FYI: Reaching the maximum limit for 401(k) contributions (which is $19,000 in 2019 and an additional $6,000 for those 50 and older) is not an easy feat, and only a fraction of investors actually accomplish it. Only 13% of participants maxed out their 401(k) in 2017 (when the limit was $18,000), according to a 2018 Vanguard report about its investors. What’s more, these investors had higher incomes, were older and had longer tenure at their employers. Comparatively, 9.1% of workers whose 401(k) plans are managed by Fidelity Investments reached the cap, up slightly from 9% at the end of 2017 and 8.1% at the end of 2013. Boomers were most likely to max out their 401(k) plans, followed by Generation X, and lastly millennials.
Regards,
Ted
https://www.marketwatch.com/story/maxing-out-a-401k-is-surprisingly-rare-but-may-be-easier-than-you-think-2019-03-05/print
Comments
BUT still not happy about all the tax have to pay extras from div bonds income - think 15% cap gain from all div incomes
my next goals maybe getting DEFINED BENEFITS once find out more info about these programs
Like Investor, we maxed out whatever was available to us.
When the median household income is around $60k, how can you expect a high % of people maxing out 401(k)s? $18k would be 30% going to retirement savings - just not going to happen.
Couple thoughts: The IRS allows a generous catch-up provision during a worker’s later years if they failed to max out in early years. I learned of it accidentally through an “overheard” conversation at work. It proved a great way to make up for my lackluster contributions earlier. Folks nearing retirement (age 50+) should look into it. Think it depends on your employer’s willingness to allow it. https://www.kiplinger.com/article/retirement/T047-C001-S001-the-rules-for-making-ira-401-k-catch-up-contributi.html
Second thought: It’s hard to tell exactly what % of one’s disposable income maxing out would take. Remember the tax deferral one receives when contributing at work. When I was working, a buck contributed was costing something like 75 cents out of pocket - give or take.
On the other hand, if you include all the other taxes we pay in addition to income tax (sales tax, car & boat licensing fees, property tax, phone tax, gas tax, tax on alcoholic beverages & tobacco, social security tax, etc) than your disposable income is really much lower than first appears. That would make maxing out a really onerous option for lower wage workers. Heck, it could easily take 30% or even 40% of their disposable income.
(In contrast, the "regular" contributions by highly compensated employees may be limited by law if they contribute way more than mere peons. This is to keep the plan fair. But the catch up amount is unconditional; employer cannot reduce it.)
FYI, here's a description of the nondiscrimination rules for high wage earners. It's complicated.
https://www.goodfinancialcents.com/401k-limits-for-highly-compensated-employees/
This of course does not take into account cost of living expenses of the locality. Some while $120k is a lot of money in some places, in some high cost cities it does not leave a lot of disposable income. This limit especially hits people working in smaller companies in these localities.
A married couple making 90k would probably find themselves in a similar situation where maxing a 401k may not be the best option even if the money could be spared.