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How to max out your 401(k) and IRA retirement contributions

When you contribute to a 401(k), 403(b), or IRA, you may be on a path to help secure your financial future. But could you save more? Making the most of your organization’s retirement plan now may help ensure your golden years are even more golden.

‘How much should I save for retirement?’

We get that question a lot.

“A good rule of thumb is to try to save 10–15% of your income toward retirement,” says Stanley Poorman, a financial professional with Principal®, “but that also depends on when you get started. That may be fine if you’re 25; if you’re starting at 50, you may need to save more to retire comfortably. There’s no one-size-fits-all answer.”

Another factor is whether you have a matching contribution from your employer, and if so, what percentage the company contributes. Poorman suggests deferring enough of your pay to get that match. (Hey, it’s like free money.)


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Get a snapshot of how much you may need to save with our Retirement Wellness Planner.


Could you increase your 401(k) contribution?

How often you can adjust your 401(k) or 403(b) contribution is generally determined by your employer and your retirement plan—it may be once a year or as often as you’d like.

If you’re able, reducing non-essentials or allocating new income (year-end bonus, anyone?) could allow you to bump up the amount you’re saving.

A 1% increase only makes a small difference in your paycheck—but may make a big difference down the road. Consider the example below for a $35,000 annual income:1

Additional contribution Reduction in bi-weekly take-home pay Estimated additional monthly retirement income Total employee contributions over 30 years
5% $50 $933 $90,340
3% $30 $560 $54,204
2% $20 $373 $36,136
1% $10 $187 $18,068

Imagine if you could increase it to 10% of your pay?


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Wondering how to save more toward retirement? Read: “4 little known secrets from retirement super savers.”


Good news about retirement contribution limits and income ranges

If you're already maxing out your retirement accounts, some news for you: The IRS increased the 2022 contribution limit for employer-sponsored plans, like 401(k)s, allowing you to put away more money for retirement.

Anyone enrolled in their employer’s retirement plan and still working can generally make a maximum contribution of $20,500 per year.2

And if you have a traditional or Roth IRA, your annual max contribution is still $6,000.



How to make catch-up contributions to your 401(k) or IRA (if you’re old enough)

How about this cool perk once you’ve hit the big 5-0:

You can contribute an additional $6,500 to your 401(k) or 403(b) plan once you’ve reached the annual maximum, but only if you’re 50 or older and it’s an option in the plan.3 And since these contributions are typically pre-tax, they’ll lower your current taxable income even more. You can make catch-up contributions to an IRA, too (that limit is $1,000).

Next steps:

This example is for illustrative purposes only. It assumes $35,000 in annual income, 3.5% annual wage growth, 30 years to retirement, 7% annual rate of return and a 25% tax bracket. Estimated monthly retirement income calculations assume a 4.5% annual withdrawal in retirement. The assumed rate of return is hypothetical and does not guarantee any future returns nor represent the return of any particular investment option. Reduced take-home pay is accurate for the initial year and would change based on participant’s annual pay. Estimated savings amounts shown do not reflect the impact of taxes on pre-tax distributions. Individual taxpayer circumstances may vary.

2 Contributions are limited to the lesser of the annual plan or the IRS limit as indexed annually.

3 Some plans may not allow catch-up contributions to the plan.

This document is intended to be educational in nature and is not intended to be taken as a recommendation.

Investing involves risk, including possible loss of principal.

Asset allocation and diversification does not ensure a profit or protect against a loss. Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed-income investments are subject to interest rate risk; as interest rates rise their value will decline.

Investment and insurance products are:

  • Not insured by the Federal Deposit Insurance Corporation (FDIC) or any federal government agency, 
  • Not a deposit, obligation of, or guaranteed by any bank or banking affiliate 
  • May lose value, including possible loss of the principal amount invested.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Investment advisory products offered through Principal Advised Services, LLC. Principal Life, Principal Securities, and Principal Advised Services are members of the Principal Financial Group®, Des Moines, Iowa 50392.

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