Should I max out my 401(k)?

If you make enough income to max out your 401(k), doing so may sound like a no-brainer. But if you have other financial obligations to meet or if your 401(k) plan is stomped by high fees and poor investment options, you may want to reconsider.

What should I consider before making the maximum contributions to my 401(k)?

In 2025, the most you can contribute to your 401(k) is $23,500 ($31,000 if you’re 50 or older). But remember: you’re locking that money up. You’ll incur a 10% penalty tax if you withdraw any amount from your 401(k) before reaching age 59.5. The withdrawal would also be considered taxable income, meaning you’d owe federal income tax on it.

What financial goals should I meet before making the maximum contribution to my 401(k)?

Before maxing out your 401(k) for the year, make sure you can meet other financial obligations.

• Paying for basic necessities: Make sure you have enough money for your rent or mortgage, groceries and other bills.
• Paying off debt: If you have a lot of high-interest credit card debt, personal loans, student loans, car loans or other debt, be sure to pay these off before you consider maxing out your 401(k) contributions.
• Building an emergency fund: Most financial planners recommend having at least three to six months’ worth of basic living expenses set aside in a high-yield savings account.
• Paying for healthcare expenses: Make sure you can afford health insurance that meets your needs.
• Saving for college: If you have children, you may want to save for their college education by contributing to a 529 college savings plan or Coverdell ESA.
• Insurance needs: If you’re married or have children, consider life insurance. If you’re nearing retirement, you may want to look into long-term care insurance.
• Estate planning: You may want to consider establishing a will or opening a basic trust to ensure your assets are passed on to your loved ones while sheltered from high tax burdens.

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Related: 10 best IRA accounts

What should I know about my employer’s contributions to my 401(k)?

Most financial planners recommend you contribute at least enough to meet the company match if your employer offers one. If it does, your employer will contribute as much money to your plan as you do — up to a certain amount.

The rules vary across employers. For example, your employer may match your contributions up to 5% of your salary as long as you contribute at least 3% to your 401(k) plan.

But also be aware of words like “vesting.” A vesting period is how long you need to be with the company to keep all your company matches. For instance, your company may make you 50% vested after one year and 100% vested after two years. So if you leave the company within a year after joining, you can leave with just 50% of those employer matches.

Also, be aware of contribution limits. When factoring in employer matches, the most that can be contributed to your 401(k) plan for 2025 is $70,000 ($77,500 if you’re 50 or older.)

What other retirement investments should I consider?

If your 401(k) plan has high administrative fees and poor investment options, it may not be worth it to contribute more than what it takes to meet the company match. But you can move spare retirement savings to other accounts that offer better benefits. For example, most traditional and Roth IRAs offer far more investment options than 401(k)s. And some providers charge little to no management fees.

You can also consider opening a health savings account (HSA). You can think of an HSA as a 401(k) for your healthcare expenses, which may be considerably high for many of us when we reach retirement. You can open one if you have a high-deductible health plan (HDHP).

Here’s an overview of other retirement savings accounts you can use:

Account	Benefits	Contribution limits for 2025
Traditional IRA (individual retirement account)	Tax-deductible contributions Money grows tax-free Vast investment options	$7,000 $8,000 if you’re 50 or older
Roth IRA	Tax-free withdrawals at retirement (Age 59.5) Money grows tax-free Withdraw your contributions, but not earnings, tax-free	$7,000 $8,000 if you’re 50 or older
HSA	Tax-deductible contributions Money grows tax-free Tax-free withdrawals on qualified health expenses Vast investment options	$4,300 for self and $8,550 for family plan $5,300 for self and $9,550 for family plan if you’re 50 or older
Brokerage account (Taxable account)	Withdraw money without penalty when needed (but you’ll owe capital gains taxes and other applicable taxes)	None

Related: 10 best Roth IRAs

Under what circumstances should I max out my 401(k)?

Maxing out your 401(k) isn’t always a risky move. Under the right circumstances, it can make perfect sense and can reward you handsomely.

Let’s say you’re 35 and you contribute the maximum 401(k) contribution of $19,500 this year. If you do that every year for the next 30 years, your investment can grow to $1,982,452, assuming a 7% annual rate of return.

But only consider taking this route if you can check off the following:

For the best retirement guidance, we recommend you seek a qualified financial advisor and tax professional.