How much of your paycheck do you need to contribute to max out your 401(k) account?

One of the most common pieces of financial advice out there recommends doing your best to max out your retirement accounts. The idea is that every dollar you contribute today will grow into a lofty balance after being invested for 30 to 40 years. So if you work for a company and are enrolled in your employer's 401(k) plan, you might be wondering how much of your paycheck you need to be contributing if you want to max it out every year.

Really, it depends on the contribution limit for the year, since that changes each year annually. But other factors, such as how much you can afford to contribute and how much your employer allows you to contribute can play a role in whether or not it's feasible for you to max out your 401(k).

Pretty much all retirement accounts (401(k)'s, IRA's, 403(b)'s, etc.) have specific contribution limits that change almost every year due to cost of living adjustments. A lower contribution limit can feel like there's a little less leg work (i.e. lower contributions) to be done to max out the account.

According to the IRS, you can contribute up to $20,500 to your 401(k) for 2022. By comparison, the contribution limit for 2021 was $19,500. This number only accounts for the amount you defer from your paycheck — your employer matching contributions don't count toward this limit.

Some companies provide a dollar-for-dollar match on your 401(k) contributions, up to a certain percentage of your total salary, usually between 3% and 7% . So let's say you contribute 7% of every paycheck to your 401(k), which works out to be $200 per paycheck. If your company matches your contributions dollar-for-dollar up to 7%, that means your employer is giving you an additional $200 per paycheck into your 401(k). If you get paid twice per month, that works out to be a total 401(k) contribution of $800 per month, or $9,600 per year.

In this scenario, you can still contribute beyond 7% of your paycheck, but anything beyond 7% will not be matched by your employer. You'll need to double check with your HR department if you aren't sure how much of a match your company provides.

Going back to the contribution limit, $20,500 is a lot of money to contribute on your own. If we break it down, that means you'd need to contribute about $1,708 per month, or $854 per paycheck (without your employer match). And if we were to look at the contribution limit for 2019, which was $19,000, that would have worked out to be about $791 per paycheck.

Note that your employer's 401(k) matching funds do not count towards the $20,500 limit. Employers can contribute up to $40,500 on your behalf into your 401(k) — meaning the most that can be put into your 401(k) between employee and employer contributions is $61,000 in 2022, up from $58,000 in 2021.

Reaching these numbers may not always be as simple as it seems, though, since there are also a variety of other factors at play in your ability to contribute the maximum amount allowed by the IRS.

Despite contribution limits, often times employees will contribute what they can afford to set aside for retirement. Financial experts generally recommend that everyone contribute 10% of their paycheck to a 401(k), but this may not be doable for all. Plus, often times we think about other ways we'll need to use that money now.

Your life expenses can play a role in how much of your paycheck you feel comfortable contributing to your 401(k). If you tend to have high monthly costs or someone who relies on your financial support, you may feel like contributing a higher percentage to your 401(k) may mean having less in your paycheck to meet your monthly expenses.

If attempting to max out your 401(k) means putting yourself in a financially stressful situation, it's okay to just contribute what you feel comfortable with.

In this case, a good rule of thumb that still has a profound positive impact on your retirement savings is to contribute just enough to receive the full employer match. So if your employer will match up to 7% of your contributions, only contribute 7% so you can take full advantage of that extra money. Your employer match is essentially "free money" so you don't want to leave any sitting on the table.

Some employers may have a set limit for the percentage you can contribute toward your 401(k) each paycheck and, depending on how much you get paid, maxing out your employer's limit may still not be enough for you to max out the federal contribution limit.

For example, a company may allow employees to contribute up to 50% of their paycheck to their 401(k) account (even if the employer will only match 6% of that contribution). Or, they may allow up to a 20% contribution per paycheck. It depends on your company, so be sure to double check.

If you're maxing out your employer's contribution limit but you still worry that it's not enough to help you reach your retirement goals, you can also contribute your post-tax income to a Roth IRA account.

A Roth IRA is another type of retirement account but with slightly different rules (note there are also Roth 401(k)s which differ from a Roth IRA). You must open the account on your own (IRA stands for Individual Retirement Account, so it's not an employer-sponsored account like a 401(k) is). And instead of contributing pre-tax dollars that you're taxed on when you make withdrawals in retirement, you contribute after-tax dollars and won't pay taxes on withdrawals later on.

Also, the contribution limits for an IRA are different from that of a 401(k) — you can contribute up to $6,000 per year to a Roth IRA if you're under age 50, and $7,000 per year if you're age 50 or older.

To open up a Roth IRA, you can create an online account through Fidelity or Charles Schwab. Keep in mind that you'll have to either do your own research to pick the assets you want to invest in, or you can work with an advisor on their team to help you figure out which investments are best for your retirement goals.

But if you don't want to work with someone and don't want to do the research yourself, you can open up your Roth IRA with a robo-advisor like Wealthfront or Betterment. Robo-advisors pick investments for you based on your goals, risk tolerance and time horizon. They can take some of the hassle out of deciding which investments you should make and will rebalance your portfolio over time.

If your goal is to max out your 401(k) contributions every year, the amount you'll need to contribute will depend on the federal contribution limit for that year since it's adjusted for inflation. But for 2022, since the the contribution limit is $20,500, you'd have to contribute $1,708 per month, or $854 per paycheck if you're paid on twice a month.

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