What's the Unfortunate Truth About Maxing Out Your 401(k)?

Key Points

• Maxing out a 401(k) takes a lot of money, and it's not something most people can afford to do.

• 401(k)s offer less flexibility than Roth IRAs or HSAs.

• It's fine to use multiple accounts to save for retirement.

• The $23,760 Social Security bonus most retirees completely overlook ›

If you're looking for a way to quickly improve your retirement readiness, you might decide to max out your 401(k). The high contribution limits and the possibility of an employer match make it a great strategy for those who hope to quickly kick-start their retirement savings or make up for lost time.

That said, it might not be your best option, depending on your account investments and when you plan to use the money. It's also extremely difficult to pull off. This doesn't mean you shouldn't give it a try, but it's worth weighing all your options before deciding which is right for you.

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What maxing out your 401(k) means

Maxing out your 401(k) means contributing up to the annual contribution limit in a single year. For 2025, this means setting aside $23,500 if you're under 50. If you're 50 to 59 or 64 or older, your limit is $31,000, and if you're 60 to 63, you can set aside up to $34,750 this year. These limits do not include employer contributions made on your behalf.

You've probably already picked up on a key problem with maxing out your 401(k), which is that it's not financially feasible for most people. Most workers don't have that kind of leftover cash after paying their bills, so they cannot save that much even if they want to.

If you're in that situation, you're definitely not alone, and you shouldn't let this discourage you. Even if you never contribute the full amount, you can still retire comfortably. Anything you can set aside will improve your future financial stability, so take pride in whatever you manage to save.

401(k)s lack the flexibility of other retirement accounts

Another problem with 401(k)s is that they lack the flexibility you'll find with IRAs and even health savings accounts (HSAs). With a 401(k), your employer usually preselects some investment options, and you choose between them. This can be helpful if you're overwhelmed by too many options, but it also means you may not like any of the options you have.

If all the available funds charge high fees, for example, this could eat into your profits and force you to save more per month to meet your retirement goal. By contrast, an IRA lets you choose pretty much anything you want to invest in. This gives you much greater control over what you pay in fees. Some HSAs give you this option as well.

Another advantage that Roth IRAs have over 401(k)s, including Roth 401(k)s, is that you can withdraw your contributions, but not earnings, tax- and penalty-free at any time. This can work well for you if you plan to retire earlier than 59 1/2 -- the age at which you no longer face early withdrawal penalties from retirement accounts. It can also give you some quick cash in a pinch, though you should consider this a method of last resort. Early retirement account withdrawals stunt the growth of your savings.

HSAs also enable you to make tax- and penalty-free medical withdrawals at any age. Again, if you plan to use this money for retirement savings, you probably want to avoid taking withdrawals earlier. But if you have no other option, it's a great fallback.

However, these accounts have their own limitations. IRAs only allow you to set aside up to $7,000 here in 2025 or $8,000 if you're 50 or older. HSA contribution limits are $4,300 for those with a qualifying individual health insurance plan (deductible of $1,650 or higher) and $8,550 for those with a qualifying family plan (deductible of $3,300 or higher). Adults 55 and older can save an additional $1,000 here.

So should you save in your 401(k)?

Don't take the 401(k)'s shortfalls as a sign to write it off. Every retirement account has its own pros and cons. Yours could still be a great option for you if you like your investment options, especially if you get a match from your employer.

But if you're not thrilled by your company's plan, that might be a sign that you could benefit by saving first in an IRA or an HSA if you qualify. Once you've maxed that out, you can return to your 401(k) if you'd like to set aside more money during the year.

The $23,760 Social Security bonus most retirees completely overlook

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