One of the nice things about 401(k) plans is that they come with very generous annual contribution limits. This allows savers to sock away a nice amount of money for retirement and, at least in the case of a traditional 401(k), shield a lot of income from near-term taxes.
But maxing out a 401(k) is a pretty tall order. As of the third quarter of 2023, U.S. workers earned a median weekly wage of $1,118. That’s roughly $58,000 a year for those working 52 weeks.
Meanwhile, right now, 401(k) plan contributions max out at $22,500 for workers under the age of 50 and $30,000 for those 50 and over. Next year, these limits will rise by $500, to $23,000 and $30,500, respectively.
For a 40-year-old worker earning $58,000 to be able to max out their 401(k) in 2024, they’d need to part with about 40% of their income. That’s probably not doable. And even someone aged 40 earning $100,000 a year might struggle to part with almost a quarter of their pay.
Maurie Backman | USA Today