What's the Unfortunate Truth About Maxing Out Your 401(k)?
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What caught my attention is If you're looking for a way to quickly imve your retirement readiness, you might decide to max out your 401(k). Moreover, The high contribution limits...
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investment
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July 21, 2025
08:00 PM
The Motley Fool
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What caught my attention is If you're looking for a way to quickly imve your retirement readiness, you might decide to max out your 401(k)
Moreover, 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
Nevertheless, At the same time, It's also extremely difficult to pull off, in today's financial world
Furthermore, 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
Meanwhile, 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, given the current landscape
These limits do not include employer contributions made on your behalf, in light of current trends
You've bably already picked up on a key blem 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 that much even if they want to, in today's market environment
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 imve your future financial stability, so take pride in whatever you manage to, amid market uncertainty
Meanwhile, 401(k)s lack the flexibility of other retirement accounts Another blem with 401(k)s is that they lack the flexibility you'll find with IRAs and even health savings accounts (HSAs)
Additionally, 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 any of the options you have
If all the available funds charge high fees, for example, this could eat into your fits and force you to more per month to meet your retirement goal
By contrast, an IRA lets you choose pretty much anything you want to invest in (an important development)
This gives you much greater control over what you pay in fees
Some HSAs give you this option as well, in today's market environment
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 (remarkable data)
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
On the other hand, It can also give you some quick cash in a pinch, though you should consider this a method of last re, in light of current trends
Early retirement account withdrawals stunt the growth of your savings (this bears monitoring)
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 bably want to avoid taking withdrawals earlier
In contrast, 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 (an important development)
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 an additional $1,000 here, given the current landscape
So should you in your 401(k)
Nevertheless, Don't take the 401(k)'s shortfalls as a sign to write it off (an important development)
Every retirement account has its own s and cons
Yours could still be a great option for you if you 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 to set aside more money during the year (something worth watching).
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