Maxing Out Your 401(k) Contributions

You have already captured your employer 401(k) match, paid down high-interest debt, built your emergency fund, and set up IRA contributions. Your MoneyOnFIRE plan now recommends the next lever: increasing your 401(k) contributions to the annual maximum. Every additional dollar you defer shelters income from taxes today and compounds inside a tax-advantaged wrapper for decades. For most people in the accumulation phase, this is the single largest tax-reduction tool available.

Calculating Your Contribution Percentage

Most 401(k) plans require you to set a percentage of gross pay rather than a flat dollar amount. Getting this number right ensures you hit the annual limit without over-contributing or falling short.

Recalculate this percentage at the start of each year and after every salary change. A raise without an adjustment means you will finish the year below the max. Conversely, a raise with a fixed percentage can push you over the limit and trigger excess-contribution corrections.

2026 Contribution Limits

Revisiting Your Investment Selection

You selected investments when you enrolled to capture your employer match. Now is a good time to confirm those choices still make sense, especially if any time has passed since your initial setup.

• Target-date fund check: If you chose a target-date fund, verify the target year still aligns with your planned retirement date. A fund set to 2060 when you are targeting FI in 2040 will hold a more aggressive allocation than you may want in the years approaching your transition.
• New options: Employers periodically update their plan menus. Check whether any lower-cost index funds have been added since you enrolled. A switch from a 0.40% fund to a 0.04% fund on a $200,000 balance saves roughly $720 per year in fees.
• Expense ratio benchmarks: Under 0.10% is excellent. Under 0.25% is reasonable. Above 0.50% warrants investigation — you may be paying for active management that is unlikely to outperform a simple index over your accumulation horizon.

Traditional vs. Roth 401(k)

Many employers offer both traditional (pre-tax) and Roth (after-tax) 401(k) options. They share the same contribution limits, but the tax treatment differs.

Many people split their contributions between the two. If you are planning early retirement, a common strategy is to maximize pre-tax contributions during high-income working years, then do Roth conversions during the low-income gap between early retirement and when you begin drawing Social Security or traditional retirement accounts. This can result in paying very little tax on the converted amounts.

Front-Loading Risk

Contributing aggressively early in the year — sometimes called front-loading — gets money into the market sooner, which is generally favorable. But it carries a specific risk if your employer calculates matching contributions on a per-paycheck basis.

Mega Backdoor Roth

Some 401(k) plans allow after-tax (non-Roth) contributions above the $24,500 employee deferral limit, up to the $70,000 combined employer-plus-employee cap for 2026. If your plan also permits in-service withdrawals or in-plan Roth conversions, you can convert those after-tax dollars into a Roth account — a strategy known as the mega backdoor Roth.

This is not available in every plan. Check your plan's summary plan description or ask HR whether after-tax contributions and in-service distributions are permitted. If they are, this can be one of the most effective ways to build a substantial Roth balance beyond the standard deferral limits.