Should You Max Out Your 401(k)?

That’s a great question. It’s a question that I hear a lot as a financial planner. Maybe it’s a question YOU have, sitting wherever you’re sitting, reading this article.

Here’s the thing though, like most great questions, questions that seem like they should have a great yes or no answer, you might be disappointed to know the answer is mostly, “It depends.”

This particular question depends on, among other things: an estimate about the relationship of your tax rate in retirement to your current one, the investment options available in your 401k plan, the amount of money you have in different tax buckets, what future cash flows you have planned and when you’ve planned them (i.e. your goals!), and of course whether you as a unique individual can justify putting away $18,000 in a 401k rather than any number of other things that cost money in your day to day life.

So, to answer your question, it depends.

And you know, what we do for a living is built on huge numbers of questions that have no cut and dry answer. Max out my 401k? That might be one of the easier ones. Sometimes people are asking about alimony, or whether a SEP IRA is more appropriate than a SIMPLE IRA for their small business, or whether they should take a lump sum pension payout or an annual benefit. About selling a business or buying out a partner. About how to best claim Social Security benefits.

At the end of the day, these questions don’t come out of thin air. They come from real people, real families with real concerns about the world and their place in it financially. So really I just have one thing to say: You gotta ask.

As long as your question stays in your head and you’re trying to find an answer on a blog like this, you might never find anything except “It Depends.” Sometimes that might be marginally helpful, but lots of times there a really important questions that need more specific guidance, and that’s why we’re here.

Jared Korver
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A product of small-town North Carolina (Carthage, to be exact), I’m proudly married to my best friend and co-adventurer, Amy. Together, we have two sons–Miles and Charlie–and could more or less start a library from our home. I love being outside, can’t read enough, am in the habit of writing haikus, and find food and coffee to be among life’s greatest treasures.