saving money

How To (Mentally) Max Out Your 401K

I’ve had a couple readers share with me that even though they probably could max out their 401K, they don’t.  I totally get it – it’s tough to do.  If everyone’s strong suit was willpower, we’d have a bunch of rich, skinny people walking this Earth!

Here are a couple of ideas to help you max out that 401K and get yourself on the fast track to an early and/or prosperous retirement:

  • Daydream:  I kid you not.  This works for me.  Lloyd and I often talk about our summer beach house and our winter ski trips that we plan to take when we’re retired.  Not only retired, but retirees with smokin’ hot bods…
  • Stay In Shape:  Yep, you read that right.  I think that so many (young) people think of retirement as the end of the good part of your life.  You’re not a young adult anymore, your body is shot, and you have to wear diapers, right?  NO!  50, 55, 60, 65 is FAR from old – and even further from the end of life.  Keep that body rockin’ and you’ll be able to live retirement like a feisty young whipper snapper.
  • SSS (Start Small Silly):  A masterpiece isn’t completed in a day, nor is a 401K.  Now, don’t take advantage of the “start small” tip by contributing an extra $10 a year.  Instead, try to contribute an extra $50-$100 every month.  Before you know it, you’ll be maxing out.  And if starting small doesn’t work for you…
  • Go All In:  Max out all at once.  Change your contribution amount and never look back.  This is how I did it and it worked for me.  If you need a support system, round up the nearest personal finance blogger and have them do the clicking for you.
  • Keep more of your own money:  Story time…last year I contributed 5% of my income to my 401K.  I paid about $9,700 in federal income taxes.  This year, I will make $3,000 more than I did last year and I’m contributing about 23% to my 401K.  Guess how much I’m going to pay in taxes this year?  About $7,000 in federal taxes in 2009.  Not only did I get a pay raise from my employer, but I’m also getting a pay raise from the government in the form of lower taxes…to the tune of almost three-thousand smackers!
  • Expand Your Mind: Truly, the big picture is that the  more you invest from a young age (e.g. twenty-somethings should max out), the more time that money is invested, the more money you walk away with in the end.  I used my handy-dandy balance projection calculator on my 401K website and came up with this:

401K Max Out Comparison

  • A Load Off: Maxing-out your 401K in 2009 and beyond…$16,500.  Knowing you’ll be financially secure in your golden years…priceless.

As you can tell, I’m a big advocate of the 401K Max-Out.  Even though it’s tough putting aside all of that money today, I know how much more rewarding it will be in the future.  After all, it’s the most difficult obstacles in life that have the biggest payout (pun intended).

Question:  Are you maxing out your 401K?  Why or why not?


  • Ack! Retirement is the one area that I feel so behind on and really hate contributing to each month. I feel like once I am debt free and have a decent emergency fund, then I will max out my retirement each year. I should be debt free and have a beginning e-fund by next year. Do you think I should reevaluate the debt/savings goals and max out retirement sooner?

    Also, my company contributes (not matches) 3% of my salary regardless if I contribute anything at all. Right now I contribute 3% to my 401k and just a $100/month to my Roth IRA. Since my company doesn’t match, do you think it’d be better to contribute to my Roth more or the 401k?

    Sorry for all the questions!

    • MPP – When I was paying off my debt, I only contributed 5% (my company matches that, so I never pass up free money. 🙂 ). I think debt is worse than 401K is good (does that make sense?). So, I think it’s better to contribute small amounts to your 401K/IRA now and put huge amounts to your debt payoff. I think you’re doing it the right way! Plus, like you said, after you’re debt-free, you’ll be able to max out! Right now, throw everything you can at that debt, and then you’ll be ready to max out after that!

  • Ack! This post was so inspiring! Maxing out my 401k is a big dream of mine and posts like this always insprire me to log in and jack up a few percent. But I need to stay focused on various cash savings goals in the next few years (wedding, honeymoon, car, house). I’m doing 15% to max it I’d have to do 22% or so. Maybe in 2010? Or 2011?

  • Well, I wouldn’t agree with the tax benefit part of it since I feel Roth IRA is better. The taxes only rise each year.

    • Roth IRA is also an amazing retirement tool. These two things are taxed in different ways. Money you put into a Roth IRA TODAY is taxed from your income, whereas 401K contributions are not. However, when you withdraw from your Roth (both principal and interest), the entire amount is tax-free (where 401K withdrawals are taxable). Also, not everyone is eligible for a Roth IRA, and traditional IRAs do not offer the same tax benefits. Roth IRAs are amazing and I plan to max out a Roth next year as well!

  • Currently I’m not maxing mine out; I contribute 6 percent, and the company matches 3 percent of that. I’m also fully vested at my company now, which is nice! I do plan to bump up my contributions once my emergency fund is where I want it to be. Also, my company recently started offering a Roth 401k in addition to our regular 401K. You can put money in both if you want, or the Roth can replace the regular one if you like. I just need to do some more research.

  • Oh man… no… I don’t contribute….

    My University gives me 10% retirement regardless of whether I invest or not, so I’ve simply let retirement slide. And since they are contributing such a large percentage I feel okay about this until I get my debt erased.

    Once the credit card debt is gone (but not the student loan, since this is at 2.5%), I’ll re-evaluate how much money I put into savings, retirement and my student loan. But until then, I’m just flying by the seat of my pants and hoping that what my employer is contributing for me now will be good enough for now.

    But hey – the good news is that most Chemists never retire – they just keep working until they die in their lab at 89 years old. I can only dream to be so lucky. =)

  • No. For the first year since our company started a 401K, I will not be contributing one dime to the plan this year.

    Mostly because of the situation I’m in with mortgages on a rental property. When this property was still for sale, I withdrew from the 401K plan opting to send that money to make the mortgage payments.

    Now that I have tenants, I’m using that money to build up an emergency fund for the property (in case the heat & air goes out or something equally dreadful).

  • Yes. I max out both 403b and 457 for last since 2003 (when i turned 30 and i found out about 457 that year.)

    also, i max out IRA/Roth IRA since 2001. However, my taxable saving is very down, and manage only to save around 20K per year.

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