Hack Your Way to Maxing Out Your 401k

The first year of contributing 10% to my 401k, I had a whopping $2500.

Of course, back then I made $22k per year and was working my way through college, paying my own way through work reimbursements and my earnings. I had been reading books like The Richest Man in Babylon and The Wealthy Barber, and had learned that saving 10% of your income was the key to wealth. But I couldn’t stop looking at my sorry little 401k balance and feeling sad. How on earth was $2500 going to make me wealthy? And how could I ever even think of maxing out my 401k? Back then the maximum limit was slightly over $10,000, and it just climbed every year.

Today I contribute the federal max to my 401k. That sorry little 401k has hundreds of thousands of dollars in it, despite the fact that I left that employer back in 2011, rolled over the 401k into a Vanguard IRA, and haven’t contributed a dime more.  Many people I work with, who make more than I do, “can’t” even contribute the 6% of salary they need to get the full match.

So if you’re in this situation, just starting out, how can you set out on the path to maxing your 401k? I have a simple, yet powerful, solution.

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Start Where You Are – And Start Now

Did you not ever contribute to your 401k? Are you in your 40’s and just starting to think about retirement? Or maybe you’re in your 20’s and don’t see how you can possibly put anything away, what with your student loans and rent payment. There’s no sense in beating yourself up over the past. You can’t go back in time and contribute more to your 401k, so forget about it. It’s over and done with. Just start now-today-with something.

Remember, money contributed to a 401k comes out pretax, so it won’t “cost” you as much as it may seem at first. A $100 per month contribution may only cost you $75 after the tax break.

Think about it this way-if your boss sat you down today and said “I can either give you a 5% paycut, or you can lose your job”, what would you pick? Note – if you’re already Financially Independent (FI), you might pick losing your job, but stay with me here. Likely you would take the paycut. After all, it’s only 5%. Sure, things might be tight for a bit, but you’d figure out how to get by. Maybe you’d put off that new car purchase, cut down on lunches at work, or take a less fancy vacation this year. And really, when you think about it, getting your pay cut by 5% would reduce your income and social security taxes. So you’d only feel a cut of about 3% in your paycheck. It wouldn’t be too bad, right?

So sign up today for 5% to come out of your paycheck and go into your 401k. Don’t have a 401k at work, or you have a terrible one with no match? No problem.  Open up an IRA and have 5% of your net pay automatically drafted out. You can open a Fidelity IRA with no minimum. Or if you prefer Vanguard, open an IRA and invest in a Target Date retirement fund for $1,000.

Don’t have the thousand dollars to open an account yet? Don’t let that stop you. Open a savings account with a company like Capitol One 360 (bonus-if you open an account you get $25 to help you toward your goal, and I get a bonus too!), and have the 5% automatically drafted every paycheck. They can take money every week, every two weeks, or every month-whatever you need. I’ve been with them since 2004 back when it was ING Direct, and only have good things to say about my experience.  Continue the automatic draft until you have the thousand dollars, then open the Vanguard account.

It’s amazing – just like you don’t really notice that 5% raise, you won’t really notice the 5% (or 3% after tax) decrease.

Already contribute to a 401k, or do you want to start a different account like a ROTH in addition to the 401k?  You can use this same exact hack to get that started. Pretend your boss has given you a 5% pay decrease so you can keep your job, and take that money to increase your 401k contribution or start a ROTH IRA with one of the companies above.

“But CMO, I can’t do 5%! I’m living paycheck to paycheck, every dime is accounted for, we have nothing extra!”. If this is the case, then try doing 1% for a few months. It’s a penny out of every dollar-I’m sure you can do that. The important thing here is to start, wherever you are. And you know what? If you use my savings account strategy, then the money didn’t go anywhere yet. If you really need that penny you can get it out again. But I bet you won’t even notice it’s gone.

Use Half Your Raises

Did you get a paltry 2% raise this year?  Does it seem like these tiny raises just get absorbed into your lifestyle, and amount to almost nothing extra in your paycheck? Time to celebrate, because that means you can put an extra 1% into your 401k or IRA and still get a pay increase.

After all, if you had gotten no increase because the company wasn’t doing well, you’d manage on your old paycheck. Using this technique will let you put away half of any raises toward your goal of maxing out your 401k. And you’ll still get a raise-just not as much of one as you “really” got.

You can power up this hack by using your entire raise, instead of half of it, toward your 401k. So if you got a 2% raise, you increase your contribution by 2%, and live off your old pay for another year. Since you never saw that raise in your paycheck, you won’t miss it, and it won’t feel like you got a paycut.

Do It Every Year

After one, two, even three years of this hack it may not seem like it’s doing much. After all, your account might still only have a few thousand dollars in it. But over many years you’ll suddenly see the difference. You’ll log onto your 401k account and see a five figure balance, and eventually, a six figure one. And you won’t have felt deprived or like you needed to live on beans and rice along the way.

Don’t Tell Me – Show Me

We’ll take Susan, who currently makes $40k per year and is 25 years old. She has nothing put away for retirement yet and thinks putting aside $18k per year is absurd. After all, that’s almost half her paycheck! With all her bills, student loans, and so on it seems impossible.

This year she did a phenomenal job at work. She gets a 5% raise and decides to finally start this retirement thing. She’ll just take that 5% and put it in the 401k, living off the $40k like she did last year.We’ll assume she’ll make 8% on her 401k every year, and she’s in the 25% tax bracket.


Year Salary Contribution Salary After Contribution & Tax Savings 401k Balance at Year End
1 $42,000 $,2000 $40,500 $2,160

So at the end of Year One she’s feeling a bit like I did at the end of my first year of 401k contributions – a bit down. Contributing all year and she only has $2160!

From this point forward, she’s getting 4% raises every year and decides to use half her raise to bump up that 401k. Again, she’s making 8% on her money. Where will she be at 43?


Year Salary Contribution Salary After Contribution & Tax Savings 401k Balance at Year End
1 $42,000 $2,000 $40,500 $2,160
2 $43,680 $3,057 $41,386 $5,635
3 $45,427 $4,088 $42,360 $10,501
4 $47,244 $5,196 $43,346 $16,954
5 $49,134 $6,387 $44,343 $25,208
6 $51,099 $7,664 $45,350 $35,503
7 $53,143 $9,034 $46,367 $48,101
8 $55,269 $10,501 $47,393 $63,290
9 $57,479 $12,070 $48,426 $81,390
10 $59,779 $13,749 $49,467 $102,750
11 $62,170 $15,542 $50,513 $127,756
12 $64,657 $17,457 $51,564 $156,830
13 $67,243 $19,500 $52,617 $190,437


So at age 38, she’s contributing almost $20k into her 401k, has increased her take-home pay substantially, and has a balance of almost $200k. She decides to stop there and use all her future raises to increase her take-home pay. With $190k at age 38, contributing $19,500 every year, what would she have at age 58? $1.7 million. Check out the numbers using this calculator here.

If she decided to bank all 4% for a short time she could supercharge this process:

Year Salary Contribution Salary After Contribution & Tax Savings 401k Balance at Year End
1 $42,000 $2,000 $40,500 $2,160
2 $43,680 $3,931 $40,731 $6,578
3 $45,427 $5,905 $40,998 $13,482
4 $47,244 $8,031 $41,220 $23,235
5 $49,134 $10,318 $41,395 $36,237
6 $51,099 $12,774 $41,518 $52,933
7 $53,143 $15,411 $41,584 $73,812
8 $55,269 $18,238 $41,590 $99,415

At 33 she would have gone from nothing in the bank and being unable to save a dime for retirement, all the way up to maxing it out and having almost $100k set aside. Having supercharged her 401k earlier than before, her balance 25 years later at age 58 would be $1.99 million! That’s the power of hacking your raises to up your 401k

How Did You Do It?

Did you already go from zero to 401k hero? How did you do it? Let me know in the comments!

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33 thoughts on “Hack Your Way to Maxing Out Your 401k”

  1. Great post today. I’m impressed that you found a way to contribute to your 401k during your college job! One of my 401k regrets is that I didn’t think I could afford to contribute while I was in school. 😕

    The good news is I figured it out soon enough. Started contributing 10% in my first “real” (post education) job. Last year was my first year maxing out my 401k and it has made a huge difference.

    Increasing your contributions with every raise is a great idea, may seem like a small step at the time, but pays huge dividends (no pun intended) down the road!

    1. Well, my “college job” was a 40 hour per week full time day job, so I was mostly working with people 20+ years my age-I think that influenced me. Plus I had read all about the importance of starting investing early, so I made sure to contribute something. I figured that I couldn’t afford not to contribute, since I had some understanding of how compound interest worked. Definitely a lesson to give to younger folks just staring in the work force!

    2. I remember contributing to mine, but when I left the job, it automatically got cashed out because I didn’t have enough in it. Instead of taking that money and reinvesting it, I was young and dumb and just spent it on living expenses. To be fair, I only had that job for about 8 months though.

  2. This is a nice post. I think its important to just start, whether that means putting in 10% or 1%. I always liked the strategy of adding 1% per year (whenever I received a salary adjustment ) to my 401k. That way, my paychecks still got a little bigger and so did my retirement account.


  3. DadsDollarsDebts

    Get it done is right! I delayed contributing into my 401K until 3 years out of school. I regret it but like you say, don’t look back just forward.

    You may want to take a look at your excel sheets, the numbers are overlapping on my Safari Web Browser.

    Thanks for the post. Get that free match money!

    1. Yeah, they were overlapping for me as well in Chrome.

      Hindsight is always 20/20 isn’t it? There’s always opportunity cost involved. I remember people thinking I was crazy for paying off all my debt (other than my mortgage) before starting to invest. But, I’m happy that I waited because it made the transition much easier and my margin is much better if things go south in the future! Love having options over risk!

      1. Hm I’ll definitely check the formatting later. Thanks for the heads up! Paying off all debt before investing does come with opportunity cost, but is much lower risk and is a guaranteed rate of return. Investing, while more profitable in the long run, is higher risk and not guaranteed. Plus you’ve freed up cash flow by paying off debts. So in my opinion, it’s still a great decision, even if it’s not financially optimal.

  4. Hey starting at 10% isn’t too bad! When I started my first job, I contributed up to the match and I thought I was a rock star…and that was only 5% Ahh if only I knew then what I knew now. I consistently raised my contribution with raises…you don’t see the money, you don’t miss it. It’s a great way to prevent lifestyle inflation. However after reading some FIRE blogs, I just ramped it up and maxed it out. I didn’t miss the money. The great thing about the 401k is that your contribution doesn’t affect your take home pay as much as you think because it’s tax deferred.

    1. Exactly-you think it’s going to be a bigger cut than it is, thanks to the tax savings. And I have many coworkers who are single in their 20’s contributing the amount to get the match (6%) who think they’re doing great, and can’t afford to go any higher. I could tell them that it doesn’t get easier as you get older-better to just bite the bullet now while you have flexibility!

  5. I didn’t start until I was in my 40s. I started with the 5% needed to get the company’s 8% match. Eventually I began upping it until finally, the last few years, I totally maxed out (putting in the extra $6K for being over 50). You have to start even if it’s small. Your spending will adjust to what you take off the top if you do it automatically. Great post!

    1. Thanks for the compliment on the post! I firmly believe it’s never too late to start. Since you can’t go back in time, no sense in dwelling on how nice it would have been to start in your 20s. Just do exactly what you did-start somewhere, and keep upping it over time.

  6. We’ve seen our numbers grow consistently, but we waited to start contributing until after we were out of debt and had a nice emergency fund built up. Now that we’ve learned to live on what we make, we’ve started to find things to cut and use that to contribute more to our retirement. We are now close to 10% of our gross income per year right now. We love seeing the numbers grow and are always reassessing what we are spending money on and whether it’s worth working longer for or if we want to start contributing it to retirement as well!

    These strategies are great and conservative too! I could see us at least putting half of my wife’s raises towards this until we get to our 15% mark, then we will start saving for kid’s college and then paying down the house faster!

    It’s amazing watching the numbers build, but it doesn’t happen overnight and it does take some time to get the ball rolling! But you just have to get started and then you won’t even think about it!

  7. ReachingTheCrest

    great post. For me i started with 10%, which became 12%, then 15%, and now i just place in the specific amount to max it out. Been maxing it out for almost a decade. it happened slowly over time as my income steadily increased. When you increase your contribution the same percentage as a pay raise you actually realize the entire raise. that was always a motivator to me.

      1. ReachingTheCrest

        that was just my own mental thought. Its hard in the beginning when you might not be earning a lot. At one point i got a big promotion at work which came with an 8% raise. I paid it all into my retirement account.

  8. The best advice I ever received was when a co-worker told me that everytime I got a raise that I should increase my 401k contribution. I did that and in seven years I was able to max out my 401k. So worth it today especially when I think back to how little I was saving 🙂

    1. That’s awesome that it only took seven years for you! It took me quite a bit longer-had some ups and downs-but I always contributed a significant amount. Eventually, I got there, and it was a big achievement for me. It had been a goal for a long time & felt good to finally achieve it.

      1. I’m sure the way you laid out the math will be helpful to someone who isn’t sure about how to get started and keep the momentum going. If you want to retire (retire early even better) maxing out your 401k is a must so figuring out how to get there the quickest way possible is ideal.

  9. Great post CMO – I’m getting the company match for now because I’m paying down debt and funding my Roth IRA – it’s a good balance for now because I don’t know how much longer I’ll be with my current company 🙂

    Thanks for sharing – Erik

    1. Good thing is you’ll be able to roll over your contributions into an IRA, where you’ll have plenty of freedom. Definitely need to have a balance in your overall strategy, especially when you have debt to pay down

  10. Willow @ Miter Saws and Mary Janes

    When I was employed by someone else, I always maxed out my accounts once I was free of my credit card debt. Even though I don’t contribute to those accounts now, I’m thankful they are in place. The magic of compounding keeps those accounts growing, even without contributions! 🙂

  11. I roll each 401k into my Vanguard Rollover IRA when a job ends. That account has the impressive balance. My 401k looks pretty good for being here < 2 years. I am putting in more than needed for the company match.
    I looked at my expenses vs income, vs savings and saw some wiggle room, so I increased the 401K by 1% . I'm not maxing it out yet…reasons why not : dental bill was $400, plus I pay car insurance in March. Having a good amount in savings let's me cover known (insurance every 6 mo) & unknown (likely dentist bills, costs totally not something I can guess well).
    I also have a HSA with work, which reduces my taxes. I contribute to a Roth (Vanguard ) as well. I am doing 3% to my employee purchase plan, and keep debating stopping that and increasing 401k by 3 % instead…
    Which is one thing to consider…if you get a 2% raise, even if you put 1-2% in your 401k any other % based paycheck withdrawal items will be on the salary. My estimate is the espp would change by $2. For others this might be a more significant amount.
    There is a yoga quote: "We begin where we are…and whatever happens, happens." The key with 401k is to begin. The market will happen – up and down, and I let it happen. 🙂

    1. Sounds like you’re doing an awesome job with the savings! I also have my old 401k rolled over into a Vanguard IRA-it’s nice to have it consolidated there and growing over time.

  12. My wife and I each maxed out our 401k the day after we read Automatic Millionaire in our late 20s. Money got a little tight the year we had kids, so we pulled back. And then I saw my tax bill! For people with high incomes, the tax savings can’t be overstated. So we’re back maxing and will do so for the next 15 years. Even if we do nothing else and have no investment gains, that will amount to $720K (including company match). I understand the 401k is not perfect but if you have one, it can work.

    1. So agree! I have a friend at work who is in the second to highest tax bracket, but he was convinced by a financial guru on CNBC to not max his 401k because it was supposedly a bad deal. So he did a backdoor ROTH instead! I showed him why that was a bad idea and he fortunately saw the light.

  13. TEACHER investor

    The 401k (or 403b in my case) is the core to my investing strategy. Me and cold hard cash don’t have the best relationship. If I have it; I tend to spend it. So automating and paying the 403b first has always been good financial psychology for me. Also, doing it early has served us well . . . with pre-tax investments now in the 7 digits.

    Also, I really like what I do . . . so part of my investing strategy in the 403b is also guided by the notion that I may not retire all that early . . . so access to more fluid taxable investments isn’t all that important to my situation.

    Great article! Thanks for sharing.

    1. Automation is a really powerful tool for building wealth-it helps save you from yourself by taking the decision on whether and how to invest out of your hands. Pretax savings at seven figures, great work!

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