Pros and cons of maxing out your retirement accounts

The idea of maxing out your retirement accounts sounds like a no-brainer. The more money you save now, the more you’ll likely have in retirement, and the more likely you’ll be able to enjoy the retirement you want. But does contributing the maximum to your retirement accounts make sense for your goals?

Maxing out your retirement accounts generally involves contributing the annual limits set by the Internal Revenue Service (IRS) for the retirement accounts available to you. Depending on what’s available to you, that could allow you to save a significant amount of money across your accounts. However, only about one of every seven 401(k) participants max out their 401(k) contributions.¹ And for many, maxing contributions is not needed to meet their retirement goals, so it may be okay that you’re not.

What does it take to max out my retirement accounts?

Some people have access to an employer-sponsored retirement plan, often a 401(k) or 403(b), an individual retirement account (IRA) and a health savings account (HSA). Depending on your circumstances, if you’re contributing the maximum to all those accounts, that could mean contributing almost $40,000 each year and even more once you reach age 50. (See details below.) Some 401(k) plans also allow for after-tax contributions, which may allow you to increase the amount you can put away tax free if you can convert it to a Roth account.

The 2025 contribution limits are:

What are the benefits and trade-offs?

With an increased savings rate, you can give your retirement savings an early boost or help you catch up on your retirement savings. When invested, these increased savings have the potential to grow to even greater amounts. And with retirement account tax savings, it may provide some flexibility later if you need to reduce your savings rate or retire early.

However, every dollar saved for retirement is one that isn’t saved or spent elsewhere. So, to the extent that you have other financial goals, like saving for education or a big trip, contributing the maximum could take away from those goals.

Should I or shouldn’t I max out my retirement accounts?

A good place to start when deciding whether to max out your retirement contributions is to ask if you need to. A financial advisor can help you determine how much you need to save each month by looking at your specific financial situation and goals. Even if you don’t need to maximize contributions to meet your goals, you might still want to for additional cushion, especially if you don’t have other financial goals to fund.

If you want to max out your contributions but it isn’t realistic right now, focus on small, sustainable progress, like increasing your retirement savings rate by 1% each year until you’ve met your goal. Nevertheless, if you do decide to max out your retirement contributions, you’ll want to have the following basics in order before ramping up your contributions.

Maintain adequate insurance coverage

Make sure your insurance is sufficient and up-to-date. Having insurance — health, life, auto, home and disability — helps protect you from the unexpected, helping shield you, your family and/or your assets from financial risk.

Build an emergency fund

Another factor to consider is whether you have an adequate emergency fund. When you don’t have enough cash on hand, even the smallest emergency, like a car or home repair, can put you in a bind. And if you choose to use retirement account funds, it could result in early withdrawal penalties and taxes. That’s why we recommend keeping three to six months of total expenses at the ready.

Pay off high-interest debt

While there are benefits to some debt — a home loan can help achieve a homeownership goal and build equity — high-interest debt tends to be more risky and costly. Before you max out your retirement accounts, we generally recommend paying off your high-interest rate debt to save on interest and other fees.

Take advantage of tax benefits

HSAs offer triple tax benefits — your contributions, earnings and distributions are tax-free when used for qualified health care expenses. Contributions to your traditional 401(k) and IRA generally lower how much you’ll pay in taxes for the year, and the investments have the potential to grow tax deferred. However, withdrawals from traditional 401(k)s and IRAs are generally subject to taxes and may be subject to a 10% IRS penalty if taken before age 59½. If you have a Roth 401(k) or Roth IRA, your contributions won’t lower your current tax bill, but the earnings growth is distributed tax free provided certain conditions have been met. Because qualified withdrawals from Roth accounts are tax- and penalty-free, each dollar contributed to a Roth generally results in greater after-tax income in retirement.

How an Edward Jones financial advisor can help

By reviewing your unique situation and personal goals, your financial advisor can help you understand how much you need to save for retirement.