Why You Should Still Max Out Your 401(k) First

High-net-worth investors often have no shortage of opportunities to grow wealth. Between index funds, mutual funds, private equity, and alternative strategies, it’s easy to view a traditional retirement plan like a 401(k) as too basic—or too limiting.  

But here’s the truth: even with access to more complex strategies, a 401(k) plan remains one of the most efficient and tax-advantaged ways to build a long-term nest egg. From tax benefits and employer match perks to high contribution limits, this account still deserves to sit at the top of your retirement planning hierarchy.  

Here’s why you should still max out your 401(k) contributions first—and what to do next once you’ve hit the limit. 

1. Take Advantage of Powerful Tax Benefits

A 401(k) is one of the few savings plans that offers meaningful tax advantages while helping you build wealth for the future.  

With a traditional 401(k), contributions are made on a pre-tax basis, reducing your taxable income for the year. For 2025, the IRS allows up to $23,000 in contributions, plus a catch-up contribution of $7,500 if you’re 50 or older—and a special catch-up of $11,250 for ages 60–63.  

That’s a potential $34,250 in annual savings capacity, all before your employer’s contributions even factor in.  

Your money then grows tax-deferred, compounding without capital gains or income tax until you make withdrawals in retirement—often when you’re in a lower tax bracket.  

Prefer to pay taxes now instead of later? A Roth 401(k) lets you contribute after-tax dollars and withdraw funds tax-free in retirement. Many investors choose to diversify by holding both pre-tax and Roth accounts to maintain flexibility around required minimum distributions (RMDs) and future tax-rate management. 

2. Capture the Employer Match (It’s Free Money)

If your employer offers a 401(k) match, that’s free money—and it’s too valuable to pass up.  

An employer match might look like a 50% contribution on the first 6% of your salary. If you don’t contribute at least that much, you’re leaving guaranteed returns behind. These employer’s contributions grow on a tax-deferred basis, just like your own, compounding your 401(k) balance over time.  

Paired with your disciplined savings, this creates a strong foundation for long-term, tax-advantaged growth.  

In the vast majority of cases, our advice will be to always contribute enough to capture the full match. It’s one of the easiest, most efficient ways to grow your wealth.  

3. Benefit from Higher Contribution Limits

A 401(k) allows far higher contributions than a Roth IRA or traditional IRA, making it a key advantage for high earners.  

• 401(k) contribution limit (2025): $23,000  

• Catch-up contribution (age 50+): $7,500  

• IRA contribution limit (2025): $7,500 ($8,500 if 50+)  

For investors with significant income, maxing out these higher limits is an excellent way to accelerate retirement savings while reducing taxable income. Once you’ve filled your 401(k) bucket, that’s when it makes sense to look beyond—to taxable brokerage accounts, Roth IRAs, or other long-term investments.  

Bottom line: Start here. Then expand strategically.  

4. Access Strong Investment Options for Long-Term Growth

Most 401(k) providers offer a broad mix of investment choices, including index funds, mutual funds, and target-date funds that simplify diversification.  

Earnings compound inside the account without capital gains taxes, and your allocation can be customized to your financial goals, retirement age, and appetite for risk. While some plans have limited investment options or high fees, many now offer institutionally priced mutual funds and low-cost index funds, which provide strong rate of return potential over the long term.  

Even with limited options, the tax-deferred compounding inside a 401(k) can rival or outperform many taxable accounts—especially when coordinated with your overall wealth management plan.  

5. Enjoy Flexibility in Retirement

Once you reach retirement age, you’ll have several choices for how to access your funds. 

Remember: RMDs begin at age 73 for traditional accounts, and early withdrawal penalties apply before age 59½ (with exceptions for hardship withdrawals).  

A Roth 401(k) offers more flexibility—qualified withdrawals are tax-free, and you won’t face RMDs once the funds are rolled into a Roth IRA.  

When integrated thoughtfully with your Roth accounts, IRAs, and even your emergency fund, your 401(k) becomes a powerful lever for managing both your cash flow and your tax bracket in retirement.  

After You Max Out Your 401(k): What Comes Next  

Once you’ve taken full advantage of your 401(k)—including the match, the catch-up contribution, and the tax benefits—it’s time to think about what’s next.  

Here’s how to prioritize your next layer of savings:  

1. Build an emergency fund: Keep 3–6 months of expenses in a high-yield savings account or money market fund.  
2. Fund your IRA or Roth IRA: Diversify your tax-advantaged mix with tax-free growth potential. 
3. Invest in a taxable brokerage account: Once your retirement accounts are maxed, allocate excess cash toward long-term investments for flexibility and potential capital gains management.  
4. Work with a financial advisor: Coordinate withdrawals, RMDs, and investment allocation across all accounts to minimize income tax and optimize your lifetime rate of return.  

A 401(k) may be the foundation, but it’s just one piece of your broader financial goals and personal finance strategy. Once the above are in place is a great time to investigate alternative investments, real estate, or other opportunities. Unfortunately, those get rich quick stories can lure folks before they have a solid foundation built, exposing them to a lot of unnecessary risk in saving for retirement.  

The Bottom Line  

Even for high-net-worth investors with access to more sophisticated strategies, maxing out your 401(k) should remain a top priority. It offers unmatched tax benefits, consistent employer match potential, and meaningful contribution limits that can accelerate your long-term retirement savings.  

Once that’s in place, your other assets—taxable accounts, Roth IRAs, and alternative investments—can work even harder for you as part of a coordinated wealth management plan. 

Ready to Take the Next Step?  

Building a meaningful retirement strategy is about more than just maximizing your 401(k) balance. It’s about aligning all your retirement accounts, investments, and tax strategies into one cohesive plan.  

Our Guide to Retirement Planning is a great next step to learn how to make the most of your 401(k)—and what to do once you’ve maxed it out.