Can I Contribute Money To My 401k Account Any Time?



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Two retired couples celebrating together, because their retirement is fulfilling. They did a lot of planning early on and knew about contributing money to their 401k accounts.

You might be wondering if you can contribute money to your 401k account at any time. If you are currently employed and participate in a 401k plan, the answer is yes. But you can only contribute through your payroll using pre-tax dollars. In case you are currently not working, the answer is no. 401k plans are employer-sponsored, so employment is necessary to make any contributions.

An Employer-sponsored retirement plan offers various investment options with good investment returns to grow your retirement savings (always remember that past performance is not a good indicator of future returns though). They are tax-deferred accounts, meaning you will pay taxes on your capital gains when you tap into your savings in retirement.

For most retirees, the taxable income in retirement is lower than what they previously earned. In this situation, you will also pay less taxes on your gains.

However, the good news is that you still have options to save more for retirement if 401k contributions aren’t possible in your current situation.

How Contributing Money To 401k Works

One of the biggest benefits of 401k plans is that you contribute money directly from your paycheck. This allows you to save taxes on your contributions because these are deducted before you pay any income taxes. You call this a pre-tax deduction.

Your 401k plan administrator allows you to set the percentage of your paycheck you want to contribute. Additionally, you might have access to employer contributions on top of that.

You can invest your money in your 401k account into different plans like mutual funds, target-date funds, or sometimes even individual stocks with a self-directed brokerage account.

401k Contribution Limits

Your 401k contributions have an annual limit. This is so you can’t take too much advantage of the tax advantages. For 2023, the maximum amount of 401k contributions for employees is $22,500, or $30,000 if you are 50 or older. The IRS just increased these limits for 2024 to $23,000, or $30,500 if you are 50 or older.

As you can see, these limits can change over time, so it is crucial to stay up to date every tax year.

The higher contribution limits for 50 or older individuals exist to allow you to catch up. If you are behind on your retirement savings, these additional catch-up contributions allow you to reach your financial goals.

401k Employer Match

Some employers offer a so-called 401k Employer Match – a free employer contribution. What that means is that your employer will match every dollar of your own contribution up until a certain amount. This is basically a free way to contribute money to your 401k account. It is free money.

Happy employees that have access to additional contributions to their 401k plan through an employer match.

Think about the employer match as an incentive to make 401k retirement contributions.

I always recommend trying to get the full match your employer offers. There are only two exceptions that I’d point out:

  • If you have high-interest debt like credit card debt
  • If you have no emergency savings

If you absolutely have to choose between making 401k contributions and those two points, I’d take them first. The reason is very simple:

  1. High interest debt can grow out of control very quickly
  2. Not having an emergency fund can put you in unforeseeable and uncomfortable financial situations at any time

Alternative Ways To Save Money For Retirement

401k accounts aren’t the only ways you can save money for retirement. Another widely used option is an Individual Retirement account or IRA. This account isn’t bound to active employment.

Like 401k accounts, traditional IRA accounts have an annual contribution limit of $7,000 or $8,000 if you are 50 or older. Your contributions are not pre-tax but post-tax for an IRA.

For lower-income individuals, there is also the option of a Roth IRA. This is one of the best retirement savings accounts since you will not have to pay any taxes on your capital gains!

There is also the option of a Roth 401k for some. In simple terms, this is the combination of a 401k and a Roth IRA. Your contributions are after-tax, but your withdrawals in retirement are tax-free. Some employers even offer an employer match for Roth 401k plans, too.

Roth 401k accounts have the same contribution limits as 401k accounts, but they do not have an income limit.

A Roth 401k will cost you more today, but might be the better choice for retirement. Especially if your capital gains are high or if you still have a lot of years ahead. The amount of tax savings will compound over time.

A Roth account is a very good retirement account if you expect your savings to grow substantially between now and the time you retire. Since you will not pay any taxes when you take out money, it far outweighs the taxes you will pay on your contributions.

401k Rollover Into An IRA Account

If you change jobs or leave employment, you will not be able to make any additional contributions to your old 401k account. Also, your former employer will not continue to provide any employer match.

You have multiple options to tackle this situation:

You can let the 401k account run. This option is the easiest. All the money in the account will continue to be invested and grow.

You can issue a rollover into an IRA account. Some people do not like to have multiple 401k accounts scattered around from previous employers. Rolling your 401k account over into an IRA account provides a way to simplify your retirement accounts.

You can issue a rollover into a new 401k account. This option is also sometimes available. I’ve done that when one employer switched the 401k providers in the middle of my employment. During the rollover, I got sent a check with the entire amount and just deposited that directly into the new account with the help of the new provider.

During any rollover, make sure to closely follow the instructions to avoid any mistakes that could cause a taxable event. At no point should that money be deposited into your bank accounts!

401k Savings Goals By Age

Graph with retirement savings goals by age group showing how much money you should have contributed to your retirement plan such as a 401k.
Retirement savings goals by age group. Source: fidelity.com

Final Thoughts – Can I Contribute Money To My 401k Account Any Time?

Understanding the rules that drive 401k accounts can empower you to make better decisions for your golden years.

In this post, we discussed how contributing money to your 401k account works. You now also know how much money you can contribute annually and what an employer match is.

Additionally, we’ve looked at alternative ways to get your retirement savings into shape, including IRA, Roth IRA, and Roth 401k accounts.

Finally, I’ve provided an overview of an ideal retirement savings goal. This should give you a good idea how far along you are.

Always remember: It is always a good idea to talk to a financial advisor tax professional, or tax advisor about your retirement plan. Finding a good financial advisor is not easy.

I recommend the Garrett Planning Network, the National Association of Personal Financial Advisors (NAPFA), and the XY Planning Network. These networks can get you in contact with a fee-only advisor. No matter how much money we are talking about, it will not change your costs. Having access to a financial planner will solidify your financial future.

Disclaimer: The information in this blog post should not be considered tax advice or investment advice or a replacement thereof. They are solely provided for informational purposes. Please consult with a tax professional for any specific questions on your taxes. Also, none of the mentioned stocks are to be understood as recommendations. Don’t buy yourself something solely based on what you read here.

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