The Problems You May Cause If You Max Out Your 401(k)

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If you have a 401(k) through your employer, you have a good way to prepare for retirement. It is even better if your employer is giving you matching contributions. This fact alone can make investing in a 401(k) a worthwhile investment. Still, there are some things you need to think about before maxing out your 401k contributions every year.

The Positive Aspects of Having a 401(k)

• Its Convenience

Once you sign up for paycheck withdrawals and put them into your 401(k) account, you can forget about it. Every payday more will be contributed to your retirement account, and it grows even faster. It is not going to be much simpler than that.

• Its Potential

Another 401(k) benefit is that you can contribute much more than you could to an individual retirement account (IRA). An IRA lets you contribute only $6,000 annually if you are under 50, but $7,000 if you are 50 or older. This limit has been unchanged since 2019.

A 401(k), on the other hand, enables you to contribute up to $20,500 in 2022 to a single employer’s plan. You can put an equal amount into a separate 401(k) through non-elective contributions. The Internal Revenue Service (IRS) says that owners of these accounts benefit from the cost-of-living adjustments, two of which have occurred since 2019.