Key Takeaways
- On November 13, 2025, the IRS announced increases to the contribution limits for 401(k) and IRA accounts.
- Only 14% of participants contributed the annual maximum in Vanguard-run defined contribution retirement plans such as 401(k)s in 2024.
- High-income earners are more likely to max out their 401(k)s, but even if you have a modest income you can reach this goal.
- The power of compounding returns means you have a strong incentive to save as much as possible, as soon as possible.
The reality of the U.S. retirement system, which is that you are largely responsible for your own retirement security outside of Social Security, is that most workers chronically under save. Just over one-third of non-retirees said they thought their retirement savings plan was on track in 2023, according to a Federal Reserve survey.
Still, many workers are diligently saving and investing for retirement. Among participants with defined contribution (DC) plans with Vanguard as the recordkeeper, an estimated 14% contributed the annual maximum for employee elective deferrals in 2024. Defined contribution plans include 401(k)s and 403(b)s.
The annual maximum, which does not include contributions your employer makes, is $23,500 but if you’re over 49, it’s $31,000, and it can be as much as $34,750 for older workers based on changes resulting from the SECURE 2.0 Act.
While saving less than the maximum doesn’t mean you’re necessarily falling short on retirement planning, meeting this goal could help you achieve a more secure retirement, especially if you have limited years to save within a DC plan.
“Ultimately, how much someone should contribute depends on their unique financial situation and retirement goals, but in general, if your only source of retirement savings is your retirement plan, you should aim to max it out if you can,” said Meg K. Wheeler, CPA, financial educator and founder of The Equitable Money Project.
Why You Should Aim for the Max
As you would expect, higher earners can typically more easily contribute the maximum amount to their retirement savings plans. For example, 49% of plan participants in the Vanguard study who made more than $150,000 annually hit the max, versus just 2% of those earning $75,000 to $99,999.
Still, even if you have a modest income, you can strive to max out your 401(k) account contributions to take advantage of benefits such as matching employer funds or compound interest. The sooner you can put money away, the more time you have to let compounding work its magic.
Suppose you’re 25 and save around the max for the next five years until age 30. For simplicity’s sake, let’s say the account has a $100,000 value at that point. If you never put in another dollar and let the account grow at an average return of 10%, you’d have over $2.8 million by age 65.
In comparison, suppose you just started saving for retirement at age 30 and don’t reach $100,000 in your 401(k) until age 40. Even if you then continued to invest $1,000 every month until age 65, you’d end up more than half a million dollars less.
Tip
Making some sacrifices to maximize contributions early in your career can pay off significantly down the road. It’s hard to make up for lost time later.
Also, you never know what will happen in your career. Maybe you’ll go work at a startup that doesn’t offer a retirement plan, for instance. In that case, you might wish you’d put more into your 401(k). That is especially true considering contribution limits are much higher in DC plans than in many other types of accounts. For example, individual retirement accounts (IRAs) have an annual contribution limit of $7,000 in 2025.
Moreover, reaching for the max can help if you’ve been neglecting your retirement savings and need to catch up.
“The reality is that most people have not saved enough for retirement, and for Americans, with the uncertainty of the availability of Social Security funds in the future, saving as much as possible for retirement is not a bad place to start,” Wheeler said.
How to Increase Your Retirement Contributions
Saving tens of thousands of dollars per year isn’t easy. That’s clear to see from the minority of DC plan participants who max out their accounts. However, there are ways to at least get closer to this goal on a more modest income.
- Be intentional about your cash flow: “Expenses have a way of creeping up, so building strong habits around budgeting and regularly reviewing your spending can make a big difference,” said Amanda DeCesar CFP and co-founder of Tara Wealth. “Small adjustments—redirecting a raise, bonus, or even trimming recurring expenses—add up over time,” she said.”
- Make the most of your employer-sponsored plan: Many employers match your contributions up to a certain limit, so try to at least meet that limit. You can also enroll in automatic contributions to help you remain on track with steady savings. That has the advantage of taking some of the emotion out of retirement planning.
Be realistic about what works for your situation. “The key is balance,” DeCesar said. Consider other financial goals like establishing an emergency fund, or having a mix of traditional and Roth retirement accounts. “A well-rounded approach to saving can provide both tax efficiency and financial flexibility, now and in retirement,” she said.
