There are several tax-advantaged retirement accounts you can contribute to in 2024, including a 401(k) as well as an IRA. If you invest the maximum possible amount of money in either or both of these retirement plans, you're going to be well on your way to building the nest egg you need as a retiree.
Just how much money would you end up with if you maxed out a 401(k) or an IRA this year? Here's what you need to know.
Image source: Getty Images.
Here's what maxing out a 401(k) could do for you
In 2024, the 401(k) contribution limit is $23,000, and another $7,500 in catch-up contributions are allowed for individuals 50 and over, bringing their total limit to $30,500. This is money you can contribute, separate from any employer match.
If you manage to max out your 401(k) contributions this year, the table below shows how much this contribution could grow to over time assuming a 10% average annual return (a typical return for the S&P 500 index).
| Time Period | $23,000 Contribution | $30,500 Contribution |
|---|---|---|
| 10 years | $59,847.33 | $79,300.39 |
| 20 years | $155,419.80 | $205,876.05 |
| 30 years | $403,310.18 | $534,180.70 |
Just one year of contributions alone could get you well on the path toward a secure retirement -- especially since you'll likely also earn an employer match that will add to these balances and leave you with even more money for your retirement years.
Here's what maxing out an IRA could do for you
IRAs have lower contribution limits than a 401(k). Assuming your income is below allowable limits, you can contribute up to $7,000 in either a traditional or Roth IRA in 2024 (or in any combination of both). Another $1,000 in catch-up contributions is available to those 50 and over.
The table below shows how much a maxed-out IRA contribution could grow over time if you contribute all you're allowed to in 2024.
| Time Period | $7,000 Contribution | $8,000 Contribution |
|---|---|---|
| 10 years | $18,156.20 | $20,749.94 |
| 20 years | $47,092.50 | $53,820.00 |
| 30 years | $122,145.82 | $139,595.22 |
While you won't be left with as much if you max out an IRA as you would with a 401(k), this year's still contributions can still turn into much more.
And, of course, you can contribute to your IRA and 401(k) (as long as you are eligible for both) and can make contributions every year to build a retirement nest egg that will give you the money you need to truly enjoy your future.
Aim to get as close as you can to maxing out your retirement accounts
The power of compound growth takes your 2024 contributions and enables you to grow much richer. Compound growth happens when returns earned by your investment are reinvested and earn returns of their own. The more times and the longer this happens, the wealthier you'll end up.
Now, most people can't max out their 401(k) and IRA, or even max out one of these accounts. But it's still worth trying to get as close as possible and put away as much as you can for your future. Every year you invest for retirement, you get closer toward building a secure future. As you can see from how much your money can grow, the effort is well worth it.
