Should I Max Out My 401(k)?

Every year, the same question lands in my inbox from smart, accomplished women who are trying to do right by their financial futures: "Leah, should I just max out my 401(k)?"

It sounds like such a simple yes-or-no question. And the internet will happily give you a confident, one-size-fits-all answer. But here is the truth: it depends, and the details of that dependency matter enormously.

In 2025, the IRS lets you contribute up to 3,500 to a 401(k) if you are under 50, and up to 1,000 if you are 50 or older (thanks to catch-up contributions). Maxing that out sounds virtuous. Responsible. Like the financial equivalent of eating your vegetables. But blindly maxing your 401(k) without considering your full financial picture can actually work against you.

First: What Is the Case FOR Maxing It Out?

Let us give credit where it is due. There are genuinely compelling reasons to contribute as much as possible to your 401(k):

• Tax-deferred growth. Every dollar you put in reduces your taxable income today, and your investments grow without being taxed along the way. That compounding effect over decades is real and powerful.
• Employer match. If your employer matches contributions (say, 50 cents on the dollar up to 6% of your salary), that is an immediate 50% return on your money. Not participating to the match is leaving compensation on the table.
• Automation and discipline. Contributions come out of your paycheck before you see them, making saving effortless. Behavioral finance research consistently shows that "set it and forget it" approaches outperform active management for most people.
• Protection from creditors. In many states, 401(k) assets are protected from creditors in bankruptcy. That is a benefit you do not get with a standard brokerage account.

Now: When Maxing Out Can Actually Hurt You

Here is where most generic financial advice falls short. Maxing your 401(k) is not always the right move, especially if any of the following apply to you.

You have high-interest debt

If you are carrying credit card debt at 20%+ interest, maxing your 401(k) while paying minimum balances is a losing strategy. The math is simple: you are unlikely to earn 20% annualized returns in your 401(k). Pay off high-interest debt first, then redirect that cash flow toward retirement savings.

You do not have an emergency fund

Locking money into a 401(k) when you have no liquid savings is risky. Withdrawing from a 401(k) before age 59½ triggers a 10% penalty plus income taxes. If a job loss, medical event, or major car repair forces you to raid your retirement savings, you will lose a substantial portion of what you put in. Aim for three to six months of expenses in a liquid, accessible account before maxing your retirement contributions.

Your plan has poor investment options or high fees

Not all 401(k) plans are created equal. Some plans, particularly those offered by smaller employers, are loaded with high-cost mutual funds, administrative fees, and limited investment choices. If your plan's expense ratios are consistently above 1%, it may make sense to contribute only enough to get the full employer match, then direct additional savings to a Roth IRA or brokerage account with better options.

You are expecting a major life event

Buying a home, navigating a divorce, supporting a child through college: these transitions require liquidity. Tying up every available dollar in a retirement account with withdrawal penalties can leave you cash-strapped at the worst possible moment. Intentional planning means looking at the full arc of your financial life, not just your retirement balance in isolation.

The Intentional Approach: A Smarter Order of Operations

Rather than asking "Should I max out my 401(k)?", I encourage my clients to think in terms of a priority sequence:

• Step 1: Contribute enough to capture your full employer match. This is almost always the right first move. It is part of your compensation.
• Step 2: Build a 3 to 6 month emergency fund in a high-yield savings account.
• Step 3: Pay off high-interest debt (anything above 7%).
• Step 4: Now consider maxing your 401(k), especially if you are in a high tax bracket and your plan has solid investment options.
• Step 5: If there is still room to save, a taxable brokerage account gives you flexibility that retirement accounts do not: no contribution limits, no withdrawal penalties, and access to your money when you need it.

Traditional vs. Roth 401(k): Does It Matter?

Many employers now offer a Roth 401(k) option alongside the traditional pre-tax version. Which one you choose matters, and it hinges largely on one question: Do you expect to be in a higher or lower tax bracket in retirement than you are today?

If you are early in your career or expect your income to grow significantly, a Roth 401(k) is often the better choice. You pay taxes now at a lower rate and enjoy tax-free withdrawals later. If you are in a peak earning year and maxing out is primarily about reducing your current tax bill, the traditional pre-tax option likely makes more sense.

The Real Question to Ask

The most important question is not "Should I max out my 401(k)?" It is: "What does my money need to do for me in the next 1, 5, and 20 years, and what strategy best supports all of those timelines?"

Your 401(k) is one powerful tool in your financial toolkit. But building intentional wealth means using every tool in the right order, at the right time, for your specific situation, not following a one-size-fits-all script.

Ready to Make Your 401(k) Work Harder for You?

At Intentional Wealth Partners, we specialize in helping women build wealth with clarity and confidence. Whether you are trying to optimize your current retirement strategy, recover financially from a major life transition, or finally understand what your money is actually doing, we are here to help.

Learn more about our Max Your 401(k) service, a focused, one-on-one engagement designed to help you optimize your retirement account strategy in a single session.