What to do if you can't max out your 401(k) contributions in 2023

One of the nice things about 401(k) plans is that they come with very generous annual contribution limits. This allows savers to sock away a nice amount of money for retirement and, at least in the case of a traditional 401(k), shield a lot of income from near-term taxes.

But maxing out a 401(k) is a pretty tall order. As of the third quarter of 2023, U.S. workers earned a median weekly wage of $1,118. That's roughly $58,000 a year for those working 52 weeks.

Meanwhile, right now, 401(k) plan contributions max out at $22,500 for workers under the age of 50 and $30,000 for those 50 and over. Next year, these limits will rise by $500, to $23,000 and $30,500, respectively.

For a 40-year-old worker earning $58,000 to be able to max out their 401(k) in 2024, they'd need to part with about 40% of their income. That's probably not doable. And even someone aged 40 earning $100,000 a year might struggle to part with almost a quarter of their pay.

As such, if you're thinking that maxing out a 401(k) isn't in the cards for you, don't sweat it — you're in good company. But in that case, there's a different goal you'll really want to aim for.

Try to snag your full employer match

Just because an employer offers a 401(k) plan doesn't mean it's obligated to match worker contributions. But many companies with a retirement plan do offer a match. And it's important to try to capitalize on that free money because, well, it's free money.

How many opportunities in life do you get to claim free money? Probably not too many.

The best way to approach 401(k) savings, if maxing out isn't in the cards, is to understand how your company's matching program works. Your employer may be willing to match a certain percentage of your salary or a certain dollar amount.

For example, your company might match 100% of your contributions of up to 3% of your salary. If you earn $58,000 a year, 3% of that is $1,740. In that case, you'd want to get that full $1,740 into your 401(k) so that your employer contributes that same amount.

Or your employer might decide on a random sum to match -- say, $2,500. In that case, your strategy is the same: Try to fund your 401(k) with $2,500 so you get another $2,500 coming your way.

Know what your company's vesting schedule looks like

It's important to do what you can to not give up money in your 401(k). But also, read up on your company's vesting policy so you don't end up forgoing matching dollars you're eligible for.

It may be that you're required to stay at your company for two full years to get your employer match — and if you leave prior to that, you'll get nothing. In that case, if you're a few months shy of reaching the two-year mark, it could make sense to stay on board a bit longer, rather than seek out a new job. This way, you'll make sure you get to walk away with the money your employer has contributed to your 401(k).

That said, many employers with a vesting schedule allow you to vest partially over time. So let's say your company has a three-year vesting schedule, and each year, you vest 33.33%. If after two years, you really want to seek out a new job opportunity, you wouldn't necessarily forfeit your entire match — you'd still get 66.66%.

All told, maxing out a 401(k) is a tall order for a lot of workers. If that's the boat you're in, a more realistic goal may be to contribute enough to collect the full employer match you're entitled to. That way, you can not only snag that free money, but also put it to work by investing it so that it grows into a larger sum over time.

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