a person stacking coins on top of a table by Towfiqu barbhuiya courtesy of Unsplash.

Maximizing Your 401K in 2024!

Korey Knepper |
Categories
Education
Retirement

The Employer Sponsored Retirement Plan is the biggest creator of millionaires in the United States. How to maximize the 401K can be tricky. Most people will contribute whatever their company will match, which makes sense because that is “free money”. Most people don’t know that you can contribute up to $69,000 to your 401K in 2024. Let’s break down what to do past the basics, because most plans have much more capabilities than just the company match.

The match most likely comes from the Traditional side of the 401K. In 2024 the max that you can contribute to this is $23,000, $500 more than last year. The catchup contribution is the same as 2023 with $7500. This means if you are over 50, you can contribute $30,500 to your traditional account, and receive tax deferred growth on that $30,500.

Roth 401Ks are typically the tax preference for most Americans, pay the taxes now, so we can see the tax-free growth. The other positive we see is there is an income cap on Roth IRAs, but not one on Roth 401Ks. The contribution limits are the same as the traditional 401K, however, typically companies will not match the Roth 401K side (yes, there has been legislation to change this, but we still don’t have all the information on how it works).

So, if we max out our Roth, and Traditional, and we are under the age of 50, we have contributed $46,000 to his 401K. However, we mentioned earlier that the max to a 401K is $69,000, allowing $23,000 of After-Tax contributions. The After-Tax 401K is the key to maximizing your 401K by using the “mega-backdoor Roth”. How does that work? Well, we contribute the $23,000, and then it can be rolled out into a Roth IRA. This allows you to have an additional $23,000 of Roth contributions. Now, let’s say those contributions grow $2,000 over the year, that growth can be rolled into a Traditional IRA. These actions have a lot riding on them, not every company offers it, and it should only be an option after the first two were maxed out. This plan is difficult to execute, but if done properly, will see your net worth skyrocket.