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I never personally liked the blanket advice to "Max your 401k." For most, if achievable at all, that would be the most they can invest at all. Even though it is

I never personally liked the blanket advice to "Max your 401k." For most, if achievable at all, that would be the most they can invest at all. Even though it is often recommended alongside a proper "emergency fund," that advice leaves little liquidity without major penalties.

jeffreyrogers 2mo ago
Roth contributions are withdrawable without penalty. Also most employers offer a match of some amount, which is essentially free money.
- sumeno 2mo ago
  Not Roth 401ks, only IRAs
  - jeffreyrogers 2mo ago
    Yes, although some plans let you roll contributions into an IRA.
- what 2mo ago
  Most people here are probably paid too much to contribute to a Roth IRA.
  - jeffreyrogers 2mo ago
    You can convert your 401k to an IRA when you leave an employer. Some employers also offer in service rollovers (I think these mostly have minimum age restrictions on them though)
    - what 2mo ago
      That’s a traditional IRA, not Roth.
      - seattle_spring 2mo ago
        Right but once your traditional IRA is fully rolled over to a 401k, you can take full advantage of backdoor Roth IRA contributions regardless of income.
      - loeg 2mo ago
        Traditional 401k balances transfer to traditional IRAs, and Roth 401k balances transfer to Roth IRAs.
  - ptmcc 2mo ago
    That's what the https://www.investopedia.com/terms/b/backdoor-roth-ira.asp https://www.investopedia.com/terms/b/backdoor-roth-ira.asp is for, assuming you don't have any existing traditional IRA balances
    - jeffreyrogers 2mo ago
      You can also roll your traditional IRA into an employers 401k (if the plan allows this) to zero out your traditional IRA balance.
  - pinkyboy 2mo ago
    I have considerable Roth assets because my employer's 401k allows for the Mega-backdoor, which means I can put $30k+ per year of after-tax income into 401k (beyond the normal pre-tax contributions) perform a Roth-in-plan-conversion on the after-tax assets, and then roll it out into a Roth IRA.
    - what 2mo ago
      You can’t personally contribute to a 401k beyond the limit, even after tax. Your employer can add extra via match or profit sharing contributions. What are you talking about?
      - pinkyboy 2mo ago
        For 2026, the 401k limits are $72,000 overall, and $24,500 for pre-tax employee contributions. Assume an employer who matches 50% up to pre-tax employee contribution max, the result is this: $24,500 pre-tax employee contribution $12,250 employer match This leaves $35,250 to the $72k limit. Roth MegaBackdoor enabled plans allow the employee to put $35,250 of _after tax_ contributions in to fill that window, and to convert them to Roth assets. They can even be rolled out into a Roth IRA while the 401k is still active. I have no clue why you think this relatively common plan option is, somehow, impossible.
  - ls612 2mo ago
    But you can do a backdoor Roth IRA by maxing out your 401k and then rolling it over into a Roth IRA with recharachterization. You lose the tax benefits of the 401k but gain the tax benefits of the Roth IRA which can be a good trade depending on your tax situation.
    - Kirby64 2mo ago
      No, this isn't how a backdoor Roth IRA works. Backdoor Roth IRAs involve making a traditional IRA contribution and not taking the deduction at tax filing time (because you can't), but then rolling over (not recharacterizing, that's something else) the traditional IRA contribution into a Roth IRA. It's completely tax free, assuming you have a $0 traditional IRA balance once the rollover is complete. The usual way to accomplish this is to roll all traditional deductible IRA balances into a traditional 401k first. What you're kind of thinking of, but also not quite right, is called a 'mega backdoor Roth', which involves contributing to a 401k via a non-deductible contribution (which is not part of 24.5k/yr limit), then immediately rolling it over into a Roth 401k. It has to be allowed by the plan, but some plans even offer to do the rollovers for you automatically. The Mega Backdoor basically lets you get an extra ~40k/yr of Roth contributions, if you can afford it.
- dripdry45 2mo ago
  The five-year clock is for the original contribution. It’s important not to get that mixed up.
  - deleted 2mo ago
    [deleted]
  - PopAlongKid 2mo ago
    There is no five year clock for withdrawing your own Roth contributions. Contributions (not earnings or conversions) can be withdrawn at any time with no tax or penalty.
- scrapcode 2mo ago
  I understand contributing at least the amount an employer will match, and almost always much more than that. But to "max" it would be $24,500/yr which for many if feasible at all would leave little go into different investment vehicles meaning all of your money is tied behind the rules of a 401k until you can access it, or take that 10% penalty. Maybe I'm missing something here but diversification is a pretty fundamental investment rule and I'm not sure why the advice doesn't usually follow it here. Putting everything into a "you can't touch this until you're ~55+" bucket seems like quite a risk.
throw0101a 2mo ago
> I never personally liked the blanket advice to "Max your 401k." I think the general advice is max out employer contributions to your 401(k) * https://old.reddit.com/r/personalfinance/wiki/commontopics https://old.reddit.com/r/personalfinance/wiki/commontopics * https://old.reddit.com/r/PersonalFinanceCanada/wiki/money-steps https://old.reddit.com/r/PersonalFinanceCanada/wiki/money-st...
- prasadjoglekar 2mo ago
  For enough income, maxing out 401K is the one way to reduce taxes and keep your money.
  - jjav 2mo ago
    When young and lower income (lower tax rate) the best deal is to max out Roth 401k and Roth IRA if you can. Then you'll have a lifetime of tax-free appreciation.
- Eji1700 2mo ago
  Yeah to be clear that's what I meant. Contributions beyond that depend on your situation, but if you can match your employer your should.
BeetleB 2mo ago
I believe the general idea is to max it if you can. If you can't, put whatever you can, and forego luxuries like vacations until you can.
- scrapcode 2mo ago
  Right, so you max your 401k instead of diversifying a portion into something more liquid, and when something happens before 55 you have to take a major bite out of it just to access that money?
  - Kirby64 2mo ago
    That would be what an emergency fund is for, in traditional financial literature. If you mean something more tragic, that's what insurance and other products are for. Even then, 401ks have exceptions for something like total disability that allows early withdrawals without penalty. If you just mean "I want my money early", well... there's lots of ways to access retirement account money early without penalty with some planning.
MattyRad 2mo ago
I actually had a great session with Gemini pushing back on the "Max 401k" advice. Summarized in my own words: - Why would I contribute tons more to my already decent 401k? If anything, I want to pull from it. I refuse to diminish the peak years of me and my family's life together just to be wealthy when I'm old and alone. - that's a good point, but know you'll pay tax on top of 10% - well I would have paid tax anyway if I just saved it, and 401k turned out to be more lucrative anyway. So the penalty is only 10% when tax is unavoidable timewise, paltry - true, but you yourself just mentioned how lucrative the 401k is over time. That money will not manifest over time if you pull it now - why would I even want to be rich when I'm old and boring anyway, life is happening for me right now - well that depends on what you consider old, you could retire early, use SEPP to access penalty free, say at 50 - I actually wasn't aware of that as an option... The difference between my age an 50 isn't that large, at least not compared to 55/60. Very good then, perhaps I'll keep things as they are. As is typical with AI, I can't attest to whether this is accurate, whether it's good advice, or whether I myself am financially illiterate (probably), but it did raise my confidence a bit, and legitimately talked me out of a hypothetical of using some 401k money to buy a better house.
- bluecalm 2mo ago
  The problem of money mattering more when you are younger is something that often appears in personal finance discussions. One thing is consumption but another are opportunities to invest in yourself. There is case for not saving at all when you are young (because there are always good way the money can be spent). Here is some good discussion that touches on it (and other FIRE related topics): https://youtu.be/qstjUV5mh-I https://youtu.be/qstjUV5mh-I
  - MattyRad 1mo ago
    That podcast was very timely and topical, thanks!
- noduerme 2mo ago
  You're missing the whole point of IRAs. You said: >> well I would have paid tax anyway if I just saved it The point is that as long as your money is in the IRA you can earn interest or buy stocks, sell for a profit, over and over and not pay any taxes on your gains in between. Imagine you have $100k in a normal trading account and $100k in an IRA. You make the same trades in both and both are up $20k at the end of the year. Let's say then you want to trade out and take profit. The normal account triggers taxes on $20k worth of capital gains, so maybe it now has $115k in it. The IRA doesn't, so it still has $120k in it. Go ten years like that. At the end when you withdraw from the IRA, yes you have to pay taxes on the total gains (if it's not a Roth) BUT you had the use of that extra $5k every year you didn't pay taxes on! The whole time, all that tax money you didn't pay compounds to let you make more money with it. That's the concept. You're allowed to keep using the money that you would've otherwise had to give to the government, to make more money along the way. The final 20% you pay when you cash out is less than how much you made by compounding the tax savings and plowing them back into investments.
deleted 2mo ago
[deleted]

jeffreyrogers 2mo ago

Roth contributions are withdrawable without penalty. Also most employers offer a match of some amount, which is essentially free money.

sumeno 2mo ago
Not Roth 401ks, only IRAs
- jeffreyrogers 2mo ago
  Yes, although some plans let you roll contributions into an IRA.
what 2mo ago
Most people here are probably paid too much to contribute to a Roth IRA.
- jeffreyrogers 2mo ago
  You can convert your 401k to an IRA when you leave an employer. Some employers also offer in service rollovers (I think these mostly have minimum age restrictions on them though)
  - what 2mo ago
    That’s a traditional IRA, not Roth.
    - seattle_spring 2mo ago
      Right but once your traditional IRA is fully rolled over to a 401k, you can take full advantage of backdoor Roth IRA contributions regardless of income.
    - loeg 2mo ago
      Traditional 401k balances transfer to traditional IRAs, and Roth 401k balances transfer to Roth IRAs.
- ptmcc 2mo ago
  That's what the https://www.investopedia.com/terms/b/backdoor-roth-ira.asp https://www.investopedia.com/terms/b/backdoor-roth-ira.asp is for, assuming you don't have any existing traditional IRA balances
  - jeffreyrogers 2mo ago
    You can also roll your traditional IRA into an employers 401k (if the plan allows this) to zero out your traditional IRA balance.
- pinkyboy 2mo ago
  I have considerable Roth assets because my employer's 401k allows for the Mega-backdoor, which means I can put $30k+ per year of after-tax income into 401k (beyond the normal pre-tax contributions) perform a Roth-in-plan-conversion on the after-tax assets, and then roll it out into a Roth IRA.
  - what 2mo ago
    You can’t personally contribute to a 401k beyond the limit, even after tax. Your employer can add extra via match or profit sharing contributions. What are you talking about?
    - pinkyboy 2mo ago
      For 2026, the 401k limits are $72,000 overall, and $24,500 for pre-tax employee contributions. Assume an employer who matches 50% up to pre-tax employee contribution max, the result is this: $24,500 pre-tax employee contribution $12,250 employer match This leaves $35,250 to the $72k limit. Roth MegaBackdoor enabled plans allow the employee to put $35,250 of _after tax_ contributions in to fill that window, and to convert them to Roth assets. They can even be rolled out into a Roth IRA while the 401k is still active. I have no clue why you think this relatively common plan option is, somehow, impossible.
- ls612 2mo ago
  But you can do a backdoor Roth IRA by maxing out your 401k and then rolling it over into a Roth IRA with recharachterization. You lose the tax benefits of the 401k but gain the tax benefits of the Roth IRA which can be a good trade depending on your tax situation.
  - Kirby64 2mo ago
    No, this isn't how a backdoor Roth IRA works. Backdoor Roth IRAs involve making a traditional IRA contribution and not taking the deduction at tax filing time (because you can't), but then rolling over (not recharacterizing, that's something else) the traditional IRA contribution into a Roth IRA. It's completely tax free, assuming you have a $0 traditional IRA balance once the rollover is complete. The usual way to accomplish this is to roll all traditional deductible IRA balances into a traditional 401k first. What you're kind of thinking of, but also not quite right, is called a 'mega backdoor Roth', which involves contributing to a 401k via a non-deductible contribution (which is not part of 24.5k/yr limit), then immediately rolling it over into a Roth 401k. It has to be allowed by the plan, but some plans even offer to do the rollovers for you automatically. The Mega Backdoor basically lets you get an extra ~40k/yr of Roth contributions, if you can afford it.
dripdry45 2mo ago
The five-year clock is for the original contribution. It’s important not to get that mixed up.
- deleted 2mo ago
  [deleted]
- PopAlongKid 2mo ago
  There is no five year clock for withdrawing your own Roth contributions. Contributions (not earnings or conversions) can be withdrawn at any time with no tax or penalty.
scrapcode 2mo ago
I understand contributing at least the amount an employer will match, and almost always much more than that. But to "max" it would be $24,500/yr which for many if feasible at all would leave little go into different investment vehicles meaning all of your money is tied behind the rules of a 401k until you can access it, or take that 10% penalty. Maybe I'm missing something here but diversification is a pretty fundamental investment rule and I'm not sure why the advice doesn't usually follow it here. Putting everything into a "you can't touch this until you're ~55+" bucket seems like quite a risk.

throw0101a 2mo ago

> I never personally liked the blanket advice to "Max your 401k." I think the general advice is max out employer contributions to your 401(k) * https://old.reddit.com/r/personalfinance/wiki/commontopics https://old.reddit.com/r/personalfinance/wiki/commontopics * https://old.reddit.com/r/PersonalFinanceCanada/wiki/money-steps https://old.reddit.com/r/PersonalFinanceCanada/wiki/money-st...

prasadjoglekar 2mo ago
For enough income, maxing out 401K is the one way to reduce taxes and keep your money.
- jjav 2mo ago
  When young and lower income (lower tax rate) the best deal is to max out Roth 401k and Roth IRA if you can. Then you'll have a lifetime of tax-free appreciation.
Eji1700 2mo ago
Yeah to be clear that's what I meant. Contributions beyond that depend on your situation, but if you can match your employer your should.

BeetleB 2mo ago

I believe the general idea is to max it if you can. If you can't, put whatever you can, and forego luxuries like vacations until you can.

scrapcode 2mo ago
Right, so you max your 401k instead of diversifying a portion into something more liquid, and when something happens before 55 you have to take a major bite out of it just to access that money?
- Kirby64 2mo ago
  That would be what an emergency fund is for, in traditional financial literature. If you mean something more tragic, that's what insurance and other products are for. Even then, 401ks have exceptions for something like total disability that allows early withdrawals without penalty. If you just mean "I want my money early", well... there's lots of ways to access retirement account money early without penalty with some planning.

MattyRad 2mo ago

I actually had a great session with Gemini pushing back on the "Max 401k" advice. Summarized in my own words: - Why would I contribute tons more to my already decent 401k? If anything, I want to pull from it. I refuse to diminish the peak years of me and my family's life together just to be wealthy when I'm old and alone. - that's a good point, but know you'll pay tax on top of 10% - well I would have paid tax anyway if I just saved it, and 401k turned out to be more lucrative anyway. So the penalty is only 10% when tax is unavoidable timewise, paltry - true, but you yourself just mentioned how lucrative the 401k is over time. That money will not manifest over time if you pull it now - why would I even want to be rich when I'm old and boring anyway, life is happening for me right now - well that depends on what you consider old, you could retire early, use SEPP to access penalty free, say at 50 - I actually wasn't aware of that as an option... The difference between my age an 50 isn't that large, at least not compared to 55/60. Very good then, perhaps I'll keep things as they are. As is typical with AI, I can't attest to whether this is accurate, whether it's good advice, or whether I myself am financially illiterate (probably), but it did raise my confidence a bit, and legitimately talked me out of a hypothetical of using some 401k money to buy a better house.

bluecalm 2mo ago
The problem of money mattering more when you are younger is something that often appears in personal finance discussions. One thing is consumption but another are opportunities to invest in yourself. There is case for not saving at all when you are young (because there are always good way the money can be spent). Here is some good discussion that touches on it (and other FIRE related topics): https://youtu.be/qstjUV5mh-I https://youtu.be/qstjUV5mh-I
- MattyRad 1mo ago
  That podcast was very timely and topical, thanks!
noduerme 2mo ago
You're missing the whole point of IRAs. You said: >> well I would have paid tax anyway if I just saved it The point is that as long as your money is in the IRA you can earn interest or buy stocks, sell for a profit, over and over and not pay any taxes on your gains in between. Imagine you have $100k in a normal trading account and $100k in an IRA. You make the same trades in both and both are up $20k at the end of the year. Let's say then you want to trade out and take profit. The normal account triggers taxes on $20k worth of capital gains, so maybe it now has $115k in it. The IRA doesn't, so it still has $120k in it. Go ten years like that. At the end when you withdraw from the IRA, yes you have to pay taxes on the total gains (if it's not a Roth) BUT you had the use of that extra $5k every year you didn't pay taxes on! The whole time, all that tax money you didn't pay compounds to let you make more money with it. That's the concept. You're allowed to keep using the money that you would've otherwise had to give to the government, to make more money along the way. The final 20% you pay when you cash out is less than how much you made by compounding the tax savings and plowing them back into investments.

deleted 2mo ago

[deleted]