January 1 brought several important changes to your 401(k), including higher annual contribution limits. This is great news for those who hope to stash large sums away for retirement this year, but maxing out your 401(k) is a tall order.
Read on to see how much you'd need to save per month to do it and why you might not want to.
What does it mean to max out your 401(k) in 2024?
Maxing out your 401(k) means contributing up to your annual contribution limit for the year. There are actually two limits -- one for people under 50 and one for those who will be 50 or older by Dec. 31, 2024.
Image source: Getty Images.
Adults under 50 may contribute up to $23,000 this year. That comes out to about $1,917 per month.
Those 50 and older have an even tougher task. They're allowed to make up to $7,500 in catch-up contributions, bringing their annual contribution limit to $30,500. That comes out to a monthly contribution of $2,542 per month.
For some people, saving this much isn't feasible. But if you'd like to try, divide your annual contribution limit by the number of pay periods in the year to figure out how much you must set aside from each paycheck.
Should you max out your 401(k) this year?
Whether to max out your 401(k) is a personal decision. If doing so would cause considerable financial strain in the present, it's not a good idea. Once you've locked money away in a 401(k), it's difficult to access it penalty-free before age 59 1/2. And though it's great to set aside money for retirement, it's not worth jeopardizing your financial security in the short term.
You may also want to avoid maxing out your 401(k) if you dislike your plan's investment options or if it charges high fees. In that case, you may prefer to use your 401(k) just to claim any match you're eligible for, and then switch to an IRA or health savings account (HSA). You can always go back to your 401(k) later in the year if you max out these other accounts.
But if you have the cash to spare, maxing out your 401(k) is a great way to increase your retirement readiness. Just be careful not to exceed the annual contribution limits or you could run into government penalties. If you'd like to set aside even more than your 401(k) allows, switch to another type of account after hitting your 401(k) limit.
Don't get discouraged if maxing out your 401(k) isn't in the cards for you this year or any year. It's possible to retire comfortably while still saving a lot less annually. Just set aside what you're able to and, if you can, raise your contributions slightly in 2025 and every year thereafter.
