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Aim To Max Out All Of Your Retirement Accounts This Year

We should all have some amount that we aim to save every year.  The great thing is that in the United States, the government basically gives you an amount to aim for each year in the form of retirement accounts.  Since the government limits what you can put into each of these tax-advantaged accounts, it’s an easy goal to try to reach.

I think at minimum, everyone should aim to save enough each year to max out all of their retirement accounts. When you think about it, it’s not really all that hard to do.  Just set up your automatic contributions once at the beginning of the year.  Then do the most important thing you can do when it comes to investing – nothing!

To be fair though, I know it’s harder than it looks.  I’ve actually never maxed out all of my retirement accounts.  In 2014, I didn’t know anything about investing.  I probably would have contributed nothing, but my employer automatically defaulted us to a 5% savings rate.   In 2015, I didn’t max out my 401(k) either, although that was a conscious decision.  I wanted to throw more money into my student loans and since I was throwing over $40,000 per year into my loans, I couldn’t afford to max out my 401(k).

2016 was the first year I really began to save a ton of money.  In January of 2016, I did the math and set up everything so that I would be on pace to max out all of my retirement accounts by the end of the year.  Because I’d set up everything to be automatic, by the time December 31st came around, I had saved an amount equivalent to maxing out all of my retirement accounts.  It normally wouldn’t be that big a deal, but I found it surprising that I saved so much considering that I took a $50,000 pay cut in the middle of the year!  Setting it all up at the beginning of the year was definitely the key.  And if I can do it, I know you can do it too!

How Much Do You Need To Save In Order To Max Out All Of Your Retirement Accounts?

If you want to max out all of your retirement accounts, you obviously need to know how much you need to save.  I’m working under the assumption that you probably have access to three tax advantaged retirement accounts.  These include the following: a 401(k), a traditional or Roth IRA, and an HSA.  If you’re lucky, you might have access to other types of retirement accounts, such as a pension or a 457 plan.  Those of you who are self-employed or side hustling might even be able to take advantage of an additional bonus retirement account, such as a solo 401(k).

But for now, we’re just going to assume you only have access to three tax-advantaged retirement accounts.  For 2017, the normal limits for these accounts are as follows:

  • 401(k) = $18,000
  • IRA = $5,500
  • HSA = $3,400

Add that all up and you’re looking at putting away a grand total of $26,900 in a year.  That’s a pretty hefty sum and one that anyone can be proud of.

Assuming you’re paid on a biweekly schedule, you’re looking at 26 paychecks per year.  Divide that up, and here’s what you need to save each paycheck:

  • 401(k) = $692.30 per paycheck
  • IRA = $211.53 per paycheck
  • HSA = $130.76 per paycheck

In order to max out all of your retirement accounts each year, you’ll need to save $1034.59 per paycheck.  Is that a lot of money?  Obviously yes!  But if you take the time to set it up once at the beginning of the year, it becomes so much easier to max out all of your retirement accounts.

How Hard Is It To Do?

In my opinion, anyone making around $100,000 with no debt should have no trouble maxing out all of their retirement accounts.  That’s just a mere 29.6% pre-tax savings rate, which is totally doable for most people living a relatively normal life.

To see this in action, just look at what your income would be once you’ve subtracted the retirement savings.  Someone making $100,000 per year would reduce their pre-tax income from $100,000 down to $78,600 if they maxed out both their 401(k) and HSA.  That same person would then only need to save $5,500 per year in after-tax money to put into a Roth IRA.  Considering the fact that the median income in the U.S. is around $55,000 per year, a person making around $70,000 per year before taxes would be doing pretty darn well.

Obviously, the more you make, the easier it is to max out all of your retirement accounts.  Someone making $50,000 a year will have a really hard time maxing out all of their retirement accounts.  It’s doable, but you’d have to have extremely low living expenses.

Savings rate assuming you’re saving $26,900 per year in tax-advantaged retirement accounts.

I still think that anyone making $75,000 or more per year should be able to max out all of their retirement accounts or get pretty darn close.  Even at a $75,000 salary, someone maxing out all of their accounts would be looking at a pre-tax salary of around $48,100, which is still right around middle of the road when it comes to U.S. incomes.  If the vast majority of the country lives on much less, I don’t see why others making more can’t do the same.  Obviously, you’ll need to look at your own budget to see if you can do it, but why not push yourself and see what you can do?

The Key: Set It Up Once And Forget About It!

The great thing about saving is that you only need to do it once.  Just set your contribution amount for the year now and then don’t look back.  If you don’t know how to change your savings rates, talk to your HR people.  Most of the time, you can change your contribution rate right on your computer.

And the worst thing that happens is you find out the heavy saving is pushing your budget just a little bit too much.  If that’s the case, then just retool your savings later down the line.  My guess is that most people will get bummed out in the beginning at their smaller paycheck.  Over time, however, you’ll probably start to get used to it.

Even if you don’t think you could max out all of your accounts, an easy thing to do would be to just figure out a way to bring in a little income on the side.  Making an extra couple thousand bucks in a year isn’t hard to do.  If you take that income and put it all into an IRA or HSA, you can reach the same savings goals without sacrificing any of your lifestyle.  I know everyone reading this can figure out a way to make an extra few thousand bucks in an entire year!

I’ve already set up all of my contributions to put me on pace to max out all of my retirement accounts towards the end of the year.  Can I do it?  I don’t know because my income will be the lowest it’ll ever be in my professional life this year.  But considering that this is what I was saving before already, I think it can be done.  And if I can’t do it, well, then I can just reassess down the line.  But taking just a few minutes to set it all up now can make a huge difference.

Are you putting yourself in a position to max out all of your retirement accounts this year?

34 Comments

  1. TJ TJ

    I’ve never been allowed to max out a 401k, because we don’t have a safe harbor plan. 🙁 I actually had to.

    It’s a blessing in disguise though because taxable $$$ is certainly underrated.

    I am, however, maxing out a Roth IRA and HSA this month. 😀

    • Are you talking about maxing out your Roth and HSA for 2016 this month? Or are you going baller and maxing the whole thing out for 2017 in one month? Either way, awesome!

    • I agree TJ. I don’t max out my 401k because tax deferred currently makes up a much higher proportion of my investments (69%). I’d like to have more in a taxable account so that I’m around 50% tax deferred/50% Roth & taxable brokerage by the time I retire, in about 10 years. It also provides more flexibility, should a catastrophic event occur, since I want to have funds accessible without paying a penalty.

      Since we know the tax rates today, I’d prefer to pay as much tax now, rather than later when I’m on a fixed income and tax rates could be significantly higher. Only time will tell if this strategy pays off. But for people with high incomes (& in higher tax brackets), maxing out a 401k is a must. For those of us with lower incomes, the tax benefit isn’t nearly as helpful.

      I am maxing out my HSA and Roth, though, so I agree with you on that. My focus is more on containing expenses so I can invest the rest, regardless of the account.

      I wrote more about my strategy here: http://itsakatelife.com/2015/12/30/managing-uncertainty/

      • Definitely agree that there’s much less benefit to tax-deferred savings when your income isn’t super high. And of course, advantages of the Roth aren’t as good if you’re aiming for FIRE. A lot of tax deferral is about unknowns. I suppose you’re right, we really can’t know until we get there.

  2. I’ve set goals to max out our retirement, Roth IRA and HSA as well as contribute up to the deductible state limit for college savings account for our 3 kids. My preliminary budget is telling me I can’t quite meet all of those goals, but I’m going for it anyway. It’ll make me more motivated to save when I have extra income come in and encourage me to be more frugal in certain things.

    • That’s terrific and sounds like you’re going all in! Even if you find you can’t do it, at least you know you gave it a fair shot! I’ll bet you end up pulling it off.

  3. Our goals every year are to max out these accounts first before other savings. At minimum it develops a floor for your investing to stop life inflation. For those in the higher end of a bracket it also reduces your adjustable gross income. That of corse allows you to continue to qualify for Roth IRA, dependent care credits and other special income dependent deductions.

    • That’s a great point about setting up that floor. If you know every year that you’re maxing out all those accounts, at minimum, you can’t waste that money on lifestyle inflation. Great point also about the Roth IRA and the deductions you’re getting from maxing out your other accounts. If you’re right on the edge there of being able to contribute, then throwing in that money basically opens that up for you (let’s just ignore backdoor Roth for now). I’m not super familiar with the dependent care credits and other special income dependent deductions since I have no dependents, but maybe I’ll do some research on that front to see what opens up when you contribute big money like that.

  4. Great goal to set! I’ve been maxing out my 401(k) for a few years but haven’t been able to conquer the Roth and the HSA completely yet.

    I’m going to try to get 2 out of the 3 this year with the 401 and Roth. I’ll do pretty good on the HSA but probably won’t max it.

    — Jim

    • Great hustle Jim. Even maxing out 2 of the 3 is great. Not everyone even has access to an HSA, so really, you’re doing all right if you just get the 401(k) and Roth together.

  5. I agree this is an attainable goal for most people that are focused on their finances and people that are out of debt. I’ve maxed out my 401(k) and HSA the last few years. This year, I hope to add Roth IRA to the list for both my wife and me!

    • Awesome job! Will be awesome if you can throw that Roth in there too.

  6. Thanks for this post! My goal this year is to max out my IRA. We already max out our HSA. Still working on the 401k, at least I take full advantage of the matching.

    • Sounds like you’re doing pretty well! And great to get that matching. I didn’t have any matching in my old job, so never really understood how much of a difference it makes. But it’s huge!

  7. That’s definitely a goal we have for this year. I maxed out my 457 plan a year again…will try to do the same for my wife’s 457 plan. We’re also working on maxing out our Roth IRAs. Which would you aim to max out first…Roth IRA or traditional 457?

    • Good question Andrew. I think it really depends on your income potential and whether you want to keep the possibility of a backdoor Roth open. If you anticipate your income rising a lot, I’d probably go with Roth just because it makes things much easier logistically. Tax diversification is also a nice thing to have, and the Roth has a nice benefit of sort of doubling as a last ditch emergency fund (since the principle you contribute can be withdrawn without penalty).

      On the other hand, there are a lot of arguments for why a ROTH isn’t the best vehicle, especially if you’re aiming for early retirement. The obvious thing is that there’s very little chance you’ll make as much in retirement as you will when you’re working, especially if you’re a super saver like most of us here are.

      That said, I personally go with a Roth simply because I earn too much to get into the traditional IRA and I’d prefer to keep things simple in order to leave the backdoor Roth as an option. If you don’t anticipate ever needing to utilize the backdoor Roth, then I’d probably go traditional. Hope that helps!

  8. Maxing out all of your tax deferred options would be awesome. I’m taking a different approach in 2017 to build my after-tax portfolio to reach FI sooner. Currently, I max out my 401k. My wife is a teacher and contributes 6% of her salary to a pension fund. On top of that, she has access to a 403b account and a 457 account.

    That’s a lot of tax-deferred money to leave on the table, but with a goal to reach FI a lot sooner than 59 1/2 (yes I know there are ways to access tax-deferred money earlier), I felt it better to maximize my after-tax savings. Even if we never contribute another dollar to our tax-deferred accounts, the current balance will grow into the multi-millions by the time we’re 60. So it hurts a bit to leave that extra money on the table, but it’s worth it to achieve FI sooner.

    • Having access to both the 403(b) and 457 is huge! Are you going all out on the 457? That money can be taken out anytime when you leave the job, without any penalty, so it basically works as the ultimate tax-advantaged retirement account that you can use for FIRE purposes. It’s probably the best early retirement investment bucket you can have, and putting 18k a year into it would be huge! I’d probably go for that first before everything else if FIRE is the goal.

  9. Thaks for writing about this topic! We’ve maxed out everything the last few years in anticipation of pulling the work plug. That includes Mr. Groovy’s 401K and HSA, my 403b and both of our Roths (with 50+ catch up). Mr. G has maxed out his 401K for years but I resisted, thinking it would be too hard. Instead he convinced me to raise my contribution by 1 or 2 percent each year until I was finally ready to take the plunge. That was a good way of easing into it.

    • Upping by just a few percent each year is definitely a great way to go about it. We sometimes convince ourselves that we can’t do it, but I think most people can figure out how to make it work. Saving seems like it should hurt a little, right?

  10. Great advice for many people. However, for those who will be in a higher tax bracket during their retirement years, it might not be the way to go. Likely a minority of people, but still something to think about.

    • That’s an interesting perspective for sure, and if you did happen to make more in retirement, then of course, putting money into tax-deferred accounts wouldn’t be as good. The thing is, the chances of anyone bringing in more during retirement years compared to working years seems low to almost impossible.

      Let’s take a married couple getting taxed in the 28% marginal tax bracket. In 2017, that ranges from about 153k to 233k annually. In order to generate that type of income in retirement, you’d need to have a huge amount of savings -somewhere between 4 and 6 million dollars. Obviously, very doable for high income earners, but if you’re the type of person able to put away 4 million+ by retirement, then you are probably earning way more than 233k during your working years, meaning that any tax-deferred savings are going to be helping you.

      In addition, one thing that is often forgotten is that, in retirement, you are in a unique position to basically choose how much you’re going to be taxed at. If taxes are a concern, simply make sure you’re taking out less taxable income during retirement. Or, given the freedom you get, establish residency in a state with no state income tax. There’s just a lot more you can do in retirement to keep your tax rate low, whereas you don’t quite have as much flexibility in your working years. Just my thought anyway.

  11. It’s painful the first couple of months once you set up the automatic payments, but humans are remarkably adjustable. Once you set it up to max it out, you don’t really notice it in the years after that. It just becomes a natural deduction from your take home pay.

    In my experience, I’ve found saving is really incremental. You start by maxing out your retirement accounts and later you realize you can start banking your raises and later you realize you can save a little some of your take home pay, etc., etc.

    • That’s totally how I feel about saving too. You just don’t realize that you can do it until you actually start doing it. It’s also part of the reason I like to use apps like Qapital and Digit. They’re just periodically pulling money out of my checking account, so it’s just another way I keep pushing myself.

  12. I love your goals for this year and I’m trying to do the same thing but by using a different method. I’m currently working on a blog post where I’ll provide more detail, but here’s a quick idea of what I’m doing.

    I start off the year with huge motivation to save, but my motivation can dwindle down throughout the year. I wanted to set up a plan that would allow me to max out all my retirement accounts, but take my foot off the gas a little as the year goes by.

    Take maxing out my 401k as an example. Let’s say I make $100k/year. Maxing out the 401k means contributing 18% every paycheck. I don’t have any vacations planned in the first quarter of the year, or any other big expenses, so I thought why not get ahead of the game. I’ll start by contributing 30% of my pay for at least a month or two, and then I’ll eventually (have to in order to not over contribute) reduce my contribution rate.

    30% of my pay equates to $2,500/month in a 401k. If I do that for only 2 months, that’s $5,000 saved. The 2017 401k max is $18,000, so after contributing $5,000 total over 2 months I’ll have $13,000 left to contribute. I could take my contribution rate down to 13% for the rest of the year starting in March (instead of a constant 18% throughout the year). The key is I’ll have options which all consist of eventually reducing my contribution rate at some point as my motivation potentially wanes. Sorry if I lost anyone with the math.

    I’ll be sure to still have some money left to contribute in the final months of the year to take advantage of my employer’s match.

    This is definitely a more involved strategy, but I feel it better fits me. It is automated but relies on me to at some point (s) reduce my contribution during the year, giving me what feels like a slight raise. My hope is I’ll adjust to living on less that when my paycheck goes up, I’ll be able to save most or all of the money in a taxable account.

    We’ll see how it ends up working.

    • That is a super smart idea! I find a lot of the time people try to up their contributions at the end of the year when money normally stars getting tight. Totally makes sense to frontload when you need the money less.

    • We completely agree with this approach, NinjaPiggy. In years past when our income/spending discipline was not as great as it is today, I would firewall our contributions at the beginning of the year and then adjust later if that ended up being over aggressive, always ensuring we were putting at least the amount needed to take advantage of the employer matching funds.

      Nowadays, I find myself adjusting down due to bonuses, salary increases, etc. to avoid maxing the accounts out and missing out on the matching funds. BUT, that’s a good problem to have and I’m not complaining.

      And, FP, this is a very timely article for the beginning of the year. Good stuff!

      • I think when we become a two income household, we’ll probably start front loading our contributions just to get it out the way faster.

  13. I first maxed out my 401k, Roth IRA, and HSA in 2015 and plan to keep doing it for the remainder of my working career. Once you do it once, it’s easy to keep it going. Wish I had more room to put away my money in a tax advantaged manner.

    • That’s terrific work! If you’re trying to get some more space, perhaps picking up a side hustle and throwing all of that money into a Solo 401(k) or SEP-IRA might be for you! It’s a pretty easy way to snag yourself a bonus retirement account.

  14. Nick B Nick B

    I always max out my 401k. I have no company match. I was thinking about maxing out early in 2017. I am single. I make 120k and have no problem with setting my 401k weekly contributions to 100% weekly.
    I believe my tax bracket changes from 28%and goes UP to 33%.
    Should i frontload my 401k or wait till later in the year ?
    Thank you.

    • Good question. If you can afford it, front loading isn’t a bad idea. In theory, if time is our friend, then getting your money invested as soon as possible is the way to go because it’ll give it more time to grow. Since the market tends to go up more often than it goes down, logically, buying now would be more likely to allow you to get your investments at the lowest price. Of course, you need to consider your risk tolerance too. If you think you might freak out if the market were to drop in the next few months, then it’d be best to just calculate what you need to max out your 401(k) and then let yourself naturally dollar cost average in.

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