How to Max Out Your 401(k) in 2023

401(k) account provides several valuable benefits to retirement savers. Contributing to a 401(k) plan allows you to qualify for tax breaks and employer contributions. There is also an opportunity to set up automatic saving and the potential for investment growth. But you also need to avoid 401(k) fees and penalties to make the most of your account.

Here’s how to maximize the value of your 401(k) account in 2023.

— Qualify for tax breaks.

— Make catch-up contributions.

— Reset your automatic contributions.

— Get a 401(k) match.

— Consider a Roth 401(k).

— Select low-cost funds.

— Avoid penalties.

— Sign up for direct deposit.

— Increase your withholding.

— Don’t stick with the default savings rate.

[Related:What Is the Average Retirement Savings Balance by Age?]

Qualify for Tax Breaks

You can defer paying income tax on up to $22,500 that you save in a 401(k) plan in 2023. A worker in the 24% tax bracket who saves this amount could reduce their tax bill by $5,400. Income tax won’t be due on this money until it is withdrawn from the account. Workers who earn less than $36,500 in 2023 ($73,000 for couples) might additionally qualify for the saver’s credit, which is worth between 10% and 50% of 401(k) contributions up to $2,000 for individuals and $4,000 for couples. The biggest saver’s credits go to workers with the lowest incomes.

Make Catch-Up Contributions

Employees age 50 and older are eligible to make catch-up contributions to 401(k) plans. The 401(k) catch-up contribution limit is $7,500 in 2023. Older workers can defer paying income tax on up to $30,000 in a 401(k) account. A 55-year-old employee in the 24% tax bracket who maxes out his 401(k) plan could reduce his current tax bill by $7,200. Making catch-up contributions can help you boost your retirement account balance in the years leading up to retirement. You can defer paying income tax on your catch-up contributions until you withdraw the money from the account.

Reset Your Automatic Contributions

Most 401(k) contributions are automatically withheld from your paycheck and deposited in a retirement account. The 401(k) contribution limit increased by $2,000 in 2023, so take care to adjust the withholding from your paychecks. Those who want to max out their 401(k) in 2023 need to save about $1,875 per month or $937.50 per twice-monthly paycheck. Workers age 50 and older can defer paying income tax on as much as $2,500 per month.

[READ: 10 of the Best-Performing 401(k) Funds.]

Get a 401(k) Match

If you can’t max out your 401(k), aim to save at least enough to get a 401(k) match. A 401(k) match of 50 cents for each dollar you save in the 401(k) plan up to 6% of pay is a 50% return on your investment. A dollar-for-dollar 401(k) match doubles your money. However, you need to be vested in the 401(k) plan to keep your employer’s contributions to the plan, which might require several years on the job. Getting a 401(k) match can help you accumulate retirement savings faster.

Consider a Roth 401(k)

While traditional 401(k) plans allow you to defer paying income tax on your retirement savings, some employers additionally provide an after-tax Roth 401(k) option. A Roth 401(k) doesn’t provide an immediate tax break, but you generally don’t have to pay income tax on the investment gains in the Roth 401(k) account and withdrawals in retirement are typically tax-free. A 401(k) match might be provided for Roth 401(k) contributions, but it will be deposited in a traditional 401(k), so you will have pre- and post-tax accounts to draw from in retirement.

Select Low-Cost Funds

Each fund in your 401(k) plan might charge a variety of fees. Regardless of how your investments perform, 401(k) fees are deducted from your returns. Your plan sponsor is required to send you a 401(k) fee disclosure statement that lists how much each fund in your 401(k) plan costs to own. Find out if your 401(k) plan provides a lower-cost fund that meets your investment needs. Selecting low-cost funds can help your retirement savings compound faster.

Avoid Penalties

Pay close attention to your age when deciding when to start 401(k) withdrawals. There are penalties if you take money out of your 401(k) account too soon or too late. You will typically be charged a 10% early withdrawal penalty if you initiate a 401(k) distribution before age 55. There’s also a 50% penalty if you fail to take a required minimum distribution from your 401(k) plan, and pay the resulting income tax bill, each year after age 72. Take care to avoid tax penalties when taking distributions from your retirement account.

[See: 12 Ways to Avoid the IRA Early Withdrawal Penalty.]

Sign Up for Direct Deposit

Contributions to your 401(k) plan are typically withheld from your paycheck before you ever get a chance to spend the money. This is the fastest way to get money into your account and reduces the temptation to skip a deposit. You might be asked to select a percentage of your salary to contribute to the 401(k) plan. A 50-year-old worker earning $100,000 would need to contribute 22.5% of pay to a 401(k) plan to max out the account in 2023. However, if you select a savings percentage that allows you to max out your account and then get a mid-year raise, you may need to decrease your savings rate to avoid exceeding the 401(k) contribution limit.

Increase Your Withholding

If you can’t fully fund your 401(k) now, aim to increase your savings rate when you can. As you get raises and bonuses, consider redirecting a part of your pay increase to your 401(k) plan. Some 401(k) plans have an automatic escalation feature that will increase your savings rate over time without any further action. Even a small savings increase can significantly improve your retirement finances. A worker who earns $50,000 per year, saves 1% more ($42 per month) and earns 7% annual returns will have an extra $71,718 after 35 years.

Don’t Stick With the Default Savings Rate

Many employees are automatically enrolled in their workplace 401(k) plan. When this happens, the default savings rate is typically 3% of pay. This low savings rate isn’t likely to produce a big enough nest egg for you to retire comfortably, and it might not allow you to get the entire 401(k) match. Take care to select a savings rate that will provide you with the retirement income you need. Many financial advisors recommend saving more than 10% of your income for retirement.

Should You Max Out Your 401(k)?

Fully funding your 401(k) plan is a worthy financial goal that can also help you save money on taxes. However, there are some circumstances when it can make sense to tackle more immediate financial goals first, such as creating an emergency fund or paying down high-interest debt. If you can’t max out your retirement account, aim to save at least enough to get a 401(k) match. When your financial situation improves, take care to resume saving for retirement as soon as you can.

More from U.S. News

9 Ways to Avoid 401(k) Fees and Penalties

How to Reduce Your Tax Bill by Saving for Retirement

How Much You Will Get From Social Security

How to Max Out Your 401(k) in 2023 originally appeared on

Update 05/11/23: This story was published at an earlier date and has been updated with new information.

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