How to Max Out Retirement Savings

UPDATED: April 6, 2022

Standard advice says you should be saving 15-20% of your income towards retirement. But with so many retirement investment options available, including employer sponsored-plans, like 401(k) and 457, medical investment vehicles like HSAs, and individual retirement accounts (IRAs), it seems like it would take a lot more than 15-20% of your income to max them out. Which begs the question, how much do you need to retire and should you max out all retirement savings options?

Eligibility for Retirement Plans

Before we jump into discussing the contribution limits and how much it takes to max out retirement accounts, it’s crucial to establish who is eligible for each type of account and what they’re used for. Eligibility generally comes down to a few key elements: employment status, taxable income, and health plan selection.

401(k)

Employers may offer retirement plans like a 401(k), 457, or 403(b) to employees in their organization who meet specific criteria, like working full-time. These plans do not enforce income limits but may have stipulations for contributions made by highly-compensated employees.  Often, contributions are made pre-tax, enabling employees to maximize savings with higher limits.

HSA

The Health Savings Account (HSA) is a flexible retirement vehicle with few limitations and loads of benefits. HSA contributions are available to anyone participating in a high-deductible health insurance plan, regardless of salary. You can also deduct 100% of contributions at any income level. On the back end, HSA money remains tax-free if used for qualifying medical expenses.

Traditional IRA

Anyone with taxable income can open a traditional IRA, which is funded with pre-tax money. The most considerable benefit of this type of account is that contributions are tax-deductible. But contributions may only be deducted if the modified adjusted gross income (MAGI) is below a specific limit.

Status	2021 Income for full deduction	2021 Income for partial deduction	2021 Income for no deduction
Single	≤$66,000	$66,000-$76,000	≥$76,000
Married, Filing Jointly	≤$105,000	$105,000-$125,000	≥$125,000

Roth IRA

Unlike the traditional IRA, the Roth option has income limits on eligibility to contribute.  High earners who exceed the limits may not set aside funds in this investment vehicle which benefits investors with tax-free growth and withdrawals later in life.

Status	2021 Income for full contribution	2021 Income for partial contribution	2021 Income for no contribution
Single	≤$125,000	$125,000-$140,000	≥$140,000
Married, Filing Jointly	≤$198,000	$198,000-$208,000	≥$208,000

Retirement Account Contribution Limits

The IRS imposes a set of contribution limits for each of the various retirement account options.  As shown above, these limits may be subject to change based on income level.

Account Type	2021 Contribution Limit
401(k), 457, 403(b)	$19,500
IRA	$6,000
HSA	$3600 (individual) $7,200 (family)

With 401(k) plans that also have an employer match, there are overarching contribution limits that take into account both employee and employer.  The limit for 2021 is the lesser of:

• 100% of employee compensation
• $58,000 ($64,500 including catch-up contributions)

Catch-up Contributions

While each retirement plan has contribution limits, those over the age of 50 (or 55 in the case of the HSA) get some extra help.  Catch-up provisions help those who are closer to retirement sock away more tax-advantaged savings.

The catch-up contributions for the major retirement accounts are as follows.

Account Type	Catch-up Contribution	Total Contribution Limit	Age Requirement
401(k), 457, 403(b)	$6,500	$26,000	50 or over
IRA	$1000	$7,000	50 or over
HSA	$1,000	$4,600 (individual) $8,200 (family)	55 or over

If you’re of a qualifying age, catch-up contributions can have an immense impact on your ability to retire timely.

Order of Operations for Maxing out Retirement Savings

It may seem like a great idea to throw all of your excess money into retirement savings vehicles. And if you have a high enough salary to do so without being strapped for cash day-to-day, that’s great. Do it. But for those who aren’t making six-figure salaries, where do you draw the line?

Here is a logical progression of retirement investments to get you started.

1. Always get your employer match.  If your company matches contributions on a 401(k) plan, be sure you always contribute enough to get the entire match. Failure to do so is like leaving money on the table.
2. Max out an HSA if your plan is eligible.  Money invested in an HSA is tax-free for withdrawals when used for qualifying medical expenses. And not just while you’re making contributions but for the rest of your life.
3. Contribute to a Roth IRA. The after-tax money you invest into a Roth IRA grows tax-free with no penalties on withdrawals as long as you wait until age 59 ½. With a contribution limit of $6,000, this is a no-brainer for those who want to sock away extra money that ends up being a bit more flexible than an employer account.
4. Double back to the employer-sponsored plan.  If you’ve gotten the match, maxed out an HSA and a Roth, putting more money in a workplace plan like a 401(k) is never a wrong move. These tax-free contributions benefit from extremely high contribution limits, which mean just a few years of maxing out a 401(k) can have a significant impact on your overall retirement savings.

The Bottom Line

An employee under the age of 50 looking to max out a 401(k), HSA, and traditional IRA would need to be able to put $29,100 away each year. Someone over 55 and looking to do the same would need $37,600. Assuming a salary of $100,000, this would be a savings rate of 30% or 37%, which is no small feat.

Look closely at your current financial picture before committing to maxing out retirement accounts. And be sure to have an emergency fund in place to make sure you don’t need to draw down from retirement vehicles in case of an unanticipated expense.