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Maybe I am missing something but how can this advice work for 95% of people? Maxing out the 401k and IRA would take $25,000 a year [0]. The median personal inco

Maybe I am missing something but how can this advice work for 95% of people? Maxing out the 401k and IRA would take $25,000 a year [0]. The median personal income in the US is only about $30,000 a year [1]. [0] https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000 https://www.irs.gov/newsroom/401k-contribution-limit-increas... [1] https://en.m.wikipedia.org/wiki/Personal_income_in_the_United_States https://en.m.wikipedia.org/wiki/Personal_income_in_the_Unite...

ryandrake 8y ago
Just a nit pick: the maximum total employer plus employee contributions to all defined contribution plans by the same employer is $56,000 in 2019. This includes your maximum pre-tax contribution of $19,000. So the maximum you can contribute tax-advantaged (pre-tax 401k + after-tax 401k + $6,000 IRA) would be $62,000. Which, to your point, is beyond the savings reach of most folks. EDIT: IRS source [1] for Mr. Downvoter! 1: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits https://www.irs.gov/retirement-plans/plan-participant-employ...
war1025 8y ago
I believe the general meaning of "maxing out your 401k" is to take the maximum employer match. Could be wrong, but that is how I've always heard it used.
HarryHirsch 8y ago
It doesn't. Depending on where you look, 40 - 80 % of Americans live paycheck-to-paycheck. (The Guardian says it's 80 %: https://www.theguardian.com/commentisfree/2018/jul/29/us-economy-workers-paycheck-robert-reich https://www.theguardian.com/commentisfree/2018/jul/29/us-eco...) Matt Cutt is just talking because he doesn't know any better, tech is booming, and he became wealthy because he joined a very successful company early on.
joshka 8y ago
Usually the advice on this is max the employer match portion first. E.g. the fairly common 100% on the first 6%. At median income that would be $1800 for a 100% return on investment (after the vesting period). There are a bunch of things higher priority than maxing out the 401k for financial health. See https://www.reddit.com/r/personalfinance/wiki/commontopics#wiki_the_flowchart https://www.reddit.com/r/personalfinance/wiki/commontopics#w... for a good way of evaluating how to order these.

ryandrake 8y ago

Just a nit pick: the maximum total employer plus employee contributions to all defined contribution plans by the same employer is $56,000 in 2019. This includes your maximum pre-tax contribution of $19,000. So the maximum you can contribute tax-advantaged (pre-tax 401k + after-tax 401k + $6,000 IRA) would be $62,000. Which, to your point, is beyond the savings reach of most folks. EDIT: IRS source [1] for Mr. Downvoter! 1: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits https://www.irs.gov/retirement-plans/plan-participant-employ...

war1025 8y ago

I believe the general meaning of "maxing out your 401k" is to take the maximum employer match. Could be wrong, but that is how I've always heard it used.

HarryHirsch 8y ago

It doesn't. Depending on where you look, 40 - 80 % of Americans live paycheck-to-paycheck. (The Guardian says it's 80 %: https://www.theguardian.com/commentisfree/2018/jul/29/us-economy-workers-paycheck-robert-reich https://www.theguardian.com/commentisfree/2018/jul/29/us-eco...) Matt Cutt is just talking because he doesn't know any better, tech is booming, and he became wealthy because he joined a very successful company early on.

joshka 8y ago

Usually the advice on this is max the employer match portion first. E.g. the fairly common 100% on the first 6%. At median income that would be $1800 for a 100% return on investment (after the vesting period). There are a bunch of things higher priority than maxing out the 401k for financial health. See https://www.reddit.com/r/personalfinance/wiki/commontopics#wiki_the_flowchart https://www.reddit.com/r/personalfinance/wiki/commontopics#w... for a good way of evaluating how to order these.