Categories
Make Money From Home

3 Good Reasons Not to Max Out Your 401k – The Motley Fool

Image source: Getty Images

Despite what you may have read, it might not be necessary to m…….

Image source: Getty Images

Despite what you may have read, it might not be necessary to max out your 401(k) contributions.


Key points

  • 401(k)s and other qualified retirement accounts can be great financial tools.
  • However, it often isn’t necessary or practical for Americans to max out their accounts.
  • Here are some situations where contributing less than the max makes sense.

How much should you invest in your 401(k)? If you ask 10 different financial planners this question, you’ll probably get 10 slightly different answers. And while saving more than you think you’ll need for your retirement is generally a good idea, the reality is that it might not make sense to max out your 401(k) contributions each year.

While this isn’t an exhaustive list, here are some of the best reasons for not maxing out your 401(k) in 2022.

Reason 1: You want the flexibility of an IRA

One reason why you might not want to max out your 401(k) is to be able to allocate money to an individual retirement account, or IRA. Many workers don’t realize it, but if you earn less than a certain amount, you can contribute to an IRA even if you have a 401(k) or other qualified retirement plan at work.

There are a few key benefits to IRA investing. For one thing, if you want the ability to buy individual stocks, you aren’t able to do it in your 401(k). In other words, if you wanted to put some of your retirement savings into Amazon stock, an IRA will let you do it. You can also use IRA funds before you reach retirement age to help pay for college expenses, or as much as $10,000 towards a first-time home purchase.

Reason 2: You have non-retirement savings priorities

Another good reason to not pursue a maximum 401(k) contribution is that you have savings and financial goals other than your retirement. For example, if you want to save for a home purchase, your child’s education, a new car, or if you have credit card debt you need to pay down, it may not make good financial sense to stuff every possible dollar into your 401(k).

Reason 3: The 401(k) contribution limit is very high for most savers

In 2022, the 401(k) contribution limit is $20,500 for most people, or $27,000 for participants age 50 and older. And …….

Source: https://www.fool.com/the-ascent/buying-stocks/articles/3-good-reasons-not-to-max-out-your-401k/

Leave a Reply

Your email address will not be published. Required fields are marked *