Maxing Out 401(k) & IRA Contributions: The Smartest Tax Move You Can Make

If you’re looking for the simplest, most effective way to reduce your tax bill and build long-term wealth, maxing out your 401(k) and IRA should be at the top of your list.

These retirement accounts offer major tax benefits, but most people aren’t contributing enough to take full advantage. Let’s break down how these accounts work, why maxing them out is so powerful, and how you can do it—even on a tight budget.

1. Why Maxing Out Retirement Contributions Is a No-Brainer

Maxing out your 401(k) and IRA reduces your taxable income, grows your investments tax-free, and helps secure your financial future. Here’s why it’s a winning strategy:

✅ Immediate Tax Savings – Contributions to a Traditional 401(k) & IRA lower your taxable income this year. ✅ Tax-Free Growth – Investments grow tax-deferred (Traditional) or tax-free (Roth).✅ Compounding Magic – The earlier you max out, the more your money can grow over time.✅ Employer Matching – If your employer offers a 401(k) match, not contributing enough to get the full match is leaving free money on the table.

📌 Example: If you contribute $23,000 to a traditional 401(k) and are in the 24% tax bracket, you immediately save $5,520 in taxes. That’s money you keep instead of giving to the IRS!

2. 401(k) Contribution Limits & Strategies

For 2024, the 401(k) contribution limit is $23,000 (or $30,500 if you’re 50+).

How to Max Out Your 401(k)

1️⃣ Increase Your Payroll Contributions – Log into your payroll system and increase your 401(k) contribution percentage until you hit the max. 2️⃣ Take Advantage of Employer Matching – Always contribute enough to at least get the full match (if offered). 3️⃣ Use Bonuses & Windfalls – Direct year-end bonuses, raises, or tax refunds into your 401(k).4️⃣ Automate Contributions – Set up automatic paycheck deductions to prioritize saving before spending.

📌 Pro Tip: Some companies allow after-tax 401(k) contributions, which can be rolled into a Mega Backdoor Roth IRA—a strategy for even higher tax-free growth.

3. IRA Contribution Limits & Strategies

A Traditional or Roth IRA gives you additional tax benefits beyond your 401(k).

2024 IRA Contribution Limits

• $7,000 per year ($8,000 if age 50+)

• Income limits apply for Roth IRA eligibility

Traditional vs. Roth IRA: Which Is Better?

✅ Traditional IRA – Contributions lower this year’s taxes (tax-deductible if you meet income limits). ✅ Roth IRA – Pay taxes now, but enjoy tax-free withdrawals in retirement.

📌 Tip: If your income is too high for a Roth IRA, you can use the Backdoor Roth IRA strategy to convert Traditional IRA funds into a Roth.

4. What If You Can’t Max Out Yet?

Not everyone can afford to max out their 401(k) and IRA right away—but don’t let that stop you from contributing as much as possible.

Steps to Get There:

1️⃣ Start Small & Increase Gradually – Even 1% more per paycheck adds up over time.

2️⃣ Cut Unnecessary Expenses – Redirect spending on subscriptions, eating out, or impulse purchases into retirement savings.

3️⃣ Use Windfalls Wisely – Allocate bonuses, tax refunds, or side hustle income into your retirement accounts.

4️⃣ Reinvest Pay Raises – When you get a raise, increase your 401(k) contribution before you adjust spending.

📌 Example: If you invest just $200/month into an IRA starting at age 30, and it grows at 8% per year, you’ll have over $300,000 by retirement—even if you never max out!

Final Thoughts

Maxing out your 401(k) and IRA is one of the best tax-saving and wealth-building moves you can make. If you can’t max out now, start where you can and increase over time—it all adds up.

If you’re a numbers person, you can optimize this yourself. But if you’d rather get personalized tax planning while watching the Lakers instead of crunching numbers, I can help—https://www.glavinicfs.com/bookandrew.