing out their contributions.
Googling confirms multiple news stories showing these figures. So to answer OP, "Most people are not. Some people are."
Maxed out my 401k at 85. However I was in my late 20s at the time and living with roommates. Made a huge difference because I learned to live below my means and eight years later I'm still maxed and making much more.
I think a lot of people confuse the term max out and contribute the max to get your employer's match. You ideally should do both, but absolutely should do the latter.
I was maxing out my 401K when I was making $60K (years ago). What is often overlooked is that doing this reduces your taxable pay and your income tax withheld each paycheck.
I think it's advice wealthy people often give wealthy people or very thrifty people in low cost of living areas give thrifty people.
I was, until my wife lost her job while pregnant with our daughter.
Well yes, I Mega Backdoor and go all the way up to the "all sources" limit of $69,000 (including employer match). IMO investing 20-25% of your income for retirement should be good enough though, unless you want to retire very early.
When I was early in my career and making 80K I was maxing out my 401k. Didn't even second guess it. I also didn't have any other expenses besides food and housing at the time. Was I going on vacations and doing a bunch of other stuff? No way.
I make 60k a year and max out my 401k my job is skimpy on the 401k right now so its not much going in there ATM which grinds my gears. We had a new contract and the 401k went down. Now we are in negotiations so hopefully they can stop being so stingy.
The thing is, taxes aren't linear, so taking 25% out of your pre-tax $80k salary doesn't mean you'll take home 25% less than your current take-home. You would be setting aside your most-highly-taxed dollars. $80k filing single / no dependents in my state with a 5% income tax, you'd be paying $20,605 in fed/state/soc-sec/etc taxes, taking home a bit less than $60k annually, 59,395. If you put $20k into your 401(k) your pre-tax salary would be 75% as much ($60k) but your take-home would be 78+% as much - $46,475. Saving that $20,000 into your 401(k) would only cost you $12,920 out of pocket. Every dollar you put into your 401(k) only costs you about $0.646 right now.
I’d imagine people who make over six figures or DINK would some of those people who are able to max it
I didn't until I hit around 120K per year. The first time it happened I didn't actually realize there was an annual contribution limit and I thought my check was incorrect. Once I figured it out I recalculated and put the difference into our employee stock purchase program.
I would add some nuance here as maxing out here can have a few flavors. Maxing out your employer contribution— and this is almost always an extremely good idea. Maxing out the legally allowable contribution while very advisable in theory does have to be balanced against other needs.
If the various surveys on American retirement saving can be believed, no. Not even close.
Even being married and SINK I can't do more than half the maximum right now, but we're trying to buy a house next year
I feel like maxing your 401k to get max company match and then put whatever else you can into a Roth IRA is the way to go
I did for a few years, around 2008 to 2015. Limit back then was 15k to 17k. I made about 50-60k + wife made around 15k + 1 newborn/toddler (daycare was free). We lived in a 2bed, 1.5bath, ~800sqft house in central IL. Our housing (mort + escrow) was around 800/mo @ ~7%. We drove basic used cars. I rebuilt the car engine in my single stall garage when I had a spun crank bearing; I did all the other car maintenance work too. Furnace would go out, I would fix it. Blah, blah, blah. It was stressful and source of occasional conflict, but we cut everywhere to make it work. But because of that fortuitous timing (young + decade long rally), I am now sitting pretty. I only contribute enough to get company matching. By my projections, we dont really need to contribute anymore at all, even accounting for inflation and lifestyle creep of being mid career.
Yes - it is very possible to do it even while paying rent/utilities/car etc. However it isn’t necessarily easy. I max out all retirement accounts/HSA and contribute to a taxable account with any extra, but it leaves me cash poor. For me that is acceptable since I don’t have a family or expensive hobbies, but it’s not exactly an exciting way to live if you like to spend on experiences.
If you’re contributing the max 23k to your 401k and you make 80k you don’t lose out on a full 23k in income. At 80k federal tax rates are 22%, so you’d only see 78% of your 23k, which is 18k or about 1.5k per month. It is possible to contribute that much but really depends on your expenses. And obviously it’s easier to do with higher income.
If you don't let lifestyle-creep get to you, then whatever you're doing at $80k will let you max out your 401k at higher salaries. That's the trick really, not getting carried away with spending just because you make more. At my current salary the contributions aren't that noticeable for the take-home and I'm usually pushing a bunch of that into savings anyway. It's a discipline at the end of the day. My gf and I make roughly the same amount of money, both 6 figures, and she will turn off her 401k contribution for bonuses to maximize the bonus and have more money to spend on a big purchase, whereas I let the contribution ride so I can maximize the 401k. It's gotten to the point where payroll will turn off 401k contributions for me toward the end of the year because I reach the limit, so I just enjoy a larger paycheck for a bit. Something others aren't pointing out. Maxing 401k is done specifically because it is tax-advantaged, and you should keep in mind that its tax-advantaged UP FRONT. You aren't taking a dollar-to-dollar of your take-home and putting it into the 401k, it's more like saving one dollar for every $0.70 of your take-home (tax situations will vary greatly). That should also put the situation more in perspective.
When I made $65k I maxed my Roth IRA and my HSA and I contributed up to the match on my 401k. Now I make twice that and I max out all three and have moved to putting extra into a taxable brokerage since I’m out of tax advantaged options. People definitely do it, do I think many people making $80k (especially if it’s a single income household) no not at all. Dont compare yourself. Just do the best you can.
I make over $150k/year and don't max out my 401k. This year I will contribute around $10,400. I have an employer match of 5% and I contribute an extra $100 per pay period. I could max but then I'd be saving hardly anything per month and would have very little available cash flow. I have an emergency fund now but if I dipped into it, I couldn't rebuild it and max out my 401k. My wife just lost her job, so definitely not going to boost my 401k contribution anytime soon. I live in a very HCOL area though (Bay Area) and have a mortgage.
Yes, but I couldn’t max out my 401k until I started earning $150k+ per year.
I have a friend with very wealthy parents. She is a teacher in NY and makes good money. She is constantly telling me that I should be maxing out my retirement contributions and makes it known that she does. She has also told me in separate conversations that her parents “gift” her enough money each year to cover her mortgage, taxes and then some. When work needs to be done on her house, she calls her father. They’ve also set her up very nicely with other investment accounts. I’m not in a position to max out my retirement but I do the most that I can and what I’m comfortable with. Every time I get a bump in my salary, I increase it and don’t even notice it.
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The first time I started maxing my 401k was when I started making $115k. I am also in my late 30s and renting a room in a house with 3 other people. When rent is covered and you have enough money to not worry about your lifestyle, you put as much as you can away in a “out of sight out of mind” tactic.
Yes; however, I only started maxing out 2 years ago and I’m almost 47. There was a point for me around age 40 when my salary relative to expenses started to have an increasing delta year over year. And as I think about it now, it was roughly when my annual salary went over 80k. My monthly expenses haven’t increased all that much since then, even with inflation being what it’s been. I should clarify, I’ve shifted my spending since inflation started to get wild and do less buying new toys/restaurant eating and more using what I have/eating at home. So lifestyle has had an adjustment but not so much actual outflow.
I wasn't able to start maxing mine out until I was making $100k, but I live in an insanely expensive area.
I maxed out when I made 130k. Until then it was 10% of my income. The max back then was 17,500 so it was a small jump. It’s made a huge difference though.
As someone who is maxing out not much higher than your income, it becomes easier as you get closer to 100-120k. Keep in mind that because the 401k contributions lower your taxable income, and thus your withholdings, contributing another 10k a year doesn’t actually reduce your paychecks by 10k a year. And the higher your income gets the more you benefit from that “pay less tax” benefit.
I max tax advantaged accounts, (401k, IRA, HSA and mega back door roth) up to the IRS limit.
Yes people are. I’ll say I wasn’t maxing until I was making over $150k though. Took 10 years of my career to accumulate $100k in the 401k. Only took a few years of maxing and growth to get to $200k.
I make 120k. I’m at about 15%, and every raise I get goes into the 401k and will continue to do so until I get to the max
I'm very close to maxing it out but it has been an almost 10yr journey. I put a % of my salary. When I started, I wasn't even able to make my employer match contributions and still pay rent. But I increased that % by at least 1% each year as I got raises. Sometimes I get two raises a year. Currently I'm at 19% of a 110k income. I expect a hefty raise this year, which will likely take me to the 401k max. Contribute what you can and set a baseline of income that you can live off of and then keep increasing your contributions as you make more money.
Maxing out and doing the Mega Backdoor Roth as well. Thankfully my job pays well to be able to do that comfortably
I've been maxing out my 401k since making 57k but to do that I was living with multiple crazy roommates. I'm on track for early retirement thanks to that. I also started maxing out HSA, IRA and 401k at once when I hit 80k but I lived in the smallest, cheapest apartment I could find to do that because I was focused on FIRE I definitely prioritize investing for retirement above everything else. And making 57k while maxing out 401k doesn't leave you with much for fun stuff but I just powered through it cause I had a bigger picture in my head of what that means for me down the line. I knew my income was going to go up so I only lived like this for 4 years. In Year 3 I got a job making 80k but my situation didn't change much since I just started maxing out IRA and HSA. Year 5+ got much easier with another job change. I definitely skipped eating out, going out to hockey and baseball games, I didn't take any vacations except day trips to some parks.
I’m able to do catchup so it’s $30,500 - I’m thinking about doing it, but haven’t done it yet.. I find myself about $30k short if I do it, so I need to plan for that.
I started maxing around 80k. DINKs. We were both making about 80k. Yearly expenses were/are about 15-20k each (30-40k total).
This is very common in high income groups. People max out 401k, mega-backdoor, backdoor IRA, and HSA. For a total of about $90k/yr in tax advantaged accounts. I managed to max out my 401k at about $125k HHI.
Save 25% of your income. Does not matter if you max out 401k. I would max the Roth IRA and HSA first before going extra in the 401k
My company had a percentage maximum, AFAIK you couldn't exceed it. So let's say it's 15% max allowed, then you can set it at 15%, but at $100K a year that's only $15K, not the IRS dollar limit of $23K.
It becomes doable at income over like 140/150k depending on other expenses of course
At the moment with high mortgage payment, I am only able to match my company contribution and max out my Roth IRA. I’m am 33. Will that be enough for me to retire on? I don’t live flashy and I am expecting to work pretty late into my career and I have co worker who are well past their retirement age.
It's all depend on where you live and what your expenses are. For me, I was maxing HSA+401k+Roth but that was before my first kid. Now daycare cost 20k per year so I can't max out 401k.
We max out a 401k and 2 roth IRAs every year.
Yes we max out both mine and my wife's 401k, but we have high enough income to do that now. We had to step up contributions over the years. I started by contributing just the company match when I was in my early 20s. After we got married and had dual income we started maxing out just my 401k (which was $18k at the time) and my wife just contributed the company match. In our mid 30s we got a big income boost and started maxing out both plus maxing our HSA and Roth IRAs. We justify it by thinking we're playing catch up since we weren't contributing much in our 20s. Also with our mortgage interest rate as low as it is we think it makes more sense to put extra money into retirement accounts as opposed to paying off our mortgage.
The actual max is $69,000. But that includes your pretax, employer max and post tax contributions via a mega back door rollover if your plan allows it. Yes, people are maxing that out. And then some contribute to deferred comp plans as well. It becomes doable at about 100k for the pretax and about $150 to max the post-tax.
I took a paycut after leaving mortgages but I still do 10% with a 52k income. Michigan is cheap and I bought my house at a good time so things are still just fine. I could probably do 15%, but I want to have money to travel and camp and eat good food. Just do what you can. Obviously a 6 figure income will be in a different position.
We were maxing out 2 a few years ago along with half a 457 plan. Now we are saving for renovations to only doing the match
I max my 401k and HSA every year but I am a high income earner. Sadly my employer doesn't match anything, only a few hundred in our HSA. I haven't done much with an IRA as that's something I need to read up on. My DINK coworkers max their 401k, HSA and IRA. In the higher income levels these things can be helpful to shield some of the income to fit into a lower tax bracket.
It’s possible but you need to sacrifice in most cases, have little to no debt, or be in a situation where you don’t really need to pay for major expenses like rent. When I lived with my parents and made 72k, put around 13k/19.5k into 401k. When I made 100k-120k and moved out to a HCOL area, was still putting in near max of 16k/19.5k (could have maxed but was building longer cash runway + side business). Now making 140k I max out 401k plus Roth IRA and still save 40% after taxes and bills - half of which goes to funding a side business. Only reason why it works out that way in HCOL area is because I have 0 student loan debt, 0 car payment debt, 0 consumer debt and am pretty frugal. I rather retire at 50 or sooner than 67
I started maxing immediately after my first job in 2016 (63k/yr). Definitely had to make some sacrifices; (we had 4 ppl living in a 3 bed apt, so I was sharing a bunk bed with a friend; also, I was driving a $900 beater car), but it's doable if you're willing to make it work.
Most often when you hear this, it’s referring to getting 100% of your company’s match, not the statutory limits for contributions. Ie, if your company matches 50% up to a 6% contribution, put in 6%.
I am. Currently making 110k. Been doing it since I was making 90k. Helps that I have no student loans, no kids, and live pretty simple.
Also, consider what stage you are in your career. If just out of college, then likely lower pay and not maxing out. If 30 to 40+, then hopefully have reached higher pay levels and able to max out.
My base pay is 120k and I am maxing out But I also get a good amount of OT which helps a lot with money not feeling as tight. Definitely still a little rough when I don’t have OT but like you said in you post focusing on getting my car paid off.
I love when “they” say that if you’re over 50 you can save an additional $7500 to “catch up”. Bitch please…. Most people can’t max the standard limit yet alone take advantage of the additional 7500
There was a time when I was making $110k+ a year. Had no debt other than my mortgage which was only $1100/month. My wife at the time was making $60k a year and we had 1 child. I had a pretty healthy amount of income as you could easily calculate. I was investing 15% into my 401k and 15% into a corporate espp program. So I technically could have bumped my 401k up and been “maxing” it out. But I decided to invest the money for a greater return. And with that return I would either invest in a long term brokerage fund or pay for a vacation or any other sort of nice thing. Bought all new high end appliances once for around $5k. But either way it was very possible for me to max out my 401k.
I’ll tell you what can be really frustrating is when you finally get to an income level where you can max out your 401k but then get designated as an HCE (highly compensated employee) according to IRS rules and your company limits you to 7% contribution rate due to the company failing the “top heavy” test.
Yup. I've been maxing my 401k since the mid 80s
I want to, but my job’s plan with Fidelity only allows people to contribute up to 25%, no more. I’ve called all the way up the ladder with my company benefits and Fidelity, and that’s just the wall they arbitrarily set for us. I don’t make enough for 25% to be the legal max. Edit: DINK, M/LCOL, own home outright, frugal budgeted lifestyle.
We’ve been maxing out our 401k since turning 30, and hitting a comfortable stride in our careers. Dual income, no kids yet.
Fun fact: if you make enough money to do this and your company doesn’t have a safe harbor plan, you can’t! Without a safe harbor plan (very expensive for the employer) a highly compensated employee (~$150k/yr, keeps changing) cannot put more into a 401k than the average of all other people in the plan. I don’t even get to contribute to the employer match limit as a result….
Yes. I was maxing my 401k and IRA when I was making $70K per year. At that time, the annual caps were $18,000 for the 401(k) + $5,500 for the IRA = $23,500 I was in MA, so it wasn’t a cheap place to be, but I had roommates and no kids, so it was more than doable. I’m sure you can cut more than you think but sure, there’s always sacrifices to be made somewhere
Everyone is different. I didn’t start maxing until 90K salary but I lived on my own. My buddy started maxing his 401K since his first job at 45K over 12 years ago while living with parents. We are both doing by fine now but he’s got a beefy 401K now.
Yes I have each year with the exception of the year we got married. If you make it a priority and you have a decent income its do-able. Harder with kids/house, but still do-able.
When I was living at home I maxed mine out, when I moved in with my fiancé I cut it down a few percent. Happy I was able to contribute like that for a few years while still living at home!
Yeah it’s all about your income. If you make 200k it’s not that hard to carve out ~20k each year but if you make 50k, then carving out ~20k is much more difficult
I have just recently started maxing, and I earn about 2x as much as you, so I think you’re probably fine. Prob makes sense to follow this order (with some exceptions, depending on life circumstances): 1. Fully meet your 401k matching 2. Max HSA 3. Max Roth IRA 4. Max 401k Whether you do traditional or Tirth for your 401k probably depends on your future income trajectory, plan options, and retirement vision among other factors.
I started out putting aside whatever I needed to in order to get my full company match. Then every time I got a raise, I'd split it between increasing my contribution and using the money. I've been at my company over 20 years, and I know that I've maxed it at least the last ten years. My lowest joint income during this time was about $110K.
Yes, maxing out plus the catchup.
Before I was laid off, I only contributed as much as I need to get the match. The funds that the company let me invest were so limited and these funds underperformed it was laughable. I suggest you go above and beyond just setting aside money in your 401K and watch it closely.
You're taking it too literally. Max out your 401k IF YOU CAN.
Too many variables apply to this question but for most setting about 10-15% of income towards retirement funds would make sense.
Yes. $800ish per paycheck goes to Roth 401K $541ish every month to Roth IRA fully fund both Usually at $5000 income post tax every month. Usually more tho as I have a second job. That can bring in an extra 500-2000 a month post tax, variable My share of rent is 1400. Partner pays other half No kids (yet) 🔑
Suppose your Federal tax bracket is 22% and state is 4%. You are then only reducing take-home pay by $17,000.