Ask a Fool: Should I "Max Out" My 401(k) Contributions in 2018?
Q: What does it mean to "max out" my 401(k) contributions, and is that what I should be trying to do if I want to have enough money at retirement?
To "max out" your 401(k) means to contribute as much as you're legally allowed. For 2018, the contribution limit is $18,500 for elective deferrals. This is just the money you're choosing to put in -- it doesn't include employer matching contributions, allocations of forfeitures, or any mandatory contributions.
To be clear, this is a lot of money, and you may not need to contribute this much to meet your retirement goals.
For example, if you were to contribute 2018's maximum to your 401(k) for 30 years and earned 7% returns on your investments, you'd end up with a nest egg of $1.75 million before considering the effects of any matching contributions. Do you really need this much? Maybe, but maybe not.
If you feel that you've fallen behind on retirement saving -- say, you're 40 and have no savings at all -- trying to max out your 401(k) contributions could be the right strategy for you.
On the other hand, most people would do just fine by contributing 10% or so of their salary to your 401(k) or other retirement savings. This contribution rate is frequently recommended by experts, and when sustained over an entire career should produce sufficient retirement savings for most workers.
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