Why should I max out my 401(k)?

There are several advantages. If you lower your tax burden in the current year, you enjoy long-term growth on investments, and you take advantage of the power of compounding interest and returns.

What is the contribution limit for 2025?

For 2025, the contribution limit is $23,500. For those 50 years and older, the "catch-up" contribution limit remains at $7,500, which means the total you can contribute is $31,000 per year. And for those 60 to 63, the catch-up limit is $11,250 . This means maxing out contributions for this age group is $34,750.

Can I contribute to a 401(k) and an IRA in the same year?

Yes, you can contribute the respective maximum amount to each account . Each has its own rules and limits , however .

How can I afford to max out my 401(k) on a modest income?

The maximum amount allowed for 401(k) contributions is high, so it can be difficult to hit. First, try adjusting your budget. Automating your contributions can also help. And be sure to contribute at least as much as your employer will match to take full advantage of that "free money." But remember, any amount you can contribute is better than zero.

What happens if I contribute more than the annual limit?

If you contribute more than the set limit in a year, the excess money is taxed twice . In other words, you pay taxes on it now, and later when you withdraw it . There are remedies you can pursue if this happens, so seek professional guidance .

Should I prioritize maxing out my 401(k) over other financial goals?

Maxing out your 401(k) is an important long-term goal, but other financial goals might be just as important for your retirement goals. Balance your 401(k) contributions against wealth-building actions such as paying off high-interest debt, building an emergency fund and saving for other major expenses.

Advertiser Disclosure

How to Max Out Your 401(k): Smart Strategies to Hit the Limit

July 31, 2025

7 min Read

Written by Andrew Lisa

Edited by Nupur Gambhir

A stack of retirement account statements

DNY59 / iStock.com

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Maxing out your 401(k) is a heavy financial lift, but one that can let you harvest enormous rewards in retirement. This article will outline what it means to max out your employer-based retirement fund, what you stand to gain, steps to take to make it happen and mistakes to avoid.

What Does It Mean to Max Out a 401(k)?

The IRS sets annual limits on how much employees can contribute to a 401(k), adjusting the cap periodically to keep up with inflation. For the 2025 tax year, the maximum contribution for individuals under 50 is $23,500. Those aged 50 or older can make an additional $7,500 in catch-up contributions, bringing their total limit to $31,000.

“Maxing out” your 401(k) means contributing the full amount allowed by the IRS for the year. While reaching this limit isn’t feasible for everyone, those who can afford to do so stand to benefit significantly. Contributing the maximum amount not only lowers your taxable income in the short term, but also boosts your long-term savings through tax-deferred growth and the power of compounding. Over time, these tax advantages can pave the way to a more comfortable — and potentially wealthier — retirement.

Why Maxing Out Your 401(k) Is Worth It

Maxing out your 401(k) can amplify your retirement savings and grow your nest egg in several ways.

Traditional 401(k)s deliver tax-deferred growth on pre-tax contributions while allowing you to deduct your contributions. The more you contribute, the less taxable income you have to report and the lower your annual tax bill will be.
Roth 401(k)s are funded with after-tax income, so you can’t deduct your contributions. However, your money grows tax-free and, unlike traditional 401(k)s, your qualified withdrawals are exempt from income tax in retirement.
Despite ending well before most workers will max out their 401(k)s, employer matches increase your savings and accelerate compounding even further.
Over decades, compounding can turn maximum contributions into seven-figure balances, even with average returns.

Today's Top Offers

How to Max Out Your 401(k) in 5 Easy Steps

Reaching the maximum is no easy task for most earners. Follow these five steps to reach the finish line — or at least get close.

Know the contribution limits: Stay updated on IRS limits, which can change from year to year.
Contribute enough to get the full employer match first: Grab as much free money as possible by getting the entire company match, whether you max out or not.
Increase contributions gradually: Work toward the maximum by increasing your contributions by 1% to 2% annually or after raises.
Automate contributions: Use payroll deductions to stay consistent
Cut expenses or redirect windfalls: Redirect bonuses, tax refunds or debt payoff savings toward your fund to hit the limit.

Strategies to Afford Maxing Out Your 401(k)

All but the highest earners will never reach the goal of maxing out their 401(k)s every year without a strategy and a game plan. The following tips can help.

Create a budget focused on savings first
Use tax savings from pre-tax contributions to offset the impact on take-home pay
Consider side income or freelance work to free up extra money for contributions
When you eliminate a debt, redirect the monthly payment you had been making to your retirement fund

How Maxing Out Your 401(k) Can Boost Retirement Savings Over Time

Maxing out your 401(k) requires diligence, sacrifice and, for most earners, a reduction in lifestyle. The potential for compounding and long-term growth, however, can be well worth the effort.

Today's Top Offers

Considering the following calculations:

$23,500 per year with good but not great 7% annualized returns becomes $2.4 million over 30 years.
With 10% gains, which are not unrealistic, the same contributions would grow to $4.28 million.
Even a subpar 5% annualized return would leave you with $1.66 million.

Time is the key to compounding returns, so start early with whatever you have, whether you can max out yet or not.

Maxing Out a Traditional vs. Roth 401(k): What’s the Difference?

Your strategy for maxing out a 401(k) depends on the type of account you have. A traditional 401(k) offers upfront tax savings–your contributions reduce your taxable income now, but you’ll pay taxes on withdrawals in retirement.

This makes it a smart choice if you expect to be in a lower tax bracket later in life. In contrast, a Roth 401(k) is funded with after-tax dollars, meaning you won’t get a tax break today, but your withdrawals in retirement are entirely tax-free.

This can be especially beneficial if you anticipate being in a higher tax bracket down the road. Some employers even allow you to split your contributions between both types of accounts, giving you flexibility to hedge against future tax uncertainty.

Top Mistakes to Avoid When Maxing Out a 401(k)

Make sure to avoid these common and costly pitfalls, which can steer you off the path of maxing out your 401(k) — or reduce the benefits of doing so:

Not checking if you’re on pace to max out before year’s end. Many people assume their contributions are on track, only to fall short by December. Review your year-to-date contributions and adjust if needed to hit the limit.
Ignoring plan fees. High administrative or fund management fees can quietly eat into your returns over time, even if you’re contributing the maximum. Choose low-cost investment options when available.
Making bad investment choices. Maxing out your contributions won’t pay off if your portfolio isn’t well-diversified or aligned with your risk tolerance. Avoid chasing performance or concentrating too heavily in one asset.
Failing to rebalance your portfolio as it grows. Over time, certain investments may outperform others, throwing off your intended allocation. Rebalancing keeps your risk in check and helps you stay on track for long-term growth.

Today's Top Offers

Bottom Line

Maxing out your 401(k) takes discipline, smart planning, and often some short-term financial trade-offs–but the long-term benefits can be substantial. From tax advantages to the power of compounding returns, every dollar you contribute today helps build a stronger financial foundation for the future.

Take a few minutes to review your current contribution rate and adjust it if needed. Whether you’re catching up or just getting started, every extra dollar you invest now can translate into a more comfortable and secure retirement later.

FAQs About Maxing Out Your 401(k)

You have questions about maxing out your 401(k). Here are the answers:

Why should I max out my 401(k)?
- There are several advantages. If you lower your tax burden in the current year, you enjoy long-term growth on investments, and you take advantage of the power of compounding interest and returns.
What is the contribution limit for 2025?
- For 2025, the contribution limit is $23,500. For those 50 years and older, the "catch-up" contribution limit remains at $7,500, which means the total you can contribute is $31,000 per year. And for those 60 to 63, the catch-up limit is $11,250. This means maxing out contributions for this age group is $34,750.
Can I contribute to a 401(k) and an IRA in the same year?
- Yes, you can contribute the respective maximum amount to each account. Each has its own rules and limits, however.
How can I afford to max out my 401(k) on a modest income?
- The maximum amount allowed for 401(k) contributions is high, so it can be difficult to hit. First, try adjusting your budget. Automating your contributions can also help. And be sure to contribute at least as much as your employer will match to take full advantage of that "free money." But remember, any amount you can contribute is better than zero.
What happens if I contribute more than the annual limit?
- If you contribute more than the set limit in a year, the excess money is taxed twice. In other words, you pay taxes on it now, and later when you withdraw it. There are remedies you can pursue if this happens, so seek professional guidance.
Should I prioritize maxing out my 401(k) over other financial goals?
- Maxing out your 401(k) is an important long-term goal, but other financial goals might be just as important for your retirement goals. Balance your 401(k) contributions against wealth-building actions such as paying off high-interest debt, building an emergency fund and saving for other major expenses.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.