Max 401(k) Contributions: Consider Giving Your Retirement a Lift

Learn about the max 401(k) contribution so you can get the biggest bang for your retirement buck.
5 min read
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Key Takeaways

  • Learn about 401(k) deadlines and contribution limits for the 2019 tax year
  • Max out your employer match to make the most of this “free” retirement money
  • Depending on your tax situation, consider splitting your 401(k) contributions between pre-tax deferrals and Roth deferrals

Looking to boost your long-term wealth and prepare for a successful retirement? Contributing to your company’s 401(k) plan can be essential. When you make the maximum 401(k) contribution, you’re putting your money to work for you. Plus, if your employer matches your contributions, then their money is working for you, too.

 “One of the best benefits employers offer is the retirement plan,” says Christine Russell, senior manager of retirement and annuities at TD Ameritrade. “When you can work up to the max 401(k) contribution, you’re taking advantage of tax-deferred growth and you might even be getting free money.”

What is the Maximum 401(k) Contribution?

For 2019, you don’t reach your 401(k) max for the year until you’ve put in $19,000. That’s a pretty substantial amount.

“Plus, if you’re at least 50 years old, you can add a ‘catch up’ contribution of an additional $6,000,” Russell points out. “You could potentially sock away $25,000 for your retirement in your company’s 401(k). And your company takes it out of your pay with each payroll, so it’s much less hassle than saving on your own.”

Russell points out that many 401(k) plans allow an often overlooked benefit: You may have the ability to make Roth salary deferrals into the 401(k)—either with your normal pretax salary deferrals or just make the Roth deferrals. These Roth deferrals are similar to a Roth IRA except that anyone can make these deferrals as long as the 401(k) plan offers this benefit. However, keep in mind that Roth accounts don’t offer immediate tax deduction because Roth contributions are made with after-tax money. Instead, your money grows tax-free and you can withdraw it without paying taxes.

You don’t get double the contribution limit for having two different types of 401(k) contribution types, though. The max 401(k) salary deferral is for all accounts combined. If you contribute $10,000 to your traditional 401(k), you can only put up to $9,000 into your 401(k) Roth account.

“There are ways to split your contributions to take advantage of different tax treatments,” says Russell. “Speak with a financial professional about your situation to see if it makes sense for you. Nevertheless, many folks could benefit from the tax-free income in retirement that having Roth contributions will provide."

Maximizing 401(k) Contributions for Retirement

“For many people, it can be daunting to contribute that much money in a single year,” says Russell. “However, it’s possible to work up to that amount over time. Make a plan to increase your contribution amount at least every year. You deserve a happy retirement, so make sure you put your future first and make good choices.”

The best way to get more from your 401(k) is to see if your company offers a matching contribution and then at the very least contribute that maximum amount. One scenario is that your company matches 100% of your contributions, up to 3% of your income.

If you make $65,000 per year and you can put in 10% of your income or $6,500 a year, then your company would put in 3% of your income, adding another $1,950 to your retirement account.

“That’s free money you don’t want to leave on the table,” says Russell. “It goes toward building a bigger retirement account and means potentially more wealth down the road. Even if you can’t put in 10% or 20% of your income, at least put in an amount that gets you the max 401(k) match from your company.”

Unlike the IRA, though, you can’t make previous year contributions. With a 401(k), your last chance to contribute is generally the last paycheck before December 31.

“Look at your tax situation ahead of December and if you need a bigger deduction to reduce your taxable income, and there’s room to put more into your 401(k), that might be a good strategy to use. Many plans will let you increase your contribution before year-end.”

What if I Work for Myself?

Even you sole-proprietors out there have a 401(k) plan option: the Individual or Solo 401(k). Only business owners (and their spouses if the spouses work for the company) may set up and contribute to the Solo 401(k), but you have the same salary deferral limit of $19,000 for 2019, with the $6000 catch-up. You can also allow the Roth deferrals—again regardless of how much you make (unlike a Roth IRA which can only be made under certain income levels). Finally, if desired, you can contribute a profit sharing contribution for your business above the $19,000 to get a maximum of $56,000 into your account for 2019—if you have enough income. (The overall max into your account is still the 25% up to $56,000 for 2019.) To model Solo 401(k) contributions for your sole proprietorship, please see TD Ameritrade's Contribution and Eligibility Calculator.

Getting the Most Out of Any 401(k)

You don’t need to meet your 401(k) max every year to reap substantial benefits, according to Russell. As long as you opt in to paycheck deductions for your 401(k) and do your best to meet an employer’s maximum match, you can get a good start on building your retirement portfolio. Saving is a habit that you can learn over time.

“Can you save more if you’re contributing the 401(k) max? Of course,” says Russell. “But even if you can’t max out, you still get a big benefit by contributing what you can as early as possible and saving as aggressively as you can. And with options for contributing either pre-tax or Roth, plus getting an employer match, a 401(k) can help put you on the path to financial freedom.”  


Key Takeaways

  • Learn about 401(k) deadlines and contribution limits for the 2019 tax year
  • Max out your employer match to make the most of this “free” retirement money
  • Depending on your tax situation, consider splitting your 401(k) contributions between pre-tax deferrals and Roth deferrals

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