I'm 23 right now, and I'm currently contributing about 6% of my salary to a 401(k) with an employer that matches 20% of my contribution up to 6%. Based on various calculators, continuing at this rate will probably give me something like $2-3 million by the time I'm 65 (depending on rate of return, annual increase, etc.)

I'm considering just biting the bullet and trying to max out my 401k for the rest of my working days - it will reduce my monthly cash flow, obviously, but once I get "used" to that, then I'll never worry about it again. The fun part is that when I look at $16,500/year for the next 40-45 years, I end up with a cool $6-10 million (ahh to be young...). One calculator indicated I'd be able to pull out around 8-9% of the total per year in retirement (so ~200k in the first case, ~500k in the second case)

So two-part question:

1.) Has anyone tried switching from a fixed percentage to maxing out their 401k? Was it difficult to adjust to the reduced cash flow? Do you wish that you had kept the extra cash to enjoy along the way, or are you happy that your retirement funds are growing much faster? Considering that I'm planning on my future earnings being much higher than they are now, is it worth enjoying some of my money now, or is it just THAT critical to stash away as much money as possible now?

2.) Considering my age, potential size of my retirement accounts, and hypothesizing about the future, would it be wise to consider Roth investments? Things to consider - contribution phase-outs for salary, contribution caps, tax rates going up, etc.


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    Keep in mind that in 40 years, $2-3 million probably won't be quite the mountain of wealth it appears to be today thanks to inflation, cost of living, currency devaluation, etc. Consider that 40 years ago you could buy a (nice) house for $50k, a movie ticket was probably $2, and gasoline was 50 cents a gallon. It's good to have that figure as a goal, but don't rest on your laurels once you reach it.
    – dthorpe
    Commented Jan 3, 2011 at 20:17
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    There's a lot of advice in this question to go with the Roth IRA. I just want to add as something to think about. Roth IRAs are still relatively new and have no impact on government collections so there is no talk yet. This won't be true in 20, 30 or 40 years when a sizeable portion of retirees have Roth IRA accounts. Who really believes that the government is still going to honor their commitment of no taxes on pulling that money out? I don't believe it for a second. So by going the Roth route, you may be sacrificing more, gaining less value and it all becomes moot. IOW, Roth IRAs are risky.
    – Dunk
    Commented Feb 11, 2013 at 17:22
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    @Dunk, that's a good point to think about. I can think of a couple times where governments have broken their promises. At the same time though, it's important to consider that part of the reason Roth retirement accounts were created was to raise more tax revenue in the near term, instead of deferring it for 20/30/40 years. It's hard to imagine the outcry that would result from said "sizeable portion" of retirees in 40 years if the government did try to double-tax Roth accounts. Political suicide if you ask me. Don't expect to get reelected after double-taxing your constituents.
    – awshepard
    Commented Feb 11, 2013 at 23:32
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    @awshepard - but it won't be sold as a tax on Roth accounts. The politicians will say they are just taxing the rich. Those people have hundreds of thousands (or more) in their bank accounts. They could afford to pay more of their "fair" share instead of being so greedy. Or they'll find some other loophole, such as, you don't have to pay taxes on the Roth withdrawals, but it counts as part of your income, so any other income will be taxed at a higher rate.
    – Dunk
    Commented Feb 19, 2013 at 16:11
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    Quick observation: Many of the answers assume that "Roth" means IRA. Some 401(k) plans also give the option of traditional or Roth (mine does, though the company match always goes in as traditional). So don't just say "Roth", say "Roth IRA" or "Roth 401(k)" or both or whatever.
    – keshlam
    Commented Dec 11, 2014 at 0:07

10 Answers 10


The biggest challenge as a young person maxing out a 401k in my opinion is the challenge of saving for a house, and (if necessary) paying off student loans.

You have to consider - are you OK renting for the next 3, 5, 10 years? Or do you eventually want to buy a place? how much will that cost vs your current expenses?

That being said, I didn't max out but had over 8-10% of 401k contribution in the same situation you're in right now and I don't regret it.

Rereading your question, I see you are considering investing in a Roth IRA. Especially at your current age, assuming your wages will go UP, investing to the company match with the 401K and then maxing out a Roth IRA would be my recommendation. THEN continue maxing out the 401k (if you wish).

P.S. I highly recommend doing two things if you go down this path:

  1. Research asset allocation and determine the proper plan (wish I had known more, I did well but possibly could have done better) - see the answers to this question
  2. Start tracking your rate of return over time thru dollar cost averaging now. See my post here.
  • 3
    +1 for the advice on company match + Roth then maxing out.
    – justkt
    Commented Aug 27, 2010 at 14:09
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    +1 for the Roth. Two piles of money with the same goal be getting there in slightly different ways is a good feeling for me.
    – MrChrister
    Commented Aug 27, 2010 at 16:02
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    @MrChristler - Agreed. An additional benefit of the Roth is that you get to choose where the money goes (which institution). 401k's can be quite restrictive depending on the luck of the draw. (Choose one of these 10 mutual funds, good luck finding one without high fees).
    – CrimsonX
    Commented Aug 27, 2010 at 16:19
  • As far as the home purchase goes, Roth IRAs also consider a withdraw taken for a first-time home purchase as a qualified distribution (after the account has been open for 5 years), and therefore is income tax and penalty free.
    – Andrew
    Commented Jan 2, 2011 at 23:54
  • @Andrew - You are correct. Its a good "flexible" option for being able to take money away from your retirement for the big downpayment needed for a house. I think its a good tool to have in the toolbox, but overall I chose not to do this when I recently bought a house because there are limits to how much $ to put in a Roth IRA per year - if I take $10k out now, I can only put in $5k per year even if I want to put in more.
    – CrimsonX
    Commented Jan 3, 2011 at 1:09
  1. Make sure that by year end, you've maxed what your company matches in your 401k (It's an instant 100% return, albeit an illiquid one PLUS tax savings.)
  2. Pay off your credit cards.
  3. Pay off any non-subsidized loans.
  4. Max a Roth IRA out (or a traditional if you're not Roth-eligible).
  5. Max out your 401k

You want to take the hit now. There are tons of calculators out there, but the rule of 70 should be enough to help convince you:

Assume you can put an extra $10k in a 401k now, or keep it. If you pay ~30% in taxes, you can have either:

A) $7k now, or: B) What $10K will grow to in your 40 years till retirement less taxes at the end.

The rule of 70 is a quick, dirty way to calculate compounded returns. It says that if you divide 70 by your assumed return, you get the approximate number of years it will take to double your money.

So let's say you assume a 5% rate of return (you can replace that with whatever you want): 1) 70/5 is 14, so you'll double your $10k every 14 years. 2) In 40 years, you'll double your money almost 3 times (2.86) 3) That means you'll end up with almost $80k before taxes 4) Even if we assume the same tax rate at retirement of 30% (odds are decent it's lower, since you'll have less income, presumably), you still have $56k.

Whatever you think inflation will be, $56k later is a LOT better than $7k now.


I moved from contributing 10% to maxing as my salary rose over the course of three years after graduation. Because of my raises, my monthly take home still increased, so it was a pretty painless way to increase my 401(k) contribution and also avoid lifestyle inflation.

That said, I would not do it if you have any credit card debt, school loans, or an auto loan. Pay that off first. Then work on maxing the 401(k). Personally I rate owning a home behind that, but that's partially because I'm in an area where the rent ratios are barely on the side of buying, so I don't find buying to be a pressing matter.

One thing to investigate is if your company offers a Roth 401(k) option. It's a nice option where you can go Roth without worrying about income limits. My personal experience does not include a Roth IRA because when I still qualified for one I didn't know much about them, and now that I know about them I have the happy issue of not qualifying.


On #1: One way to make it less painful is to "split" your raises between yourself and your 401k. That is, if you get a 2% raise, increase your contribution to the 401K by 1% and keep the other 1%. Keep doing this until you are maxed out. You won't miss money you never had nearly as much as money you were used to living on.

On #2: Yes, go with the Roth.

Another consideration: If you are ever going to max out your 401K it is best to do it early even if you have to cut back later than to wait. Take advantage of the extra investment time while you are young.


I second CrimsonX's advice to max out Roth then 401k. At your age in what sounds like a similar situation I did the same thing -- thankfully. It's easier to do when you're young and unencumbered. 10 years later with kids, house, changing from double to single income, job changes, etc, it's harder to max out retirement accounts. Not to mention that priorities change, e.g. saving for college.

  • But, if as you suggest, there's a potential drop in income, especially from dual to single, why not save pretax at first and convert to Roth in the lower income years to come? Commented Feb 9, 2011 at 4:01
  • @JoeTaxpayer: seems like it could be a reasonable strategy. The Roth conversion will require cash though, right? If you're planning for lower cash flow at some future point, you'd have to plan for savings to be able to afford the conversion.
    – bstpierre
    Commented Feb 9, 2011 at 15:52
  • Agreed. So as you make the pre-tax deposits, escrow (in your own savings) the tax saved on that money. In lower income year, that fund will more than pay for conversion. There's an irony, I agree, with my advice to "convert in a low income year" as you need to use valuable cash when you can least afford to. Commented Feb 9, 2011 at 19:09

Everybody else has given great answers on what to do, but I just want to add some encouragement.

Keep saving. Learn to live within your means while saving, and things like houses and cars and new electronics will come. You can always wait a year and save money up for that new TV, but when retirement hits you are out of time. (I sure wish I had).

Keep that retirement money out of sight and (mostly) out of mind.

Great job saving and keep up the good work.


To answer the first part of your question: yes, I've done that! I did even a bit more. I once had a job that I wasn't sure I'd keep and the economy wasn't great either. In case my next employer wouldn't let me contribute to a 401(k) from day one, and because I didn't want to underfund my retirement and be stuck with a higher tax bill - I "front-loaded" my 401(k) contributions to be maxed out before the end of the year. (The contribution limits were lower than $16,500/year back then :-))

As for the reduced cash flow - you need of course a "buffer" account containing several months worth of living expenses to afford maxing out or "front-loading" 401(k) contributions. You should be paying your bills out of such buffer account and not out of each paycheck. As for the reduced cash flow - I think large-scale 401(k)/IRA contributions can crowd out other long-term saving priorities such as saving for a house down payment and the trade-off between them is a real concern. (If they're crowding out basic and discretionary consumer expenses, that's a totally different kind of problem, which you don't seem to have, which is great :-))

So about the trade-off between large-scale 401(k) contributions and saving for the down payment. I'd say maxing out 401(k) can foster the savings culture that will eventually pay its dividends. If, after several years of maxing out your 401(k) you decide that saving for the house is the top priority, you'll see money flow to the money-market account marked for the down payment at a substantial monthly rate, thanks to that savings culture.

As for the increasing future earnings - no. Most people I've known for a long time, if they saved 20% when they made $20K/year, they continued to save 20% or more when they later made $100K/year. People who spent the entire paycheck while making $50K/year, always say, if only I got a raise to $60K/year, I'd save a few thousand. But they eventually graduate to $100K/year and still spend the entire paycheck. It's all about your savings culture.

On the second part of your question - yes, Roth is a great tool, especially if you believe that the future tax rates will be higher (to fix the long-term budget deficits). So, contributing to 401(k) to maximize the match, then max out Roth, as others suggested, is a great advice. After you've done that, see what else you can do: more 401(k), saving for the house, etc.


The answers so far are excellent. I need to respond to your 8-9% withdrawal rate. Uh, wherever you heard that, I'd suggest you listen/read elsewhere. 4% seems to be the "safe" withdrawal rate. I've seen people who were convinced that 7-10% were ok get absolutely trashed in the downturns, both 2000 and 2008. Proper asset allocation and low withdrawal rate will help avoid disaster. I wrote an article about the assumptions we make, looking at 1980-2000 and extrapolating from there. Not pretty. In 2000, I remarked that the near 20%/yr couldn't continue. Understatement of my life. I expected a return to normalcy, maybe 8-10%/yr, and got zero.


Don't forget to also build up an emergency fund - retirement saving is important, but you don't want to be caught in a situation where you need money for an emergency (lose your job, get hit by a bus, etc.) and it's all locked away in your 401(k).


Yes, I have done this and did not feel a change in cash flow - but I didn't do it a the age of 23. I did it at a time when it was comfortable to do so. I should have done it sooner and I strongly encourage you to do so.

Another consideration: Is your companies program a good one? if it is not among the best at providing good funds with low fees then you should consider only putting 6% into your employer account to get the match. Above that dollar amount start your own Roth IRA at the brokerage of your choice and invest the rest there. The fee difference can be considerable amounting to theoretically much higher returns over a long time period.

If you choose to do the max , You would not want to max out before the end of the year. Calculate your deferral very carefully to make sure you at least put in 6% deferral on every paycheck to the end of the year. Otherwise you may miss out on your company match.

It is wise to consider a ROTH but it is extremely tough to know if it will be good for you or not. It all depends on what kind of taxes (payroll, VAT, etc) you pay now and what you will pay in the future. On the other hand the potential for tax-free capital accumulation is very nice so it seems you should trend toward Roth.

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