3 Reasons Not to Max Out Your 401(k) This Year

2026-02-14 07:42:13

Although maxing out a 401(k) is not an easy thing to do, you’ll often hear that it’s a smart thing to do for your retirement. If you’re able to contribute the maximum to a 401(k) plan year after year, you could end up with a substantial nest egg.

This year, the maximum 401(k) contribution you can make is $24,500 if you’re under 50, or $32,500 if you’re 50 or older. And thanks to a new rule, workers between ages 60 and 63 can make a special $11,250 catch-up in a 401(k), bringing this year’s total contribution to a whopping $35,750.

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But even if you have the ability to max out your 401(k), doing so isn’t necessarily smart. Here are three good reasons not to max out a 401(k) plan this year.

Your plan’s investment choices aren’t a match for your needs

One issue with 401(k)s is that they don’t typically let you hold individual stocks like IRAs. Rather, with a 401(k), you’re generally limited to different fund choices that may or may not align with your preferred investment strategy.

If you aren’t happy with the investments that are available in your workplace 401(k), it could still very much pay to contribute enough to claim your employer match in full. But from there, you may want to find another home for the rest of your retirement savings.

You’re planning for an early retirement

Some people know early on that they want to retire at a fairly young age. If you’re in your early 40s and are on track to be able to retire in your early 50s based on your current savings balance, then you should reconsider maxing out a 401(k) plan this year.

With a 401(k), you’ll generally face early withdrawal penalties for removing funds before age 59 and 1/2. There can be exceptions if you’re leaving the job the year you turn 55 or later.

But if you think you’ll want access to your retirement savings much sooner, then it pays to not max out your 401(k) and instead put some money into a taxable brokerage account. That way, your money won’t be restricted or subjected to penalties, no matter how old you are when you choose to access it.

You’re hoping to retire soon and need more cash on hand

If you’re close to retirement, it’s a good idea to have one to two years’ worth of living expenses in cash to protect yourself from market downturns. You may have the option to keep a portion of your 401(k) in a money market fund if you’re looking to reduce your risk profile at this stage. But you may have more options for stockpiling cash outside of a 401(k).

Most 401(k)s, for example, don’t let you open CDs. And given where interest rates are today, you may want to open a CD ladder right before retirement to protect some of your savings while generating a decent return.

While maxing out a 401(k) is a great thing to do, it doesn’t always make sense – even if you can swing it. If any of these situations apply to you, consider spreading your money out across different accounts rather than going all-in on your 401(k) this year.

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