You Don't Need to Max out Your 401k
Maxing out your 401k or 403b is one piece of financial advice that gets repeated over and over — and for good reason. If you have the ability to do it, you absolutely should consider it. These accounts offer tax savings, encourage long-term discipline, and help you build a strong retirement foundation.
If you are offered a retirement plan through work, and they offer an employer match, then at a minimum you need to contribute enough to get the match. We do not leave free money on the table…
Even if the plan doesn’t offer a match, it can still make sense to contribute — either for the tax savings (traditional 401k) or to build a bucket of tax-free money (Roth 401k), especially for the high earners who can’t contribute to a Roth IRA outright.
Profit sharing is another bonus if your employer offers it.
But here’s the thing: it’s okay not to max out your retirement plan…Even if you feel pressure from family and friends.
Contributing 20% of your income into a 401k sounds impressive, but not if it leaves you feeling tapped out. Also, I’ve seen plenty of people contributing a lot of their income into 401ks while also carrying substantial credit card debt.
Paying 20%+ in interest while investing for an 8-10% return on average doesn’t make sense.
401ks are great for long-term growth — but I try to think of them as money you can’t touch. Are there exceptions? Of course. But accessing that money before 59½ can be painful: paperwork, penalties, and taxes. And while hardship withdrawals and 401k loans exist, they’re usually options you’d rather avoid.
On top of that, many plans have shitty investment options (high expense ratios or limited choices), administrative fees, and mandatory tax withholdings on withdrawals. Sometimes you don’t even realize how much those costs add up.
Be honest, do you look at your 401k statements?
That’s why I’m a big advocate for flexibility. It’s okay to stop contributing once you hit the match or a comfortable percentage. Build savings outside your retirement plan too — in investment accounts, high-yield savings, or outside IRAs.
Align your savings and investments with your personal goals. If you want to buy real estate, go on a big trip, increase your emergency savings, odds are stacking a majority of your income into a 401k won’t help you work towards those goals.
Investing is more art than science. There’s no perfect formula. What matters most is giving yourself options. Spread your money across different accounts and funds. Doing so will help you stay balanced, financially flexible, and ready for whatever life throws your way.
Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Tax strategies should be tailored to your individual situation. Consult a qualified tax professional or financial advisor to determine the best approach for your specific needs.