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How to Max Out Your 401k in 2022


Maxing out your 401k retirement account is no easy feat.

While people’s income and financial responsibilities differ, saving $20,500 per year boils down to around $1,708 per month. That’s $854 per paycheck, if you’re paid twice a month.

Following are tips to help you meet the financial goal of maxing out your 401k, or alternatively, reaching an attainable contribution goal.

What is a ‘Maxed-Out 401k’?

A maxed-out 401k means you’ve contributed the maximum amount allowed by the IRS. In 2022, the limit is $20,500 (if you are under 50 years old), up $1,000 from last year. Workers over 50 have a chance to make catch-up contributions of up to $6,500 a year.

Note that this does not include any employer-match funds that you may receive as a job benefit.

Benefits of Maxing Out Your 401k

A 401k is a tax-advantaged account. If you choose a traditional 401k, you won’t pay taxes until retirement. If you opt for a Roth 401k, you’ll pay taxes now but not on withdrawals in retirement.
401ks offer opportunities for automated savings. Often, 401k contributions are automatically withheld from your paycheck and deposited in a retirement account. This means you never miss the money in your paycheck.
The 401k sometimes comes with an employer match. This means that in addition to your contributions, your employer contributes a certain amount to your retirement savings. If you’re not able to max out your 401k, consider at least contributing enough to get your employer match. This money represent a risk-free return on investment — it’s the closest thing there is to a “free lunch.”

Disadvantages of Maxing Out Your 401k

You have competing financial priorities. Imagine, for example, that you make $150,000 per year. After taxes, let’s estimate that your take-home pay is around $90,000 per year, approximately $7,500 per month. That’s nothing to sneeze at, but you also have a mortgage or rent payment to think about. The national median monthly mortgage at that income level is around $1,600. Now you’re down to $5,900 per month. Think about any debt you’re trying to pay down. According to Student Loan Hero, the average monthly student loan payment is $351 (though you may want to think strategically about rushing to pay off that loan). The average American has $6,375 in credit card debt. Then there are other expenses — groceries, utilities, car payments, kid-related costs, and other investments.
Your 401k plan may come with hefty fees. All in, 401k fees are, on average, around 1% of plan assets, according to the Center for American Progress. By using our free fee calculator, you can determine just how much you’re paying and how that may impact your portfolio over time.
Your 401k investment options may be limited. By law, 401k plans can offer as few as three investment options.

How to Reach Your 401k Contribution Goals

Here are four tips for maxing out your 401k (or meeting your own contribution goal) this year.

1. Gut check your budget.

Calculate your average monthly spending and saving as percentages of your total income. How much more you would need to contribute to your 401k in order to reach the limit? If upping your contribution is possible, contact your 401k plan administrator and request an increase in your contribution rate.

2. Sign up for direct deposit.

Set your automatic contribution amount to $1,708 a month. This is the fastest way to get money into your 401k account and reduce the temptation of spending it elsewhere. Consider it a payment to your future self.

3. Put any bonuses toward retirement.

Got a bonus? Kudos! Consider funneling it into you 401k. Because this money may not have been expected, you likely won’t miss it.

4. Get specific.

$1,708 per month may not be feasible for you. If that’s the case, establish a number that is, and contribute at least that much every month. Make it an amount that is challenging but attainable so that you stick to it.

Just make sure you establish an actual number instead of leaving your goal ambiguous by saying you want to “contribute as much as you can.” Setting specific goals will help you stay accountable!

Also, year-over-year, consider increasing your contributions by a certain percentage until you reach the annual limit.

Are you on track to meet your retirement goals? Check with our Retirement Planner tool.

The Bottom Line

Preparing for retirement is part of your overall financial plan. You can take a few additional steps now to get yourself on the right track.

Download 65 Ways to Retire Smart, an actionable guide with insights from fiduciary financial advisors. The guide is free.
Sign up for the Personal Capital Dashboard. Millions of people use these free and secure professional-grade online financial tools. You can use them to analyze your investments and plan for long-term financial goals.
Consider talking to a fiduciary financial advisor for more detailed guidance on your retirement saving strategies, like if maxing out your 401k is right for you.

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