- For 2024, you can defer up to $23,000 into 401(k) plans, up from $22,500 in 2023, with an extra $7,500 for savers age 50 and older.
- Some 15% of investors maxed out employee deferrals in 2022, according to a 2023 report from Vanguard.
- However, you need to consider your short- and long-term financial goals before maxing out your 401(k), experts say.
If you're itching to save more for retirement, there are higher 401(k) contribution limits for 2024. But there are a few things to consider before maxing out your plan, experts say.
For 2024, you can defer up to $23,000 into 401(k) plans, up from $22,500 in 2023, with an extra $7,500 for savers age 50 and older. Some higher earners can funnel even more into their 401(k), depending on plan rules.
Some 15% of investors maxed out employee deferrals in 2022, according to a 2023 report from Vanguard. However, the average deferral rate was 7.3% for employees automatically enrolled in their plan.
Get top local stories in San Diego delivered to you every morning. Sign up for NBC San Diego's News Headlines newsletter.
More from Personal Finance:
Buy now, pay later is a troublesome type of 'phantom debt,' experts say
Here are 4 of the best options for short-term savings in 2024, experts say
IRS tax bracket changes may mean your paycheck is slightly bigger in 2024
Pretax 401(k) contributions provide an upfront tax break by reducing adjusted gross income, but investors owe levies on future withdrawals. By comparison, after-tax Roth 401(k) contributions allow assets to grow tax-free, without reducing current-year taxes.
"If we're fully comfortable with waiting until past age 59½ to touch that money, those tax advantages can really go a long way," said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York. He is also a member of CNBC's Financial Advisor Council.
Money Report
However, "affordability is obviously a big part of it," and other financial goals may come before maximizing your retirement contributions in a given year, he said.
Don't miss your 401(k) match
If you have limited cash flow, experts suggest contributing at least up to the employer match, which is a company deposit based on your contributions. "But then goal priorities kick in," Boneparth said.
If you're saving to buy a home or pay for a wedding, "you might see more money allocated to a money market fund or savings account than your 401(k)" for a time, he said.
Your emergency savings are also important, said Boston-based CFP Catherine Valega, founder of Green Bee Advisory, who recommends starting with at least three months of expenses.
Ultimately, you need to rank your short- and long-term goals, including how much those goals cost and when you want to achieve them, Boneparth added.
Consider 'trial and error' for contributions
"Our goal is to get to that 401(k) max for everybody," Valega said. "But there are plenty of clients who can't."
When deciding the right percentage, "sometimes, it's a question of trial and error," and you can try a higher contribution for a couple of paychecks to see how it feels for your cash flow, she said.
"If it feels like you've got a little more wiggle room, then you can increase it by one percent," Valega said.
Don't miss these stories from CNBC PRO:
- There's one stock Wall Street loves so much for 2024 that five analysts in one day picked it as their favorite
- Morgan Stanley names its top stocks for 2024, including this streaming giant
- Investing tips from Warren Buffett to start the new year on the right foot
- Goldman sees a 50% gain ahead for this Chinese electric vehicle stock, initiates with buy rating
- 'Twice as cheap': These stocks' discount to the S&P 500 is double its average, Ritholtz's Brown says