Are you contributing to your workplace retirement plan and wondering, “Should I max out my 401k?” Does your employer match your contributions through employer contributions? Maximizing your 401k contributions can significantly impact your retirement savings and help you achieve your financial goals.

Understanding how to strategically contribute to your 401k plan can provide tax advantages and enhance your overall retirement savings. By being a savvy saver, you're taking advantage of “free money” from your employer’s match, which is a significant benefit in your personal finance journey. However, be careful about how much money you place into your retirement account each month. Overcontributing could affect your taxable income and cause you to inadvertently lose some of your employer’s contributions.

Once you max out your 401k – which means contributing up to the 2025 IRS annual contribution limit of $23,500, with an additional $7,000 catch-up contribution for those age 50 and older – you can’t contribute any more for that year. If you hit that maximum amount in September, you can’t make any additional 401k contributions to the plan in the final three months of the year. This could impact how much employer matching contributions you receive and affect your overall retirement savings.

And here’s the problem: Many employers match only if you contribute during each pay period. If you don’t put in money in October, neither will your employer, potentially causing you to miss out on additional retirement contributions that can grow over time. This is where having a strategic plan to max out your 401k is important. By calculating how much you should be contributing from your paycheck each month, along with your employer’s matching contributions, you can ensure you’re not hitting the limit too soon. This approach helps you avoid missing out on the employer’s matching funds, which is essentially extra money added to your retirement savings plan.

Some employers true-up their matches at the end of the year to protect workers in this situation, ensuring you receive the full employer contributions regardless of when you reach your contribution limit. But not all employers do this. So, it's important to check whether your employer offers the true-up feature. If it doesn’t, work with your HR department or a financial planner to help you spread your paycheck deductions throughout the year. This strategy helps you avoid missing any of your employer’s matching contributions and maximizes your retirement savings.

Also, if you were over-contributing previously, adjusting your contributions can add additional funds back into your paycheck. You can then apply these extra funds toward other investment options such as a traditional or Roth IRA, health savings account or even building up your emergency savings. Diversifying your investment and savings account types can help you meet various financial goals and enhance your overall financial planning.

Remember that financial planning consists of more than just retirement savings. Discuss your options with your financial planner to see if your current strategy aligns with your unique financial objectives. They can help you understand how saving the right amount in the right account can impact your tax situation, withdrawal strategy in retirement, and even help you meet your long- and short-term planning goals.