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3 reasons I’m not maxing out my 401(k) this year, even though I can afford to
Maxing out a 401(k) might work for some investors, but this author wants to diversify her retirement income sources and maybe retire early.
My obsession with my 401(k) runs deep. I’ve watched my balance grow from nothing to more than $90,000 in under five years through a combination of my own savings, employer matching contributions, and investment returns.
The employer-sponsored 401(k) has one of the highest employee contribution limits of all tax-advantaged retirement accounts. Workers can save up to $19,500 of their own earnings annually for 2020 and 2021, plus an extra $6,500 if they’re over age 50.
So far this year I’ve added over $10,500 to my 401(k). While I can afford to keep going and “max out” my account, or reach the annual limit, I’m not going to. Here’s why.
1. I’ll get my match before maxing out
Not all types of 401(k)s require an employer to make yearly contributions to their employees’ plans, but many do through matching. A 401(k) employer match is akin to a guaranteed return. For every contribution I make to my plan, my employer will match it up to an annual ceiling. I’d be silly to leave it on the table.
