Are you looking to maximize your 401(k) contributions for 2024? While it’s a smart move to save enough to get your employer’s full match, not everyone should max out their plan account, according to financial advisors.
For 2024, employees can defer up to $23,000 into their 401(k) plans, with an additional $7,500 for those age 50 and older. While some plans allow for added savings beyond these limits, it’s important to consider a few key factors before ramping up your contributions.
According to a report from Vanguard, 14% of investors maxed out their 401(k) employee deferrals in 2023, and the average 401(k) savings rate that year was 11.7%. If you’re considering maxing out your 401(k) for 2024, here are three important things to think about first.
1. Prioritize High-Interest Debt
After securing your employer’s full 401(k) match, it’s crucial to focus on paying down high-interest debt like credit cards and auto loans. With the average credit card interest rate near 25%, prioritizing debt repayment can free up cash flow for higher 401(k) contributions in the future.
2. Plan for Short-Term Goals
Before maxing out your 401(k), consider whether you have other short-term financial goals, such as funding a wedding or buying a home. Remember, a 401(k) may not be the most efficient account for saving for pre-retirement goals, and tapping into it early can result in penalties and taxes.
3. Weigh Your Emergency Fund
Experts recommend having at least three to six months of expenses saved in cash or liquid assets for emergency savings. If your emergency fund is lacking, it may be wise to boost your cash reserves before maxing out your 401(k).
At Extreme Investor Network, we understand the importance of making strategic financial decisions that align with your unique circumstances and goals. By considering these factors before maxing out your 401(k), you can ensure that you’re making the most of your contributions while also addressing your other financial priorities. Stay tuned for more expert insights and tips on personal finance from Extreme Investor Network.