Should You Increase Your 401(k) Contributions in 2024?

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Putting more money into a 401(k) can be a smart move, but it’s not necessarily the right choice for everyone. Find out how to decide. 

If your company offers a 401(k), making contributions to it could help you have a more secure retirement. You get a tax break when you put money into a 401(k), so if you’re in the 22% tax bracket, you could save up to $220 on your taxes for every $1,000 you contribute. It’s also pretty easy to sign up since you just have to fill out some paperwork with your employer to have contributions taken from your paychecks, and then pick from the pool of investments on offer.

Since a 401(k) is a great way to invest in your future, you may be wondering if you should increase your contributions in 2024. Surprisingly, the answer isn’t always yes. Here’s what you need to know to decide if investing more in a 401(k) would be a smart move for your personal finances.

Are you maxing out your employer match?

The first question you need to ask yourself when deciding whether you should increase your 401(k) contributions is whether you’re getting the full company match. If you aren’t, you’re passing up money your company provides to help you save for your future.

Each company sets its own rules for 401(k) matching contributions, with some companies matching 100% of contributions up to a certain percentage of salary and others matching 50% up to a set percentage. The average 401(k) match is 4.8%, but with the typical plan, employers contribute about 4% (the average is driven up by some companies offering very generous plans).

If your company matches 100% of your contributions up to 4% of your salary and you make $50,000, your company would give you up to $2,000, but you would have to contribute $2,000 to get it. If your company matches 50% of your contributions up to 4% of your salary, you’d have to contribute $4,000 to get it.

You can talk with HR or your plan administrator about how much you are entitled to for your 401(k) match. If you are not contributing enough to get it, you should increase your 401(k) contributions. There’s no reason to leave free money on the table.

What other retirement investment options are available?

If you are already contributing enough to your account to earn your full employer match, then the question of whether to increase your 401(k) contributions or not becomes a little more complicated.

First, you’ll need to know if contributing more is an option, as there is an annual contribution limit. You can contribute up to $23,000 in 2024, and can make an additional $7,500 catch-up contribution if you are age 50 or over. Your employer match doesn’t count in these limits — this is the amount you can personally put into your account. Most people aren’t hitting these limits, so you probably have room to increase your contribution if you want to.

That doesn’t always mean you should, though. If you’re already earning your employer match, you should explore the other options available to you such as putting money into a traditional or Roth IRA with a brokerage firm.

A traditional IRA offers the same tax benefits as a 401(k) — you can deduct contributions. But you may have access to more investment options in an IRA. A Roth IRA also offers many investment options, but different tax breaks. You won’t get that upfront deduction, but can take money out tax-free. If you think your tax rate may be higher as a retiree, putting some money into a Roth may be a good idea.

If you want more flexible investment options or the chance to put money into a Roth, then it may make sense to contribute only enough to get your full match, then put the extra money you have into an IRA rather than increasing 401(k) contributions. After maxing out your IRA (you can contribute up to $7,000 or $8,000 if you’re 50 or over in 2024), if you still have money left over, then putting more into your 401(k) might make sense.

By considering all of your investment options — and looking at your employer match — you can make an informed choice about whether to raise your 401(k) contributions in 2024.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. This card features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More