Can't Max Out Your 401(k)? Here's the Minimum You Should Be Saving Every Year.

Maxing out your 401(k) is a big goal for many. And if you’re capable of reaching that high level of savings, kudos to you. For those who can’t, you can still get a lot out of your workplace retirement plan.

If you’re unable to contribute the maximum to your 401(k), here’s how much you should be saving instead.

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The minimum amount you should save in your 401(k)

If you’re not getting the company match on your 401(k), you’re leaving part of your compensation on the table.

Most companies that offer a 401(k) include some sort of matching contribution in the plan. For every dollar you contribute, the employer will match a certain amount, up to a specified limit. The numbers will differ from company to company.

Some standard matches might be “50% of your contribution up to 3% of your salary” or “100% on the first 2% of salary deferrals, and 50% of the next 4%.” Be sure to read the details of your plan to learn what your 401(k) plan’s match policy is.

Figuring out how to get the most out of the employer matching contribution should be your first stop in determining how much to save in your 401(k) every year.

New ways to get your company match in 2024

There’s some great new ways for employees to receive their 401(k) company match starting in 2024 thanks to the SECURE Act 2.0.

Employees still paying off student loans may be eligible for a company match in their 401(k) just for paying down their debt. While the plan must support the feature, any amount you pay toward your student loans will count as if you made a contribution to your 401(k) for matching purposes. Even better, this won’t count toward your actual contribution limit.

So technically, if you’re still paying off student loan debt, your best savings plan may be to focus on your debt without saving anything in your 401(k) for now. Depending on the interest rate on your student loans, that could be smart. But if you could earn better returns from investing, it probably makes more sense to save the money for retirement.

Another way employees will be able to earn their company match next year is with a new emergency savings account attached to 401(k) plans. The emergency account allows employees to build up savings through automatic payroll deductions, and they must be able to withdraw funds at least once per month and up to four times per year without fees. Contributions to the special savings account will be eligible for matching contributions.

Plans will have to opt in to offer this new feature, so be sure to check your plan details next year if you’re having trouble building an emergency fund while also saving for retirement.

Why you might not want to contribute anything more to your 401(k)

For many, contributing just enough to get the company match is the exact amount they should be saving in their 401(k).

401(k)s are great retirement savings tools, but they do have their downsides. And maxing out a 401(k) and leaving other options for savings on the table is often a strategic error that can cost you a significant amount of money over time.

Once you get your 401(k) match, you’re better off putting any extra money you have for retirement savings into an IRA. Unlike a 401(k), IRAs generally don’t have fees and don’t limit your investment choices. Fees can have a substantial impact on your savings by the time you retire.

The drawback of the IRA is the relatively low contribution limit: $7,000 in 2024, with an extra $1,000 allowed for those 50 and older. By comparison, you can contribute up to $23,000 to your 401(k) or $30,500 if you’re 50 or older.

The high contribution limit of the 401(k), however, holds much more appeal for high earners. Those workers get a lot more value out of the tax deduction, since they’re generally in a higher tax bracket. And they don’t have to stretch their budget just to save some money on taxes.

There are many rules of thumb for how much to save for retirement. But if you look at the 401(k) contribution limit and think, “I’ll never be able to save that much,” make sure you get the match and save whatever else you can in an IRA.

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