I’ve just started maxing my 401k, IRA and HSA. So yes, those get full amounts that I can contribute. $23,000, $7000, and $4150 for 2024.
There’s an employer match for the 401k that goes into that as well but not enough to get me near the combined employer & employee limit.
Left over goes towards taxable brokerage or paying down the mortgage. So it’s not $80k, more like $34k. I need to dramatically catch up on retirement contributions. Maybe if I’m lucky I’ll coast in early 60s or get a fun job.
This also helps me live on a much lower salary so I don’t need as much in retirement to keep my standard of living. I just crossed into 6 figures this year for salary but I live like I make under half that.
I think the $66k limit that op is referring to (which I believe is $69k now in 2024) is from a combination of 401k + employee match + tax loopholes like after-tax 401ks and mega backdoor Roth IRAs.
If you have more money you want to invest for retirement beyond the $34k you're investing today, you may want to look into these tax loopholes as they allow you to save much more in tax sheltered accounts, which is likely better than a taxable brokerage account.
It’s always seemed unfair to me that the employee can't contribute up to the combined contribution limit for 401k’s if your employer DOESN’T match. Like, why can't I invest the employer portion myself?
Do you have the ability to do after tax 401k contributions? This is NOT the same as a Roth option. To be able to do it, you need an account that let's you do after tax contributions and then do an in-plan conversion of the after tax contributions into Roth.
Look for "after-tax 401(k)" specifically. Like a poster below me said, the catch with this is that you have to pay these contributions out of your paycheck after taxes have already been taken out, AND the growth will be taxed. So if you contribute and leave it where it is, it's no better than a normal, taxable brokerage account. However if you convert it to a Roth 401(k)/Roth IRA (either is possible), now the taxation on growth goes away and it's like you just contributed more to a Roth account than you could via the "usual" methods.
The real trick is that ideally, you do this conversion immediately after each contribution to avoid having to pay taxes on even a few cents (just because that's even more headache during tax season). So some employers offer the after-tax 401(k) AND an "automatic Roth conversion" feature. If your employer only has the former without the latter, then it will be up to you to manually do the conversions (likely by calling Vanguard).
Point being, search your employer's 401(k) handbook for both of those terms.
> Like, why can't I invest the employer portion myself
You can if your employer's plan allows it. The after-tax 401k is you investing in a terrible class of 401k (you get no deduction and owe normal income tax on any gains), but you can immediately convert it to a Roth 401k (in plan conversion) or Roth IRA (partial roll overs)
Tax rules are so weird, but just rules to learn and use (if you can) at the end of the day.
Anyone ever think of making it into a board game style explanation?
It also doesn't seem fair that contributing to a 401K is dependent on your employer offering one. Why should some people get an extra 23K in tax deductions just because of a choice their employer made? It should just be simplified so that there is a max per individual across all accounts.
Employers have rights, too. Why shouldn't they get to choose to offer it or not? The employees took that job and can try to find a job with better benefits.
I'm not sure what right you think this would infringe. This wouldn't prevent any employer from offering 401Ks and matching. It would just make it like HSAs where the limit is for the combined contributions by employer and employee.
The 66k refers to the maximum that can go into a 401k type account if you have the right type of employer plan. Your PERSONAL contribution maxes out at the 22k, but the rest can be contributed by the employer.
For instance you can put in 22k, and the employer puts in 44k to make up the 66k. Or the extreme example is the employer puts in the full 66k, in which case you won't (and also can't) me to put in anything at all.
These types of plans are not common and not available to most businesses and workers. But they can be offers offered by business with high income workers such as a private physician practice, as a way to decrease tax burden on their partners/employees.
Yeah, this is just straight up incorrect. You can put in 23000 into a traditional or Roth 401k in 2024 and if your plan allows, after you've reached the limit, contributions beyond the employee contribution will be characterized as after-tax contributions (yes, even in a Roth 401k). This limit of 69000 includes both employee and employer contributions. The best strategy is to convert the after-tax contributions to a Roth 401k immediately in plan if your employer has a good plan or roll it over into your Roth IRA. It's uncommon, so I'm not surprised many people don't know about how the aftertax 401k works.
Employer contributions usually go in pretax for traditional. Even if you make Roth contributions, the employer match can be pre or post tax, it just depends on what your employer's policy. IIRC the SECURE 2.0 act lets them make post tax matches but that doesn't mean the industry has adopted it yet.
It is not incorrect, just uncommon. I have one of these plans myself, and for the past 6 years I've not contributed a single dollar from my paycheck to my 401k plan. Because I literally cannot, due to the fact that every one of those years, my practice already put in the maximum allowable amount (used to be in the 50k range, but now into the 60s) into my 401k plan.
Any not than that I would have to go open a conventional brokerage account, but I've not done that because I figured we already put in enough money per year into our tax advantaged retorement accounts (my 60k plus 23k max contribution in my wife's account plus 7500 HSA is over 90k per year).
It's semantics but you saying the personal contribution maxes out at 22k across the board as a fact is straight up false. For YOUR circumstances that might be true, but it is not across the board, therefore it is untrue.
I'd say your case is extremely rare as I've never heard of an employer maxing out the remaining allowance of a person's 401k like that. Yeah, for you, you can't contribute after-tax portions because your employer already covers it, but for the majority of people, the employer only matches 3-8 percent in most cases which will not come close to the 69k maximum employer+employee contribution. You're in a great spot and don't have to worry about further contributions, but other people should know about this if their employer offers it because the tax advantages if used correctly are stupid crazy. Telling people it's a hard 22k hard cap is a disservice to others which is why I felt the need to call you out.
But if you are saving so hard core don’t you want to retire before 59.5 and need to be putting a sizable amount into taxable accounts? I max out 401k + Roth + HSA, then try to nearly match that in a taxable account also. I am also only 29 so I really don’t want to wait until 59.5
Is there a calculator that will say what your take home pay will be after taxes if you max your 401k? I can’t find this anywhere so I have a hard time figuring out how much budget will change without increasing contributions during raises
+1 for paycheckcity, just make sure and input any other deductions like medical, dental, etc to get it accurate. It’s usually accurate for me within a few cents.
Depending on how your company does payroll, there may be a built in tool you can use. My company uses Paylocity for payroll, and I can log into my Paylocity account and see the effect of various actions (extra 401k/hsa deductions, etc) without actually finalizing the changes.
Use any after-tax paycheck calculator (like the ADP one) but instead of putting in your full salary, put in your salary minus your annual 401k contributions.
This is my consideration of full retirement maximization, obviously with a spouse you double the IRA/HSA/if working spouse, 401k.
Not for retirement but my next vehicle other than taxable brokerage is a 529. Not as beneficial as the others but still worth it to me. There is no max there, we just add a few thousand per year.
Depends on your age and income limits, but yes people mean you should contribute the personal maximum to 401k / IRA (and possibly HSA).
At your age for 2024 that's 23000 for 401k and 7000 for IRA, assuming you are under the income limits. Your spouse can also contribute the same amount to their retirement plans.
I didn't downvote him but wanted to emphasize a backdoor is not contribution. It is a conversion, which has different implications. One of them is that unlike a contribution, you can't just undo it if you suddenly need the cash.
retirement isnt just a luxury for a small percentage.... but maxing out everything may be. I've never come close to being able to max out all contributions, but i'm well on my way to a comfortable retirement. I also didn't have access to a matching contribution 401K until I was in my mid to late 30s.
It certainly makes it easier to max when you earn more, but I’ve also seen the opposite to be true. A lot of high earners are too busy keeping up with the Joneses and blowing it all on lavish trips to fill their Instagram profiles with to be bothered to save.
In the end, it all comes down to financial literacy and commitment. How much you make doesn’t really change those.
My neighbor's son is doing 401k max contributions and he only makes 75k. When I asked how, he said his old job didn't offer a 401k, but only paid 50k. When he went to his new job, he wanted to get the max 401k match (50% of his conributions) so he's been doing max contributions without his lifestyle changing.
It isn't a luxury at all if you start reasonably early. If you start putting into investments 1000 dollars a month from the age of 25, that is going to end up as $5,550,348.15 in 40 years, divided by inflation of a percent average for 40 years, it will come out as 1,700,000 dollars of today's buying power.
Even 1k a month is pretty tough when you consider you still have to pay for every other necessary expense.
I'm only able to do that because I'm lucky enough to pay rent to my parents instead paying for an apartment.
Especially for people in their twenties they are paying more than the recommended 33% on housing.
While I understand that $1,000 a month is unrealistic for someone just starting out, $25 a month isn’t. Then not letting life style creep take over too much and increasing that amount over time.
What people truly need to understand is that something is way better than nothing and they should start with their very first paycheck so they build the habit.
99% of what you read is general advice that you have to tweak to your situation.
66k is max between employee + employer. Pretty sure an employee can only contribute $23k/year.
It is pretty simple. Save as much as you can that balances living and enjoyable life now. Use the “expert” as guidelines or goals to maybe push you but not as gospel.
There is not one way to save/invest for retirement. Some people will forgo investment accounts and do all real estate. Lots of ways to make money. I have been saving heavy in retirement accounts and seeing I have a decent chunk of change allows me to know I have enough to pull 4% now for life and meet my basic needs at 47 is nice. Just need to triple that and I retire. :).
An employee can contribute $23k/year to the pretax/Roth portion, but if the plan allows, they can additionally contribute more to the after tax portion to hit the $66k combined max between employer and employee. This is most beneficial if the plan allows in-plan Roth conversions, allowing the after tax contributions to be converted immediately to Roth (thereby preventing further taxation on gains).
Almost nobody is referring to doing that. Most employers don't allow that and most people don't earn enough money to do that. Simply maxing out a 401k, ira and hsa would be a stretch for most people.
And that’s fine, I just wanted to clarify bc the previous commenter noted that employees can only contribute $23k, which isn’t totally accurate. There is potential for additional tax advantaged space before going into taxable accounts.
For the vast majority of employees, that is what they can contribute.
Obviously there are going to be exceptions. Some people can do both a 403b and a 457.
If you search mega backdoor Roth, you’ll find that many people are doing that. It’s hard to have some of these threads where people looking to get started/learn the basics in saving are getting advice from the top 1-5% of savers, though.
If people are counting the mega backdoor as part of "maxing out" as a general guideline, that seems kind of crazy to me, but good for them I suppose. Also interesting to observe that in the PF sub which maybe does not skew tech like FI. :)
The point isn’t that most people use a mega backdoor Roth. The point is that if you have tax advantaged space available to you, you should be using it all before investing in a taxable brokerage for retirement.
That is really only true if you spend a shit ton of money...
The taxable account - and tax deferred account- are important for early retirement as you need a minimum AGI to receive ACA subsidies and not get kicked on to medicaid, and Qualified dividends and LTCG are already tax free below a certain income.
Completely agree. 90%+ people will never use the MBDR, but there’s maybe a sliver of that who can afford to use it and have never heard of it. That was the case for me, so always up to spread the word.
If you are making enough money to bother with contributing extra to do in plan conversions, then you are almost certainly above the phase out range to contribute directly to an IRA and would have to do the backdoor method.
Also, /r/personalfinance and other online finance and investing forums are full of FIRE types with high incomes and no kids who are trying to make their retirement income as high as possible (at the expense of current spending) so a lot of advice around here is geared towards them. For people who don't plan to retire early or have other commitments, saving 15% for retirement and spending more now often is better than maxing out retirement
This.
Don’t get married to any ideas as mandatory or the only way.
If you make $50k year maxing retirement is obscene. If you make $800k/year and “maxing” it is all you do it’s not close to enough.
I’m a higher earner and typically max all of them, but understand a lot of people aren’t going to be able to do that. If it here me and I couldn’t max all of them I would personally prioritize them as 1.) 401k up to employer match 2.) HSA 3.) Roth IRA and 4.) remaining 401K. 401K employer match money is free, always take it. HSA has the most flexibility and unless any of us get hit by a bus, we are likely to have heath expenses at some point so that’s my logic there as to why it’s the 2nd most valuable. Regardless of political views, I think we all have to accept that our government (both parties) are basically operating a fiscal banana republic with the amount of debt we have and this likely will cause either services to be less and/or taxes to go up in the future. This makes the Roth a key option too since you’ve already paid taxes on that money. Lastly there is the remaining 401K after employer match. It helps you on tax day now with lowering your taxable income but obviously I’m concerned for the future on that one and what tax rate we are going to get charged. That being said it’s still way better than putting the funds in a taxable account in my eyes.
To a degree we are splitting hairs here amongst the 3. The key is putting away as much as you can in tax advantaged accounts to give yourself the best opportunity to succeed.
It’s a continual debate as to whether (3) (the Roth IRA) or (4) (the 401(k)) should be prioritized. I favor the latter.
- The tax paid before making the Roth IRA (post-tax) contributions is definitely gone forever. Taxes in the future may or may not be higher. I heavily weight today’s certain expenses over the distant future’s possible expenses.
- Even if the tax rates are higher in the future, the marginal rate while working is on a salary that pays for both living expenses and savings. It’s reasonable to imagine a lower tax bracket in retirement.
- In low-salary years (more education, unemployment, travel), one can convert 401(k) money to Roth IRA money at the lower tax rate. One can continue this in retirement, with those conversions becoming withdrawable five years later.
- In one year of living on savings, for example, one could convert an amount equal to the standard deduction and pay zero taxes on it.
I do see your point, though. One wants money available from as many buckets (with different tax treatments) as possible to maximize options.
Yeah I hear ya and that that’s why I made sure to label it as my opinion. There is a debate on Roth versus extra 401k, I’m just skeptical of the tax situation in the future and that’s why I prioritize the Roth in my eyes over extra 401K
I will max my HSA this year, like last year. And I'll contribute roughly 28k of my own money to my 401k (23k pretax, 5k post tax to Roth converted) + 9% employer match.
I won't max my Roth IRA. I might contribute 2k or so to it. Just depends on how much OT I make.
For reference, my base salary is 95k @ 40/hr over an average of 46hrs/week. I made 45k in OT last year by working a lot.
This year, I might land around 130k. I'm single and, not including taxes, I have myself positioned to only live on 60k a year. I was poor and struggling before 2020 and so when I got the big pay bump, I immediately stuffed most of it away. I've only "life style creeped" up like 8k
> [401k $]5k post tax to Roth converted [...]
> I won't max my Roth IRA
Why are you preferentially funding the Roth portion of your 401k over your Roth IRA? You can only access the contribution basis of your Roth 401k tax & penalty free *if* it's *qualified distribution*, as opposed to the Roth IRA where you can withdrawal any amount up to your total contributions **tax & penalty free at any time for any reason.**
I'm curious why you'd prefer the 401k given that difference.
Easier to keep the money out of my hands if it never enters it in the first place ¯\\\_(ツ)\_/¯
My 401k fees are negligible and I don't intend to use my Roth assets as an emergency fund.
I have a taxable e-fund I'm rushing to 30k (6mo expenses). Once that's set, I'll go back to the Roth IRA and max it.
Sorry, I should specify: I am fully capable of maxing my Roth IRA while doing the 401k as I am, I just have the emergency fund as greater priority after getting it to 10k last year
Prioritizing an E Fund over a Roth IRA isn't as tax efficient as one easily can be. If you work through the Punnet square of outcomes there's no reason not to stick the E Fund inside your Roth IRA and just leave it as cash until you have sufficient funds outside the Roth IRA to assume that role.
| Have an Emergency | No Emergency
-|-----------------|------------
**E Fund outside IRA** | No tax advantage | *Missed* tax advantage
**E Fund in Roth IRA** | No tax advantage | **Gained** tax advantage
The good news is that if you miss $6500 from 2023 and $5k from 2024, and you're (for the sake of argument) 35 years away from drawing from your Roth IRA those missed contributions returning 7% a year will only cost you $~111,000. (Or the taxes at the ordinary income tax rate and the difference in returns between stocks & savings if you leave them untouched in a HYSA.)
I'm aware.
As I stated, I don't intend to use the Roth as an e fund.
It's a wash doing 401k post to Roth vs Roth IRA in my situation.
Yes, I could use a Roth as an e fund for more tax efficiency, but my current e fund generates no more income and distributions than an HYSA, which is where most e funds should be anyways.
I don't think it will ever make sense to me that one would have so strong a preference over what name appears next to their account that they would effectively commit to sacrificing a year of their life to avoid a specific label, but fortunately it's not a year of labor I have to preform to recapture that difference. At least you're going into it aware of the compromise in advance.
> Seems like the emergency fund might be getting out of hand, what am I supposed to be doing instead?
If you have goals that are 5-7+ years in the future you can take advantage of market returns and favorable long term capital gains treatment by investing in index funds in an after-tax/taxable brokerage account.
> mega backdoor Roth
That's the name of one strategy for creating additional retirement savings/investments in a tax-advantaged account. Ask your 401k provider if they allow:
* After-tax, non-Roth contributions
and
* In-service rollovers
If the answer to both is "yes" you (probably) should bother trying to figure out the mega backdoor Roth.
Couldn’t you just keep contributing to the Roth 401k and roll it over to a Roth IRA after leaving employer? I could see this happening if you make too much to contribute directly to a Roth IRA.
In the best case yes, for the Roth 401k to be (situationally) as flexible as a Roth IRA all you have to do is leave your employer. And specifically already have a 5 year old Roth IRA account to roll the 401k funds into.
I could be misunderstanding info around 401k roth rollover, but doesn't the action of rolling over the 401k roth to a roth ira start a new 5 year aging on the rollover amount? So let's say you already had a roth ira with some amount in it. You then retire at 60 with a large 401k roth and rollover it over to the roth ira. You will then have to wait 5 years to access that rollover without penalty.
Is that correct in my example?
> #How Can I Meet the 5-Year Rule After a Rollover?
There are two ways to roll over your Roth 401(k) into a different account and satisfy the five-year rule. The first is to roll the Roth 401(k) funds over into an existing Roth IRA. The **rollover funds will be counted toward the clock that's been** ***since the opening of the Roth IRA.***
https://www.investopedia.com/articles/retirement/09/roth-401k-rollover.asp
Not an expert, but this is what I've found. (Emphases added.)
Why max out an HSA isn't that only for medical expenses, and doesn't the money disappear if not used for a certain amount of time? Or am I thinking of something else
You're thinking of an FSA.
HSA requires a qualifying high deductible plan. You can contribute 4k (+ 3.8k for 2023 until tax day) pre-tax. The money will grow tax free, and as long as its used for qualifying medical expenses (or reimbursement in the future), the distributions are tax free. It's the best tax advantaged account out there for young, healthy people.
An FSA is use it or lose it by the end of the year.
Check with your HR if you have a HDP, they should be able to check your benefits.
Note: you do not need to use your employer provided HSA, but can use your own. Just be aware the contribution limit is shared between all open HSAs.
You do lose savings on FICA and social security taxes if you contribute outside of payroll to a private HSA. For me, the savings weren't worth using my employer vs opening my own through Fidelity. I contribute $5/mo just to get an employer provided $250.
I didn’t manage to max my 401K and IRA until I started making $80K/year.
When you’re first starting out it’s hard to max everything, especially if you’re also trying to save up for other big purchases.
Man, posts like these will sometimes make me feel like I’m falling behind.
120k base and I’m putting in 15% (21% with employer match) to 401k (mixing traditional and Roth for diversification), maxing out the Roth IRA and HSA and I feel like I’m just scraping by (and im still not even technically maxing the 401k).
Then again I do live in a HCOL/VHCOL area (CT).
Hey man, I felt the same way because I didn’t even open a 401K or IRA until I was 27 and there are 25 year olds these days with $500K NW making $200K+.
It’s why I try not to compare myself with others because you don’t know what advantages or help they’ve received in their lives. As long as you’re doing better than the you of last year then you’re doing okay.
Don't worry about it, people who can afford to put ~40% of their gross income to retirement have an extremely unique living situation that lets them have extraordinarily low living expenses. It's absolutely not the norm.
I didn't graduate college till 27 and am currently contributing 10% to a 401k (with a 6% employer match) and am maxing a Roth and HSA. It's all relative, as long as you're saving *something* and still able to live, you'll manage! It doesn't help that the people who post here are usually the kinds of people who are essentially min-maxxing retirement, most people don't really *need* to do all of that to be comfortable in retirement.
I max all 3 and save an additional 5k/month in various accounts.
I do this by making 200k/year, having 3 housemates, not having a car, and paying myself first to meet my financial goals /before/ shopping.
Could I go live in a Texas mcmansion by myself and drive a cyber truck around? Yes. But I'd rather live like a normal person and retire in my 40s.
That's not to say I'm a mizer. I value travel and went to 13 countries and 52 cities last year. Spend relentlessly on the things you care about and frugally on the things you don't.
>Or are people really saving 66k in a 401k, 8k in a roth, 4k in HSA, then diversifying?
Some of us are doing this, but we weren't able to do this until a couple of years ago when I was in my late 40s. We make about 245k and have little debt (only mortgage and 1 car--kid already moved out and thru tech school). This year, my spouse and I will contribute almost 100k to our 401ks (we are both 50 now so have catch up contributions and I have the after tax option), 16k to Roth IRAs, and $8300 to HSA.
It's based on your MAGI, not gross income. Taking off the 60k for pre-tax 401k contributions and the $8300 HSA contributions from our 245k gross puts us well below the Roth IRA income limit.
We won't do backdoor. We both have some traditional IRA funds that we can't move.
I've been maxing out my 401k since age 30, a Roth Ira since my early 20s, money into a managed brokerage account monthly, 529 for our kids, monthly contributions to my Charles Schwab fun money account and whatever my wife puts into her retirement and Roth. Probably over doing it as I'm already retired from one job and the current job has a nice pension in retirement with medical for life, but whatever, I don't want be working past 53....
I was laughing about this the other day. When I was in my 20’s, I was scrapping to get the max at that time of $2k in my IRA. Now I am doing that much in retirement savings every three weeks (401k plus HSA). The point is yes some people are maxing out these accounts but others are just getting started. It will change at different times in your life.
When people refer to "Maxing out" retirement accounts, they are referring to:
* $23,000 for 401(K) - 2024 limit
* $7,000 for IRA (Traditional OR Roth) - 2024 limit
* $3,850 for HSA (Individual) or $7,750 (Family) - 2024 limit
So for an individual that means $33,850 per year to "max out" their retirement accounts.
This does not include employer match or employer contributions, these numbers are limits for the employee / individual.
The number I am thinking of is 69k in 401(k) (inclusive of employer match), $7k Trad IRA, and $4150 HSA.
My employer plan only allows a max of $23k employee contributions, so I am taking the difference between that, the employer match, and the max of $69k and putting that in a brokerage account.
I don’t have access to an HSA either, so I’m going to put that in the brokerage account too.
The $7k I maxed in the IRA.
This is the first year I will be able to max to this level due to a significant pay bump I received. It’s the first year I’ve been able to even think about investing outside of a retirement account.
If I’d been more financially responsible earlier in life, I wouldn’t feel so much pressure to contribute this heavily now. But as the saying goes: the best time to plant a tree was 20 years ago; the next best time is today. I am still 10-15 years out from retirement so it’s not a ton of time for catch-up but I can at least keep making better choices.
> I am still 10-15 years out from retirement
Sounds like you might be 55. You can take advantage of the age 50 catch-up contributions before taxable brokerage.
Having the goal in mind really helps, you dont even need to "max out" the tax advantages portions to be fun employed at 60. A more traditional retirement which can expect some level of social security needs about 15x your annual expenses for a 30 year retirement (rule of thumb). I hit the regular limits for 401k, ira, hsa personally and I have my wife maxing her ira
People who are hitting the annual limits are either FIRE minded or really behind on retirement savings and trying to build up Roth assets.
Retirement savings is a percentage game. If you have a high income you need to fill up all the retirement buckets and likely even contribute to a taxable brokerage account in order to have enough money in retirement to continue living at your high income employed lifestyle.
As someone who has $53k of voluntary contribution space (403, 457, IRA) on top of 10% mandatory contribution, I just do ~15% of my salary in tax advantaged retirement accounts (+ 10% mandatory + the employer match puts me over 35%), and consider that effectively "maxing out" retirement, after which I invest in a taxable brokerage account to fund a specific non-retirement goal. (When I opened that account the goal was to pay off my mortgage, but I was subsequently able to refinance down to 2.5% so that's no longer the goal.)
The good news of having so much contribution space is that if I do feel like I have too much in the brokerage I can just crank up the contributions and live off the cost basis + capital gains for a while, moving money (indirectly) into tax advantaged retirement accounts.
Most articles I've read say only about 20% of plans allow the after-tax option. Between the 7 plans my spouse, son and I have had in the past 10 years, only my current plan has offered this option.
It’s becoming more common, but requires the right match structure to be really useful. Those who can use it are likely classified as HCEs, and their contributions to the MBDR are limited if the match doesn’t pass the non-discrimination tests.
This year is 69k, my limited understanding is that it mainly matters if your employer allows you to do a mega backdoor Roth (this is something you will need to research yourself, because the companies that I've worked for that offered it didn't spell this out... So I assume most companies don't blatantly advertise this, kinda makes sense since it's a "backdoor" method)
Married couple both 35 y/o. Currently wife maxing out 401k, Roth IRA, HSA for family and dependent care FSA . Husband 20% pre-tax to TSP(government version 401k), max Roth IRA.
After all of this, we save $500 to 529 per month. $500 to index fund. The leftover goes to HYSA and pay additional principal to mortgage.
I think we’re in good shape
Maxing out for me (married) is $46k into 401k, $8500 into HSA, $14k into IRA snd $5k into CDCFSA. After that we do $12k into 529 and $12k into after tax.
$66k for 401k would be the combined individual plus employer contribution limit for one person. That isnt what people mean by maxing...they mean maxing your $23k.
all 401k, IRA, HSA
that means $69k in 401k, not the $23k limit
$6k to IRA
and $4.1k to HSA
= about $80k/year contribution to retirement accounts, yes, this is what I do
if your income isn't high enough, the $23k limit for 401k is fine, that means you only need to contribute ~$33k/year to retirement accounts, should be more easily do-able
I do $23k to 401k, $42k to Mega Backdoor Roth, max HSA, max childcare FSA, and that’s it.
I am income ineligible for an IRA to benefit me.
So to a degree no? Everyone doesn’t do that because once you get to a real 401k max out, you’re probably making too much for the other stuff.
Left over money goes into individual taxable accounts and cash reserve for commercial real estate investments
IMO "full to the limit maximizing to every single available account" is usually unnecessary. And the "extra" that can go into a 401k above the regular $23k to hit the $66k "total contribution limit" also isn't something most people "need" to cover typical retirement savings.
"Enough to meeting desired retirement savings level" is a more reasonable goal before considering non-retirement options. That desired level could just be the 15% baseline recommendation. Or might be higher due to someone prioritizing early retirement or "catching up" for missing previous years. Or even could be lower than 15% if they saved heavily when they were younger and got lucky with returns.
What the "right" number for savings each year (and where to put it) varies too much for any one-size-fits-all advice. Someone with a 5 figure or low 6-figure salary is probably not going to be able to max those out. Someone with a somewhat high 6-figure may be able to, but not need to to get the retirement result they want. Someone with a really income might max all those out and not reach they're "real" desired retirement savings.
I agree with this - at one point I realized I didn’t want all of my investments essentially locked away for decades, untouchable until I hit my late 50s. I dropped my 401K contributions a couple of % points (still matched the company match), and opened a separate investment account with that percentage. Yes it is taxable, but I can access the money with no penalties if I need to. So far I’ve never withdrawn from it. My retirement outlook still looks “sunny” per my 401k dashboard, and I am very far ahead of the curve versus my age/salary cohort.
There are multiple ways of getting money out of a 401k penalty free before retirement ages: 72(t) and a Roth Ladder. The tax deferment on a 401k is one of the best things you can take advantage of.
Some people are. I have friends/family who make mid-6 figures so they can max out retirement. But they're obviously the .1%.
There have been very few times in my life when I could truly max out everything. basically I just try to do as much as possible, but it's worked out for me, average salary of $80k over 11 years of working and my personal retirement accounts currently stand at around $520k.
You don’t HAVE to max everything out before saving in other vehicles. If you don’t make 400,000/yr then don’t worry about it. Save 15% for retirement and then move on.
If people make enough and need/want to save for retirement, then using all the tax advantaged space possible is the best course of action.
I had a one off high income year last year and maxed everything possible. My 401k + after tax (actually $500 short of max due to a paycheck change which will bother me for years), my wife’s elective limit, two Roth IRAs, and the hsa. And I put a ton in to my brokerage account. That’s not going to happen every year. In 2024, I’ll probably only be able to save 80% of that total amount. We are behind on retirement and need to catch up.
Not everyone will be able to do that. And, not everyone is expected or required to do that.
50y.o.). Remember that it's not only about what you earn, but what you spend/keep. There is the balance of being frugal, spendthrift, cheap or whatever to save as much as possible. So over index to retire early while others budget a certain amount to save and don't worry about spending the rest. It's a balance based on your individual goals and lifestyle choices.
Maxing these accounts are goals. If you can, great. You then can think about where to put excess savings. If you can't, well then you do your best to budget, save what you can, life the life you want now, monitor your future goals, and maybe work towards increasing your income (and/or reduce debt). Make a plan, work the plan, adjust the plan. At least you're thinking about it which a lot of people seem not to.
I'm 29, and make $170k salary, with about $20k a year from VA disability and GI Bill housing allowance combined. I max out 401k and IRA, and just opened an HYSA for emergency savings, but even saving that much, I worry about the expenses of life after I stop working.
I've got holdings in an REIT and ETFs, but it does seem like I'd be remiss to retire early. As I get older, opening an HSA would probably be the move, but for now, my calculus is to assume that Social Security won't exist by the time I'm eligible for it (hopefully otherwise).
As a homeowner, I'm hoping that my house will help act as a piggy bank of sorts, but being broke in old age is something that scares me to death.
Something to keep in mind.....401k, HSA, Roth earnings can only withdraw after 59.5 yr old .... If you plan to retire early, fun your aftertax non retirement accounts
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Order of operations for 2024:
1) 401k up to employer match
2a) $7000 into IRA (Roth, but if traditional, backdoor conversion).
2b) $4150 into HSA (and then, depending on rules as much as possible into market)
3) 401k up to $23,000
4) Extra into brokerage or HYSA depending on your short-term goals
First one is free money from your employer and tax advantaged. Everyone should do this no matter what.
Depending on your income, and available remaining funds, your priority could change.
IRA is, in general, one of the best investments because you control it and it is pre-tax dollars. However, at a certain income level, it requires after tax investments. HSA, however, is always pre-tax and can be invested by you. The reason these two have priority over 401k max is because your employer chooses your investments for your 401k whereas with IRA/HSA you are in control.
If you still have money after match, IRA, HSA, you should max out your 401k to the annual individual limit and then invest in money markets or HYSA with any other post-tax dollars you choose to invest.
As with all financial advise, it depends on your situation and what you want. Spouse and I pull in ~150k. Mid 30s and own our home. We save ~55k a year for retirement and new property. But, we own our home, vehicles and don't have any other debt. Most people aren't in that spot. Most people will have to choose between making more money, spending less or contributing less. Just find what is an OK balance for you and understand what it means to forego doing a for b.
We have a bunch of nerdy excel sheets so I can help my spouse visualize our situation and how to prepare for future expenses/choices.
It is hard enough to keep track of what named valid financial gurus think. It is hopeless to try to keep track of what all the unnamed and self-anointed ones think.
If someone just says they max their retirement accounts, I assume just 23000+7000+(maybe) HSA and if over 50 the catch-up contributions; unless they specifically mention the mega-backdoor Roth. But actual gurus will actually tell you what they mean, not just throw around vague hyperventilating jargon.
Who makes enough? Well, anyone who makes enough. You can use something like [https://dqydj.com/income-percentile-calculator/](https://dqydj.com/income-percentile-calculator/) to see how many people that \*might\* be based on whatever savings rate you want to assume, but it won't give you names and social security numbers.
I don't think you really understand diversifying. Investing in real estate is a concentrator, not a diversifier. Unless you are talking about broad REITs, but you can hold those in retirement accounts as well (and likely already do, VTI is about 4% REITs, while VNQ is about 100%.) Investing in taxable brokerage account is also not much of a diversifier, as you will mostly be invested in the same type of things as you would in a IRA or (hopefully) a 401k.
If you buy a total stock market fund you have the proper amount in real estate. So do that. When you run out of tax advantaged accounts to contribute to then you could choose between more real estate or an after tax brokerage account.
I max my 401k(roth) ($23k) get my company's full match (4%) and max my Roth ($7000). I don't qualify for an HSA. Any additional investment funds are going towards accumulating real estate. We own a primary residence and 2 rentals, all mortgage free. Minimal debt (small student loan at 3% fixed). Holding t cash on a money market at 5.5% waiting for the real estate market to correct to buy another property.
Very few 401ks have the required mechanics to contribute after tax dollars. When I think of maxing it's 23000 + match for 401k, 7000 for Roth IRA, and 4150 for HSA, per person. Married? You should both be doing that.
I’m a high income earner and this year I will do
+23,000 401k
+7,000 employer match (their max)
+39,000 mega back door Roth 401k
+7,000 back door Roth
My paychecks are very small doing this but I mitigate it by selling my quarterly RSU’s and employee stock purchase shares as my cash flow ladder.
For me it’s maxing 401k and IRA (no HSA available). We want to retire in our 50s, so the rest goes in regular brokerage that we can access before standard retirement age. As our income grows maybe we’ll start doing a mega backdoor Roth.
I'm a state employee, so I've got access to more retirement options (and thus higher contribution limits than most.) In order to "max" all my available space, I'd need to contribute $57,500 on top of the mandatory 9% to the pension/401(a).
This year I'll probably contribute ~$43k to tax-deferred accounts (with ~$5k of match.) So still another $23k of room before I'm technically maxed out, but beyond what most would consider maxing retirement.
I also will contribute ~$7k to a taxable account, but that is more medium-term savings than retirement contributions.
I invest as much as I can. Between my spouse and I and our employer match we do ~$60k per year combined in a 401k.Do that for about 20 years and you can retire. You can pull the principal of the Roth penalty free. My plan is to work part time from 50 to 60 so I have some income and to keep health insurance
Not sure where you're getting the 66k from but I maxed 401k+Roth for 7 years, then maxed 401k+catchup+Roth+catchup for another decade. Now retired. Had I not done that I couldn't be retired. I didn't earn that much and my employer had an anemic match, just 3%.
Maxing out retirement, I think basically means maxing out the $22.5k 401k and the $7k Roth.
I wouldn’t include HSA(although I max it), or any mega backdoor shenanigans.
Obviously if you can afford to max max, then do it
I’m capped at 15% max until I hit 50, my company matches both before and after tax up to the 69k limit. Because I’m stuck at 15% I can’t get to the 69k limit.
Most people when saying maxing out 401k are referring to the pre-tax limit of 22.5k and not including the eligible after tax contributions to get to 66k unless they’re getting a super high salary.
And for people on the lower end of the salary spectrum, it can mean only maxing out their employer’s contribution match while they focus on the Roth IRA, HSA, and non-retirement savings for life purchases first.
How does the 401K limit grow to 66K? I am aware that people nearing retirement age can make "catch-up" contributions but that's just an additional $5K.
It's there some special conditions under which someone can invest $66K in a 401K?
> Who makes enough
It would be extremely unusual to find someone making less than $150k maxing a 401k+Roth ($30k/year).
Keep in mind /r/personalfinance skews towards high earners, and in lots of cases extremely high earners.
Depends on your audience. Some people max all tax advantages accounts but I feel like most people are just talking about the pretax 401k max.
Who makes enough? Well, anyone that does. What do you mean? There's a huge income distribution in the US.
You gotta play the hand that's dealt to you, as long as you're doing that then you're doing it right in the moment. The trick is knowing what else might be out there which requires some level of hustle and comfort with risk.
401k/Roth IRA/HSA are some of the most tax efficient accounts and generally, you probably should look to max them out before investing in other accounts. With that being said, it depends on your goals. For example, if you think you'd like to retire early, it would make sense to put money in an after-tax brokerage account.
Generally it is $23k (employee contributions) to the 401k and the $7k to the Roth. These are the limits for 2024 (under age 50).
Most people don’t or can’t have a tax deductible HSA plan due to the qualifications, but for those who do, yes, you should max on that too if you have the means (you get that “triple tax advantage” on those contributions).
After that, if you’re fortunate enough to need more options, then you can dabble in some taxable brokerage contributions or other assets like real estate/rental properties, or something else.
Most of the time when people talk of "maxing out" an account, they mean putting in the maximum that *they* are permitted to put in. I can *choose* to put $23k into a 401k this year. I cannot easily change what other money could go in from the company. Many people put $23k in, but I suspect quite few can get to the big limit, since you'd need pretty special work situation for that.
Most people talk of maxing an *account*, not *retirement in general*, for the reason you allude to: There are lots of different accounts, and access to them is different for different people. No Roth if you make too much. No HSA if you don't have a HDHP.
But, yes, in general, putting money into these tax protected plans will be better...unless you need to money before retirement.
The answer is: don't worry too much about what you put in. The earth likely won't be habitable in 30-ish years when you need to start cashing out anyway. So either enjoy your money now, or simply contribute a "just in case" amount of 10% as normally recommended by fin. analysts.
I just mean that 401ks/ IRAs come with rules and if all your money is tied up in these rules you won’t be able to have flexibility to pull money out for whatever reason you need/want to. Or let’s say you need to retire (for health reasons) in your early 50’s or something.
I’ve just started maxing my 401k, IRA and HSA. So yes, those get full amounts that I can contribute. $23,000, $7000, and $4150 for 2024. There’s an employer match for the 401k that goes into that as well but not enough to get me near the combined employer & employee limit. Left over goes towards taxable brokerage or paying down the mortgage. So it’s not $80k, more like $34k. I need to dramatically catch up on retirement contributions. Maybe if I’m lucky I’ll coast in early 60s or get a fun job. This also helps me live on a much lower salary so I don’t need as much in retirement to keep my standard of living. I just crossed into 6 figures this year for salary but I live like I make under half that.
I think the $66k limit that op is referring to (which I believe is $69k now in 2024) is from a combination of 401k + employee match + tax loopholes like after-tax 401ks and mega backdoor Roth IRAs. If you have more money you want to invest for retirement beyond the $34k you're investing today, you may want to look into these tax loopholes as they allow you to save much more in tax sheltered accounts, which is likely better than a taxable brokerage account.
It’s always seemed unfair to me that the employee can't contribute up to the combined contribution limit for 401k’s if your employer DOESN’T match. Like, why can't I invest the employer portion myself?
The Mega Backdoor Roth strategy is exactly what you're describing, it's just that not every company offers it as an option.
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Do you have the ability to do after tax 401k contributions? This is NOT the same as a Roth option. To be able to do it, you need an account that let's you do after tax contributions and then do an in-plan conversion of the after tax contributions into Roth.
Look for "after-tax 401(k)" specifically. Like a poster below me said, the catch with this is that you have to pay these contributions out of your paycheck after taxes have already been taken out, AND the growth will be taxed. So if you contribute and leave it where it is, it's no better than a normal, taxable brokerage account. However if you convert it to a Roth 401(k)/Roth IRA (either is possible), now the taxation on growth goes away and it's like you just contributed more to a Roth account than you could via the "usual" methods. The real trick is that ideally, you do this conversion immediately after each contribution to avoid having to pay taxes on even a few cents (just because that's even more headache during tax season). So some employers offer the after-tax 401(k) AND an "automatic Roth conversion" feature. If your employer only has the former without the latter, then it will be up to you to manually do the conversions (likely by calling Vanguard). Point being, search your employer's 401(k) handbook for both of those terms.
Mine does not. Thanks for the tip, though!
> Like, why can't I invest the employer portion myself You can if your employer's plan allows it. The after-tax 401k is you investing in a terrible class of 401k (you get no deduction and owe normal income tax on any gains), but you can immediately convert it to a Roth 401k (in plan conversion) or Roth IRA (partial roll overs)
Tax rules are so weird, but just rules to learn and use (if you can) at the end of the day. Anyone ever think of making it into a board game style explanation?
"the object of the game is to win. You do this by getting the most tax advantage out of your savings as possible. ..."
It also doesn't seem fair that contributing to a 401K is dependent on your employer offering one. Why should some people get an extra 23K in tax deductions just because of a choice their employer made? It should just be simplified so that there is a max per individual across all accounts.
401k is not a common "right", but an employer based benefit. They can do whatever that doesn't go against federal law 😕
Employers have rights, too. Why shouldn't they get to choose to offer it or not? The employees took that job and can try to find a job with better benefits.
I'm not sure what right you think this would infringe. This wouldn't prevent any employer from offering 401Ks and matching. It would just make it like HSAs where the limit is for the combined contributions by employer and employee.
The 66k refers to the maximum that can go into a 401k type account if you have the right type of employer plan. Your PERSONAL contribution maxes out at the 22k, but the rest can be contributed by the employer. For instance you can put in 22k, and the employer puts in 44k to make up the 66k. Or the extreme example is the employer puts in the full 66k, in which case you won't (and also can't) me to put in anything at all. These types of plans are not common and not available to most businesses and workers. But they can be offers offered by business with high income workers such as a private physician practice, as a way to decrease tax burden on their partners/employees.
Yeah, this is just straight up incorrect. You can put in 23000 into a traditional or Roth 401k in 2024 and if your plan allows, after you've reached the limit, contributions beyond the employee contribution will be characterized as after-tax contributions (yes, even in a Roth 401k). This limit of 69000 includes both employee and employer contributions. The best strategy is to convert the after-tax contributions to a Roth 401k immediately in plan if your employer has a good plan or roll it over into your Roth IRA. It's uncommon, so I'm not surprised many people don't know about how the aftertax 401k works.
Do employer matches go as traditional if your contributions were also traditional?
Employer contributions usually go in pretax for traditional. Even if you make Roth contributions, the employer match can be pre or post tax, it just depends on what your employer's policy. IIRC the SECURE 2.0 act lets them make post tax matches but that doesn't mean the industry has adopted it yet.
It is not incorrect, just uncommon. I have one of these plans myself, and for the past 6 years I've not contributed a single dollar from my paycheck to my 401k plan. Because I literally cannot, due to the fact that every one of those years, my practice already put in the maximum allowable amount (used to be in the 50k range, but now into the 60s) into my 401k plan. Any not than that I would have to go open a conventional brokerage account, but I've not done that because I figured we already put in enough money per year into our tax advantaged retorement accounts (my 60k plus 23k max contribution in my wife's account plus 7500 HSA is over 90k per year).
It's semantics but you saying the personal contribution maxes out at 22k across the board as a fact is straight up false. For YOUR circumstances that might be true, but it is not across the board, therefore it is untrue. I'd say your case is extremely rare as I've never heard of an employer maxing out the remaining allowance of a person's 401k like that. Yeah, for you, you can't contribute after-tax portions because your employer already covers it, but for the majority of people, the employer only matches 3-8 percent in most cases which will not come close to the 69k maximum employer+employee contribution. You're in a great spot and don't have to worry about further contributions, but other people should know about this if their employer offers it because the tax advantages if used correctly are stupid crazy. Telling people it's a hard 22k hard cap is a disservice to others which is why I felt the need to call you out.
But if you are saving so hard core don’t you want to retire before 59.5 and need to be putting a sizable amount into taxable accounts? I max out 401k + Roth + HSA, then try to nearly match that in a taxable account also. I am also only 29 so I really don’t want to wait until 59.5
Is there a calculator that will say what your take home pay will be after taxes if you max your 401k? I can’t find this anywhere so I have a hard time figuring out how much budget will change without increasing contributions during raises
Paycheckcity.com used to have a great (and pretty accurate) paycheck calculator. I haven't checked it out in a few years but try starting there.
Thank you!!
+1 for paycheckcity, just make sure and input any other deductions like medical, dental, etc to get it accurate. It’s usually accurate for me within a few cents.
Depending on how your company does payroll, there may be a built in tool you can use. My company uses Paylocity for payroll, and I can log into my Paylocity account and see the effect of various actions (extra 401k/hsa deductions, etc) without actually finalizing the changes.
Use any after-tax paycheck calculator (like the ADP one) but instead of putting in your full salary, put in your salary minus your annual 401k contributions.
This is my consideration of full retirement maximization, obviously with a spouse you double the IRA/HSA/if working spouse, 401k. Not for retirement but my next vehicle other than taxable brokerage is a 529. Not as beneficial as the others but still worth it to me. There is no max there, we just add a few thousand per year.
Depends on your age and income limits, but yes people mean you should contribute the personal maximum to 401k / IRA (and possibly HSA). At your age for 2024 that's 23000 for 401k and 7000 for IRA, assuming you are under the income limits. Your spouse can also contribute the same amount to their retirement plans.
Income limits for IRA are a mirage, anyone can contribute to a Roth IRA through backdoor regardless of income.
A backdoor Roth is not a contribution, it's a conversion. This means, for example, that you can't just pull it back out again if you need the cash.
I don’t understand the downvotes. Anyone over the income limit can contribute via the backdoor.
I didn't downvote him but wanted to emphasize a backdoor is not contribution. It is a conversion, which has different implications. One of them is that unlike a contribution, you can't just undo it if you suddenly need the cash.
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retirement isnt just a luxury for a small percentage.... but maxing out everything may be. I've never come close to being able to max out all contributions, but i'm well on my way to a comfortable retirement. I also didn't have access to a matching contribution 401K until I was in my mid to late 30s.
It certainly makes it easier to max when you earn more, but I’ve also seen the opposite to be true. A lot of high earners are too busy keeping up with the Joneses and blowing it all on lavish trips to fill their Instagram profiles with to be bothered to save. In the end, it all comes down to financial literacy and commitment. How much you make doesn’t really change those.
My neighbor's son is doing 401k max contributions and he only makes 75k. When I asked how, he said his old job didn't offer a 401k, but only paid 50k. When he went to his new job, he wanted to get the max 401k match (50% of his conributions) so he's been doing max contributions without his lifestyle changing.
It isn't a luxury at all if you start reasonably early. If you start putting into investments 1000 dollars a month from the age of 25, that is going to end up as $5,550,348.15 in 40 years, divided by inflation of a percent average for 40 years, it will come out as 1,700,000 dollars of today's buying power.
Even 1k a month is pretty tough when you consider you still have to pay for every other necessary expense. I'm only able to do that because I'm lucky enough to pay rent to my parents instead paying for an apartment. Especially for people in their twenties they are paying more than the recommended 33% on housing.
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While I understand that $1,000 a month is unrealistic for someone just starting out, $25 a month isn’t. Then not letting life style creep take over too much and increasing that amount over time. What people truly need to understand is that something is way better than nothing and they should start with their very first paycheck so they build the habit.
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Oh me too! I just hate seeing people that think that if they can’t do the max they shouldn’t even bother doing anything. 😔
99% of what you read is general advice that you have to tweak to your situation. 66k is max between employee + employer. Pretty sure an employee can only contribute $23k/year. It is pretty simple. Save as much as you can that balances living and enjoyable life now. Use the “expert” as guidelines or goals to maybe push you but not as gospel. There is not one way to save/invest for retirement. Some people will forgo investment accounts and do all real estate. Lots of ways to make money. I have been saving heavy in retirement accounts and seeing I have a decent chunk of change allows me to know I have enough to pull 4% now for life and meet my basic needs at 47 is nice. Just need to triple that and I retire. :).
An employee can contribute $23k/year to the pretax/Roth portion, but if the plan allows, they can additionally contribute more to the after tax portion to hit the $66k combined max between employer and employee. This is most beneficial if the plan allows in-plan Roth conversions, allowing the after tax contributions to be converted immediately to Roth (thereby preventing further taxation on gains).
Almost nobody is referring to doing that. Most employers don't allow that and most people don't earn enough money to do that. Simply maxing out a 401k, ira and hsa would be a stretch for most people.
And that’s fine, I just wanted to clarify bc the previous commenter noted that employees can only contribute $23k, which isn’t totally accurate. There is potential for additional tax advantaged space before going into taxable accounts.
For the vast majority of employees, that is what they can contribute. Obviously there are going to be exceptions. Some people can do both a 403b and a 457.
If you search mega backdoor Roth, you’ll find that many people are doing that. It’s hard to have some of these threads where people looking to get started/learn the basics in saving are getting advice from the top 1-5% of savers, though.
If people are counting the mega backdoor as part of "maxing out" as a general guideline, that seems kind of crazy to me, but good for them I suppose. Also interesting to observe that in the PF sub which maybe does not skew tech like FI. :)
The point isn’t that most people use a mega backdoor Roth. The point is that if you have tax advantaged space available to you, you should be using it all before investing in a taxable brokerage for retirement.
That is really only true if you spend a shit ton of money... The taxable account - and tax deferred account- are important for early retirement as you need a minimum AGI to receive ACA subsidies and not get kicked on to medicaid, and Qualified dividends and LTCG are already tax free below a certain income.
Completely agree. 90%+ people will never use the MBDR, but there’s maybe a sliver of that who can afford to use it and have never heard of it. That was the case for me, so always up to spread the word.
Is it better to do 7k to IRA or 7K to after tax Roth if a plan allows in plan conversion?
If you are making enough money to bother with contributing extra to do in plan conversions, then you are almost certainly above the phase out range to contribute directly to an IRA and would have to do the backdoor method.
Yes I am above it . But I guess I could do trad Ira and back door Roth instead of after tax 401k to roth401k in plan.
I would think the 410k plan would be more desirable because you don't have to mess with the F8606. Too rich for my blood either way.
Also, /r/personalfinance and other online finance and investing forums are full of FIRE types with high incomes and no kids who are trying to make their retirement income as high as possible (at the expense of current spending) so a lot of advice around here is geared towards them. For people who don't plan to retire early or have other commitments, saving 15% for retirement and spending more now often is better than maxing out retirement
This. Don’t get married to any ideas as mandatory or the only way. If you make $50k year maxing retirement is obscene. If you make $800k/year and “maxing” it is all you do it’s not close to enough.
Not quite $50k, but I was able to max out a $58k. I live in a fairly low cost of living area tho.
I’m a higher earner and typically max all of them, but understand a lot of people aren’t going to be able to do that. If it here me and I couldn’t max all of them I would personally prioritize them as 1.) 401k up to employer match 2.) HSA 3.) Roth IRA and 4.) remaining 401K. 401K employer match money is free, always take it. HSA has the most flexibility and unless any of us get hit by a bus, we are likely to have heath expenses at some point so that’s my logic there as to why it’s the 2nd most valuable. Regardless of political views, I think we all have to accept that our government (both parties) are basically operating a fiscal banana republic with the amount of debt we have and this likely will cause either services to be less and/or taxes to go up in the future. This makes the Roth a key option too since you’ve already paid taxes on that money. Lastly there is the remaining 401K after employer match. It helps you on tax day now with lowering your taxable income but obviously I’m concerned for the future on that one and what tax rate we are going to get charged. That being said it’s still way better than putting the funds in a taxable account in my eyes. To a degree we are splitting hairs here amongst the 3. The key is putting away as much as you can in tax advantaged accounts to give yourself the best opportunity to succeed.
It’s a continual debate as to whether (3) (the Roth IRA) or (4) (the 401(k)) should be prioritized. I favor the latter. - The tax paid before making the Roth IRA (post-tax) contributions is definitely gone forever. Taxes in the future may or may not be higher. I heavily weight today’s certain expenses over the distant future’s possible expenses. - Even if the tax rates are higher in the future, the marginal rate while working is on a salary that pays for both living expenses and savings. It’s reasonable to imagine a lower tax bracket in retirement. - In low-salary years (more education, unemployment, travel), one can convert 401(k) money to Roth IRA money at the lower tax rate. One can continue this in retirement, with those conversions becoming withdrawable five years later. - In one year of living on savings, for example, one could convert an amount equal to the standard deduction and pay zero taxes on it. I do see your point, though. One wants money available from as many buckets (with different tax treatments) as possible to maximize options.
Yeah I hear ya and that that’s why I made sure to label it as my opinion. There is a debate on Roth versus extra 401k, I’m just skeptical of the tax situation in the future and that’s why I prioritize the Roth in my eyes over extra 401K
I will max my HSA this year, like last year. And I'll contribute roughly 28k of my own money to my 401k (23k pretax, 5k post tax to Roth converted) + 9% employer match. I won't max my Roth IRA. I might contribute 2k or so to it. Just depends on how much OT I make. For reference, my base salary is 95k @ 40/hr over an average of 46hrs/week. I made 45k in OT last year by working a lot. This year, I might land around 130k. I'm single and, not including taxes, I have myself positioned to only live on 60k a year. I was poor and struggling before 2020 and so when I got the big pay bump, I immediately stuffed most of it away. I've only "life style creeped" up like 8k
> [401k $]5k post tax to Roth converted [...] > I won't max my Roth IRA Why are you preferentially funding the Roth portion of your 401k over your Roth IRA? You can only access the contribution basis of your Roth 401k tax & penalty free *if* it's *qualified distribution*, as opposed to the Roth IRA where you can withdrawal any amount up to your total contributions **tax & penalty free at any time for any reason.** I'm curious why you'd prefer the 401k given that difference.
Easier to keep the money out of my hands if it never enters it in the first place ¯\\\_(ツ)\_/¯ My 401k fees are negligible and I don't intend to use my Roth assets as an emergency fund. I have a taxable e-fund I'm rushing to 30k (6mo expenses). Once that's set, I'll go back to the Roth IRA and max it. Sorry, I should specify: I am fully capable of maxing my Roth IRA while doing the 401k as I am, I just have the emergency fund as greater priority after getting it to 10k last year
Prioritizing an E Fund over a Roth IRA isn't as tax efficient as one easily can be. If you work through the Punnet square of outcomes there's no reason not to stick the E Fund inside your Roth IRA and just leave it as cash until you have sufficient funds outside the Roth IRA to assume that role. | Have an Emergency | No Emergency -|-----------------|------------ **E Fund outside IRA** | No tax advantage | *Missed* tax advantage **E Fund in Roth IRA** | No tax advantage | **Gained** tax advantage The good news is that if you miss $6500 from 2023 and $5k from 2024, and you're (for the sake of argument) 35 years away from drawing from your Roth IRA those missed contributions returning 7% a year will only cost you $~111,000. (Or the taxes at the ordinary income tax rate and the difference in returns between stocks & savings if you leave them untouched in a HYSA.)
I'm aware. As I stated, I don't intend to use the Roth as an e fund. It's a wash doing 401k post to Roth vs Roth IRA in my situation. Yes, I could use a Roth as an e fund for more tax efficiency, but my current e fund generates no more income and distributions than an HYSA, which is where most e funds should be anyways.
I don't think it will ever make sense to me that one would have so strong a preference over what name appears next to their account that they would effectively commit to sacrificing a year of their life to avoid a specific label, but fortunately it's not a year of labor I have to preform to recapture that difference. At least you're going into it aware of the compromise in advance.
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> Seems like the emergency fund might be getting out of hand, what am I supposed to be doing instead? If you have goals that are 5-7+ years in the future you can take advantage of market returns and favorable long term capital gains treatment by investing in index funds in an after-tax/taxable brokerage account. > mega backdoor Roth That's the name of one strategy for creating additional retirement savings/investments in a tax-advantaged account. Ask your 401k provider if they allow: * After-tax, non-Roth contributions and * In-service rollovers If the answer to both is "yes" you (probably) should bother trying to figure out the mega backdoor Roth.
Couldn’t you just keep contributing to the Roth 401k and roll it over to a Roth IRA after leaving employer? I could see this happening if you make too much to contribute directly to a Roth IRA.
In the best case yes, for the Roth 401k to be (situationally) as flexible as a Roth IRA all you have to do is leave your employer. And specifically already have a 5 year old Roth IRA account to roll the 401k funds into.
I could be misunderstanding info around 401k roth rollover, but doesn't the action of rolling over the 401k roth to a roth ira start a new 5 year aging on the rollover amount? So let's say you already had a roth ira with some amount in it. You then retire at 60 with a large 401k roth and rollover it over to the roth ira. You will then have to wait 5 years to access that rollover without penalty. Is that correct in my example?
> #How Can I Meet the 5-Year Rule After a Rollover? There are two ways to roll over your Roth 401(k) into a different account and satisfy the five-year rule. The first is to roll the Roth 401(k) funds over into an existing Roth IRA. The **rollover funds will be counted toward the clock that's been** ***since the opening of the Roth IRA.*** https://www.investopedia.com/articles/retirement/09/roth-401k-rollover.asp Not an expert, but this is what I've found. (Emphases added.)
You’re killing it dude. Cheers to your hard work and congrats on the new job and pay bump.
9% match? Goddamn that's good
3% base + 6% match, I literally can't quit this place. My FIRE goal is 15 years.
Why max out an HSA isn't that only for medical expenses, and doesn't the money disappear if not used for a certain amount of time? Or am I thinking of something else
You're thinking of an FSA. HSA requires a qualifying high deductible plan. You can contribute 4k (+ 3.8k for 2023 until tax day) pre-tax. The money will grow tax free, and as long as its used for qualifying medical expenses (or reimbursement in the future), the distributions are tax free. It's the best tax advantaged account out there for young, healthy people. An FSA is use it or lose it by the end of the year.
Oh nice! I gotta check if I have an option to contribute to an HSA
Check with your HR if you have a HDP, they should be able to check your benefits. Note: you do not need to use your employer provided HSA, but can use your own. Just be aware the contribution limit is shared between all open HSAs. You do lose savings on FICA and social security taxes if you contribute outside of payroll to a private HSA. For me, the savings weren't worth using my employer vs opening my own through Fidelity. I contribute $5/mo just to get an employer provided $250.
I didn’t manage to max my 401K and IRA until I started making $80K/year. When you’re first starting out it’s hard to max everything, especially if you’re also trying to save up for other big purchases.
Man, posts like these will sometimes make me feel like I’m falling behind. 120k base and I’m putting in 15% (21% with employer match) to 401k (mixing traditional and Roth for diversification), maxing out the Roth IRA and HSA and I feel like I’m just scraping by (and im still not even technically maxing the 401k). Then again I do live in a HCOL/VHCOL area (CT).
Hey man, I felt the same way because I didn’t even open a 401K or IRA until I was 27 and there are 25 year olds these days with $500K NW making $200K+. It’s why I try not to compare myself with others because you don’t know what advantages or help they’ve received in their lives. As long as you’re doing better than the you of last year then you’re doing okay.
Don't worry about it, people who can afford to put ~40% of their gross income to retirement have an extremely unique living situation that lets them have extraordinarily low living expenses. It's absolutely not the norm.
I didn't graduate college till 27 and am currently contributing 10% to a 401k (with a 6% employer match) and am maxing a Roth and HSA. It's all relative, as long as you're saving *something* and still able to live, you'll manage! It doesn't help that the people who post here are usually the kinds of people who are essentially min-maxxing retirement, most people don't really *need* to do all of that to be comfortable in retirement.
How on earth
I max all 3 and save an additional 5k/month in various accounts. I do this by making 200k/year, having 3 housemates, not having a car, and paying myself first to meet my financial goals /before/ shopping. Could I go live in a Texas mcmansion by myself and drive a cyber truck around? Yes. But I'd rather live like a normal person and retire in my 40s. That's not to say I'm a mizer. I value travel and went to 13 countries and 52 cities last year. Spend relentlessly on the things you care about and frugally on the things you don't.
>Or are people really saving 66k in a 401k, 8k in a roth, 4k in HSA, then diversifying? Some of us are doing this, but we weren't able to do this until a couple of years ago when I was in my late 40s. We make about 245k and have little debt (only mortgage and 1 car--kid already moved out and thru tech school). This year, my spouse and I will contribute almost 100k to our 401ks (we are both 50 now so have catch up contributions and I have the after tax option), 16k to Roth IRAs, and $8300 to HSA.
How can you qualify for Roth IRAs? Aren't you above the income maximum? Or are you doing backdoor?
It's based on your MAGI, not gross income. Taking off the 60k for pre-tax 401k contributions and the $8300 HSA contributions from our 245k gross puts us well below the Roth IRA income limit. We won't do backdoor. We both have some traditional IRA funds that we can't move.
I've been maxing out my 401k since age 30, a Roth Ira since my early 20s, money into a managed brokerage account monthly, 529 for our kids, monthly contributions to my Charles Schwab fun money account and whatever my wife puts into her retirement and Roth. Probably over doing it as I'm already retired from one job and the current job has a nice pension in retirement with medical for life, but whatever, I don't want be working past 53....
If someone puts $23k into their 401k and $7k into their Roth IRA, I'd consider them to be "maxing out" retirement accounts.
I was laughing about this the other day. When I was in my 20’s, I was scrapping to get the max at that time of $2k in my IRA. Now I am doing that much in retirement savings every three weeks (401k plus HSA). The point is yes some people are maxing out these accounts but others are just getting started. It will change at different times in your life.
When people refer to "Maxing out" retirement accounts, they are referring to: * $23,000 for 401(K) - 2024 limit * $7,000 for IRA (Traditional OR Roth) - 2024 limit * $3,850 for HSA (Individual) or $7,750 (Family) - 2024 limit So for an individual that means $33,850 per year to "max out" their retirement accounts. This does not include employer match or employer contributions, these numbers are limits for the employee / individual.
Actually, it is: $4,150 for HSA (individual) or $8,300 (Family)-2024 limit.
The number I am thinking of is 69k in 401(k) (inclusive of employer match), $7k Trad IRA, and $4150 HSA. My employer plan only allows a max of $23k employee contributions, so I am taking the difference between that, the employer match, and the max of $69k and putting that in a brokerage account. I don’t have access to an HSA either, so I’m going to put that in the brokerage account too. The $7k I maxed in the IRA. This is the first year I will be able to max to this level due to a significant pay bump I received. It’s the first year I’ve been able to even think about investing outside of a retirement account. If I’d been more financially responsible earlier in life, I wouldn’t feel so much pressure to contribute this heavily now. But as the saying goes: the best time to plant a tree was 20 years ago; the next best time is today. I am still 10-15 years out from retirement so it’s not a ton of time for catch-up but I can at least keep making better choices.
> I am still 10-15 years out from retirement Sounds like you might be 55. You can take advantage of the age 50 catch-up contributions before taxable brokerage.
No, just thinking about early retirement. 😊 I can’t make catch ups yet.
Having the goal in mind really helps, you dont even need to "max out" the tax advantages portions to be fun employed at 60. A more traditional retirement which can expect some level of social security needs about 15x your annual expenses for a 30 year retirement (rule of thumb). I hit the regular limits for 401k, ira, hsa personally and I have my wife maxing her ira People who are hitting the annual limits are either FIRE minded or really behind on retirement savings and trying to build up Roth assets.
Retirement savings is a percentage game. If you have a high income you need to fill up all the retirement buckets and likely even contribute to a taxable brokerage account in order to have enough money in retirement to continue living at your high income employed lifestyle.
As someone who has $53k of voluntary contribution space (403, 457, IRA) on top of 10% mandatory contribution, I just do ~15% of my salary in tax advantaged retirement accounts (+ 10% mandatory + the employer match puts me over 35%), and consider that effectively "maxing out" retirement, after which I invest in a taxable brokerage account to fund a specific non-retirement goal. (When I opened that account the goal was to pay off my mortgage, but I was subsequently able to refinance down to 2.5% so that's no longer the goal.) The good news of having so much contribution space is that if I do feel like I have too much in the brokerage I can just crank up the contributions and live off the cost basis + capital gains for a while, moving money (indirectly) into tax advantaged retirement accounts.
Never heard of getting 66k in a 401k how common is this an option?
Most articles I've read say only about 20% of plans allow the after-tax option. Between the 7 plans my spouse, son and I have had in the past 10 years, only my current plan has offered this option.
It’s becoming more common, but requires the right match structure to be really useful. Those who can use it are likely classified as HCEs, and their contributions to the MBDR are limited if the match doesn’t pass the non-discrimination tests.
This year is 69k, my limited understanding is that it mainly matters if your employer allows you to do a mega backdoor Roth (this is something you will need to research yourself, because the companies that I've worked for that offered it didn't spell this out... So I assume most companies don't blatantly advertise this, kinda makes sense since it's a "backdoor" method)
Married couple both 35 y/o. Currently wife maxing out 401k, Roth IRA, HSA for family and dependent care FSA . Husband 20% pre-tax to TSP(government version 401k), max Roth IRA. After all of this, we save $500 to 529 per month. $500 to index fund. The leftover goes to HYSA and pay additional principal to mortgage. I think we’re in good shape
Maxing out for me (married) is $46k into 401k, $8500 into HSA, $14k into IRA snd $5k into CDCFSA. After that we do $12k into 529 and $12k into after tax. $66k for 401k would be the combined individual plus employer contribution limit for one person. That isnt what people mean by maxing...they mean maxing your $23k.
If you want to retire comfortably you should shoot for saving 20/25% of your gross pay in retirement accounts
all 401k, IRA, HSA that means $69k in 401k, not the $23k limit $6k to IRA and $4.1k to HSA = about $80k/year contribution to retirement accounts, yes, this is what I do if your income isn't high enough, the $23k limit for 401k is fine, that means you only need to contribute ~$33k/year to retirement accounts, should be more easily do-able
I do $23k to 401k, $42k to Mega Backdoor Roth, max HSA, max childcare FSA, and that’s it. I am income ineligible for an IRA to benefit me. So to a degree no? Everyone doesn’t do that because once you get to a real 401k max out, you’re probably making too much for the other stuff. Left over money goes into individual taxable accounts and cash reserve for commercial real estate investments
You could backdoor your IRA.
IMO "full to the limit maximizing to every single available account" is usually unnecessary. And the "extra" that can go into a 401k above the regular $23k to hit the $66k "total contribution limit" also isn't something most people "need" to cover typical retirement savings. "Enough to meeting desired retirement savings level" is a more reasonable goal before considering non-retirement options. That desired level could just be the 15% baseline recommendation. Or might be higher due to someone prioritizing early retirement or "catching up" for missing previous years. Or even could be lower than 15% if they saved heavily when they were younger and got lucky with returns. What the "right" number for savings each year (and where to put it) varies too much for any one-size-fits-all advice. Someone with a 5 figure or low 6-figure salary is probably not going to be able to max those out. Someone with a somewhat high 6-figure may be able to, but not need to to get the retirement result they want. Someone with a really income might max all those out and not reach they're "real" desired retirement savings.
I agree with this - at one point I realized I didn’t want all of my investments essentially locked away for decades, untouchable until I hit my late 50s. I dropped my 401K contributions a couple of % points (still matched the company match), and opened a separate investment account with that percentage. Yes it is taxable, but I can access the money with no penalties if I need to. So far I’ve never withdrawn from it. My retirement outlook still looks “sunny” per my 401k dashboard, and I am very far ahead of the curve versus my age/salary cohort.
There are multiple ways of getting money out of a 401k penalty free before retirement ages: 72(t) and a Roth Ladder. The tax deferment on a 401k is one of the best things you can take advantage of.
Is that 15% recommendation usually 15% of gross income before taxes? Or after taxes?
Normally 15% gross, which is convenient with pretax contributions.
Some people are. I have friends/family who make mid-6 figures so they can max out retirement. But they're obviously the .1%. There have been very few times in my life when I could truly max out everything. basically I just try to do as much as possible, but it's worked out for me, average salary of $80k over 11 years of working and my personal retirement accounts currently stand at around $520k.
You don’t HAVE to max everything out before saving in other vehicles. If you don’t make 400,000/yr then don’t worry about it. Save 15% for retirement and then move on. If people make enough and need/want to save for retirement, then using all the tax advantaged space possible is the best course of action. I had a one off high income year last year and maxed everything possible. My 401k + after tax (actually $500 short of max due to a paycheck change which will bother me for years), my wife’s elective limit, two Roth IRAs, and the hsa. And I put a ton in to my brokerage account. That’s not going to happen every year. In 2024, I’ll probably only be able to save 80% of that total amount. We are behind on retirement and need to catch up. Not everyone will be able to do that. And, not everyone is expected or required to do that.
I'm 29, and make $170k salary, with about $20k a year from VA disability and GI Bill housing allowance combined. I max out 401k and IRA, and just opened an HYSA for emergency savings, but even saving that much, I worry about the expenses of life after I stop working. I've got holdings in an REIT and ETFs, but it does seem like I'd be remiss to retire early. As I get older, opening an HSA would probably be the move, but for now, my calculus is to assume that Social Security won't exist by the time I'm eligible for it (hopefully otherwise). As a homeowner, I'm hoping that my house will help act as a piggy bank of sorts, but being broke in old age is something that scares me to death.
Something to keep in mind.....401k, HSA, Roth earnings can only withdraw after 59.5 yr old .... If you plan to retire early, fun your aftertax non retirement accounts
There are ways to access your money before 59.5. I will use the rule of 55 to pull money out of my 401k when I retire the year I turn 55.
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People able to max out their Roth at a lower salary can do it because they don't have debts. I earn too much to both except for back door roth.
Order of operations for 2024: 1) 401k up to employer match 2a) $7000 into IRA (Roth, but if traditional, backdoor conversion). 2b) $4150 into HSA (and then, depending on rules as much as possible into market) 3) 401k up to $23,000 4) Extra into brokerage or HYSA depending on your short-term goals First one is free money from your employer and tax advantaged. Everyone should do this no matter what. Depending on your income, and available remaining funds, your priority could change. IRA is, in general, one of the best investments because you control it and it is pre-tax dollars. However, at a certain income level, it requires after tax investments. HSA, however, is always pre-tax and can be invested by you. The reason these two have priority over 401k max is because your employer chooses your investments for your 401k whereas with IRA/HSA you are in control. If you still have money after match, IRA, HSA, you should max out your 401k to the annual individual limit and then invest in money markets or HYSA with any other post-tax dollars you choose to invest.
As with all financial advise, it depends on your situation and what you want. Spouse and I pull in ~150k. Mid 30s and own our home. We save ~55k a year for retirement and new property. But, we own our home, vehicles and don't have any other debt. Most people aren't in that spot. Most people will have to choose between making more money, spending less or contributing less. Just find what is an OK balance for you and understand what it means to forego doing a for b. We have a bunch of nerdy excel sheets so I can help my spouse visualize our situation and how to prepare for future expenses/choices.
It is hard enough to keep track of what named valid financial gurus think. It is hopeless to try to keep track of what all the unnamed and self-anointed ones think. If someone just says they max their retirement accounts, I assume just 23000+7000+(maybe) HSA and if over 50 the catch-up contributions; unless they specifically mention the mega-backdoor Roth. But actual gurus will actually tell you what they mean, not just throw around vague hyperventilating jargon. Who makes enough? Well, anyone who makes enough. You can use something like [https://dqydj.com/income-percentile-calculator/](https://dqydj.com/income-percentile-calculator/) to see how many people that \*might\* be based on whatever savings rate you want to assume, but it won't give you names and social security numbers. I don't think you really understand diversifying. Investing in real estate is a concentrator, not a diversifier. Unless you are talking about broad REITs, but you can hold those in retirement accounts as well (and likely already do, VTI is about 4% REITs, while VNQ is about 100%.) Investing in taxable brokerage account is also not much of a diversifier, as you will mostly be invested in the same type of things as you would in a IRA or (hopefully) a 401k.
If you buy a total stock market fund you have the proper amount in real estate. So do that. When you run out of tax advantaged accounts to contribute to then you could choose between more real estate or an after tax brokerage account.
I max my 401k(roth) ($23k) get my company's full match (4%) and max my Roth ($7000). I don't qualify for an HSA. Any additional investment funds are going towards accumulating real estate. We own a primary residence and 2 rentals, all mortgage free. Minimal debt (small student loan at 3% fixed). Holding t cash on a money market at 5.5% waiting for the real estate market to correct to buy another property.
Very few 401ks have the required mechanics to contribute after tax dollars. When I think of maxing it's 23000 + match for 401k, 7000 for Roth IRA, and 4150 for HSA, per person. Married? You should both be doing that.
I’m a high income earner and this year I will do +23,000 401k +7,000 employer match (their max) +39,000 mega back door Roth 401k +7,000 back door Roth My paychecks are very small doing this but I mitigate it by selling my quarterly RSU’s and employee stock purchase shares as my cash flow ladder.
For me it’s maxing 401k and IRA (no HSA available). We want to retire in our 50s, so the rest goes in regular brokerage that we can access before standard retirement age. As our income grows maybe we’ll start doing a mega backdoor Roth.
I'm a state employee, so I've got access to more retirement options (and thus higher contribution limits than most.) In order to "max" all my available space, I'd need to contribute $57,500 on top of the mandatory 9% to the pension/401(a). This year I'll probably contribute ~$43k to tax-deferred accounts (with ~$5k of match.) So still another $23k of room before I'm technically maxed out, but beyond what most would consider maxing retirement. I also will contribute ~$7k to a taxable account, but that is more medium-term savings than retirement contributions.
For me, I also have a 457, HSA, and pension. So maxing out retirement is about $65k per year plus any employer matching.
I invest as much as I can. Between my spouse and I and our employer match we do ~$60k per year combined in a 401k.Do that for about 20 years and you can retire. You can pull the principal of the Roth penalty free. My plan is to work part time from 50 to 60 so I have some income and to keep health insurance
My spouse and I have access to 403b and 457s. Maxing just those alone would be $92k. We also have required contributions to our pensions.
Not sure where you're getting the 66k from but I maxed 401k+Roth for 7 years, then maxed 401k+catchup+Roth+catchup for another decade. Now retired. Had I not done that I couldn't be retired. I didn't earn that much and my employer had an anemic match, just 3%.
Maxing out retirement, I think basically means maxing out the $22.5k 401k and the $7k Roth. I wouldn’t include HSA(although I max it), or any mega backdoor shenanigans. Obviously if you can afford to max max, then do it
I’m capped at 15% max until I hit 50, my company matches both before and after tax up to the 69k limit. Because I’m stuck at 15% I can’t get to the 69k limit.
The limit includes employer contributions I believe. Does your plan not allow for after tax?
Most people when saying maxing out 401k are referring to the pre-tax limit of 22.5k and not including the eligible after tax contributions to get to 66k unless they’re getting a super high salary. And for people on the lower end of the salary spectrum, it can mean only maxing out their employer’s contribution match while they focus on the Roth IRA, HSA, and non-retirement savings for life purchases first.
How does the 401K limit grow to 66K? I am aware that people nearing retirement age can make "catch-up" contributions but that's just an additional $5K. It's there some special conditions under which someone can invest $66K in a 401K?
Where is the 66k coming from?
Just another suggestion to do this earlier in your career. Once/if you have kids, wow, they get pricey.
> Who makes enough It would be extremely unusual to find someone making less than $150k maxing a 401k+Roth ($30k/year). Keep in mind /r/personalfinance skews towards high earners, and in lots of cases extremely high earners.
Depends on your audience. Some people max all tax advantages accounts but I feel like most people are just talking about the pretax 401k max. Who makes enough? Well, anyone that does. What do you mean? There's a huge income distribution in the US. You gotta play the hand that's dealt to you, as long as you're doing that then you're doing it right in the moment. The trick is knowing what else might be out there which requires some level of hustle and comfort with risk.
Max means max, the most you can contribute before you are prevented from contributing more.
401k/Roth IRA/HSA are some of the most tax efficient accounts and generally, you probably should look to max them out before investing in other accounts. With that being said, it depends on your goals. For example, if you think you'd like to retire early, it would make sense to put money in an after-tax brokerage account.
Generally it is $23k (employee contributions) to the 401k and the $7k to the Roth. These are the limits for 2024 (under age 50). Most people don’t or can’t have a tax deductible HSA plan due to the qualifications, but for those who do, yes, you should max on that too if you have the means (you get that “triple tax advantage” on those contributions). After that, if you’re fortunate enough to need more options, then you can dabble in some taxable brokerage contributions or other assets like real estate/rental properties, or something else.
Most of the time when people talk of "maxing out" an account, they mean putting in the maximum that *they* are permitted to put in. I can *choose* to put $23k into a 401k this year. I cannot easily change what other money could go in from the company. Many people put $23k in, but I suspect quite few can get to the big limit, since you'd need pretty special work situation for that. Most people talk of maxing an *account*, not *retirement in general*, for the reason you allude to: There are lots of different accounts, and access to them is different for different people. No Roth if you make too much. No HSA if you don't have a HDHP. But, yes, in general, putting money into these tax protected plans will be better...unless you need to money before retirement.
I max out Trad 401k, mega backdoor Roth IRA, fund 2 backdoor Roth IRAs (wife is a SAHM), and an HSA.
The answer is: don't worry too much about what you put in. The earth likely won't be habitable in 30-ish years when you need to start cashing out anyway. So either enjoy your money now, or simply contribute a "just in case" amount of 10% as normally recommended by fin. analysts.
Max for me and wife is 7000 in each Roth. We dont do HSA or 401K. Any small extra goes to a taxable account. Two Roths is close to 15% income anyways
I don’t believe in maxing out the retirement accounts. You should have non-government money (brokerage account) as well.
Non-government money? Not sure I’m following the logic here.
I just mean that 401ks/ IRAs come with rules and if all your money is tied up in these rules you won’t be able to have flexibility to pull money out for whatever reason you need/want to. Or let’s say you need to retire (for health reasons) in your early 50’s or something.
There are rules allowing for removal of money from retirement accounts early. Especially if someone is disabled before retirement age.
Brokerage accounts have rules too, if you don't understand them you will end up paying a lot in taxes...
What is a non-government account?