In theory, the government wants everyone to save up as much as possible for retirement so that citizens don't end up starving when they're no longer able to work. But in practice there is a limit of how much you can contribute to your pension fund (401k/Roth), which discourages people from saving up as much as possible.

What's the rationale behind this? Why not let people contribute more than $19k/year to their 401k?

  • 3
    Keep in mind, you can contribute more. One can do a Roth or back door Roth (when above thresholds), and for those north of 50, they can do catch up contributions. No matter, one can simply direct towards a taxable account once those other options are exhausted. Less than 10% of the population contribute the max to their 401K.
    – Pete B.
    Commented May 7, 2019 at 10:38
  • 1
    The classic "contribute more" option is a whole life insurance policy, which people basically use as a savings account since it's not taxed. Weird stuff I'll admit...
    – rogerdpack
    Commented May 7, 2019 at 16:40
  • 2
    @rogerdpack: "contribute the max" makes sense in the scenario of saving up for house purchase; many 401Ks allow the person to borrow up to 50% of balance to buy a house (tax-efficiently, at a low interest rate) , so long as they remain an employee.
    – smci
    Commented May 8, 2019 at 4:08
  • 4
    Is $19K a year not enough to avoid starvation? Commented May 8, 2019 at 8:38
  • 4
    A better question is, "Why are IRAs limited to only $6,000 (plus $1,000 for catch-up)?"
    – RonJohn
    Commented May 8, 2019 at 18:28

4 Answers 4


What's the rationale behind this? Why not let people contribute more than $19k/year to their 401k?

Retirement accounts are tax-advantaged, removing the caps would benefit the wealthier end of the spectrum and decreases tax revenue. The caps keep the retirement account benefits in line with other progressive tax policies.

  • 4
    The limit for self-employed is actually much higher, $56k per year. fidelity.com/learning-center/personal-finance/retirement/… Commented May 7, 2019 at 0:21
  • 10
    @DavidMcSpadden True, and for employees the $19k limit isn't actually the max contribution, just the max employee pre-tax contribution.
    – Hart CO
    Commented May 7, 2019 at 0:34
  • @HartCO: Roth contributions are subject to the $19k limit (shared with pre-tax) as well.
    – Ben Voigt
    Commented May 7, 2019 at 5:40
  • 7
    @HartCO your comment is worth integrating in your post.
    – Cœur
    Commented May 7, 2019 at 6:11
  • Comments are not for extended discussion; this conversation has been moved to chat. Commented May 8, 2019 at 17:44

When the 401k was originally made in 1978, the tax-deferred route was the only one possible, so money would remain invested and untaxed until it is withdrawn. There was a concern that this would provide a misincentive for people to hide their high salary income from the progressive income tax regulation. At its core, this incentive delays the taxing and ongoing exchange of that money until it's removed from the market. While this provides economic investment to the economy, it does not provide economic growth or the taxable exchange of goods.

The government does not want its citizens to save as much as possible. It wants them to save just enough to not be displaced by economic hardship, and to spend everything else.

In theory, the government needs money to operate, and a portion of that money should come from the exchange of monetary goods/services (to maintain faith in the currency). While one concern of the government might be that citizens do not prepare their finances for an uncertain economic future, the government as a whole is likely more concerned with having too many economic misincentives that would hinder the funding and expansion of government services.


In addition to the tax benefits that retirement accounts receive (favoring people with high incomes if there was no cap), what exists currently is dictated by current policy of policymakers. So your question about the "government wants" is determined by who is the current policymaker.

In theory, the government wants everyone to save up as much as possible for retirement so that citizens don't end up starving when they're no longer able to work.

For instance, if we had MMT policymakers, spending equals income (a government that prints its own currency can't run out of money), so savings wouldn't necessarily be favored over directly injecting money for people without money. And if people "ran out" of money, they could create more and give it to people since spending equals income and no money printed would be lost.

In fact, if MMT is passed, retirement accounts may be changed by future policymakers because are these necessary in this environment?

  • 1
    This is the real reason. There's no reason that the cap couldn't be indexed (in reverse) to income - for example, below 3X poverty line: no limit, above $500,000 annual, zero contribution allowed. Commented May 7, 2019 at 14:24
  • 8
    @CarlWitthoft: Mathematically, you can do whatever you like. But I'm missing the intent of your proposal. It seems to heavily penalize people who have a variable income. In the years where they could afford to fund their 401K, you would forbid it, but you'd allow it.when they don't actually have the money.
    – MSalters
    Commented May 7, 2019 at 15:37

I'm not sure that this actually has much to do with progressivity, as the other answers imply. The fact that 401(k)s are tax-advantaged encourages savings (good) but also decreases tax revenue (bad, from the government's perspective). The latter effect would be bad (for the government's ability to spend) even if policymakers ignored both normative distributional goals and the factual progressivity of the existing tax code. The government probably just caps the contribution in order to balance these two effects and encourage savings while still maintaining sufficient revenue.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .