Are You Really Maxing?

Did you know there’s a difference between “getting the max employer match” in your 401k and “maxing” your 401k contributions?  I often hear this used interchangeably, but the differences are significant!

How significant?  Try this: the MAXIMUM employee contribution to a 401k plan for 2020 is $19,500 if you are under age 50, and $26,000 if you are age 50 or over.  That’s approximately $1624/month and $2166/mo, respectively.  If you think you are “maxing,” are you doing that much?  Likely not. 

Many people think they are “maxing” when what they are really doing is getting the “maximum employer MATCH.”  That’s great!  But it’s not the real “max.”  Most employers have a much lower limit on how much they will contribute to your 401k plan. 

For example, many employers will put in up to 6% if the employee contributes 6%.  If you made an annual salary of $100,000, that means you’d contribute $6000 in a year – nowhere near the actual IRS “max.”  (PS – the amount that your employer matches doesn’t count towards your annual contribution limit.)  So if you are under age 50, you would have $13,500 more to go before reaching the IRS annual maximum.

Now you know!  Employer matching is great, but you don’t have to stop there.  The limits are often much higher than people realize. 

For more information, reference this IRS page on Retirement Topics.