Only 14% of Americans Maxed Out Their 401(k) Last Year: Why Homeowners Should Aim Higher Next Year

When it comes to saving for retirement, homeowners have many options, including their own home. However, just over one-third of nonretirees said they thought their retirement savings plan was on track in 2023, according to a Federal Reserve survey.

Hopefully, that number will continue to rise in the coming years, especially among homeowners, because the reality is, as of right now, Social Security alone is enough to cover the living expenses in only 10 states, according to the Realtor.com® analysis of median Social Security benefits by state and the Elder Economic Security Standard Index. Everywhere else, retirees face shortfalls as great as thousands of dollars per year.

One way to effectively save is to contribute to a 401(k). But while Americans set aside an all-time high portion of their paycheck in their 401(k) accounts last year, not enough of them took advantage of the full benefits of the savings plan. 

Maxing out your 401(k)

On Nov. 13, 2025, the IRS announced increases to the contribution limits for 401(k) and IRA accounts. According to the IRS, the maximum amount workers can contribute to their 401(k) plans will rise to $24,500 in 2026, up from $23,500 in 2025.

The IRS also outlined new catch-up contribution rules for older savers. People aged 50 and over will be able to contribute an additional $8,000 to their 401(k) plans next year, compared with $7,500 in 2025. The enhanced catch-up provision provided under the 2024 Secure 2.0 Act for individuals aged 60 to 63 remains unchanged at $11,250, which is added on top of the standard 2026 deferral limit.

According to Vanguard's "How America Saves 2025" report, on average, Americans saved 7.7% of their paycheck in their employer-provided retirement plan last year. While a record high, only 14% of participants contributed the annual maximum.

Maxing out your 401(k) benefits can be an ideal strategy given the power of compounding returns in the account.  

“Assuming a 6% annual return, the difference between contributing $10,000 and $24,500 over 10 years is about 145% ($132,000 versus $323,000),” explains Armine Alajian, founder and CPA at Alajian Group Inc., an accounting firm with locations in Los Angeles and New York. “After 20 years, the person contributing the max will have about $900,000, versus $368,000 for the person contributing $10,000.”

Additionally, owning a home ties up a lot of money in one asset. Maxing out your 401(k) ensures you’re also growing retirement savings in a diversified way that could help fund major housing expenses well into retirement. 

“Because 401(k)s are pretax, maxing them out every year can shave a few hundred dollars off your federal and state income tax bills. This means that savings is available to help pay for maintenance, repairs, insurance, homeowner association dues, and so on,” adds Alajian.

But perhaps most importantly, if you’re maxing your contributions, you’re also meeting your employer match, if one is available.

“You should at least be contributing enough to max out your employer’s 401(k) match,” says Alajian. “Stop looking at it as a benefit. Start considering it part of your total pay package, because that’s what it is. Why neglect taking money you earned doing your job?”

Using a 401(k) for housing

There are two trains of thought when it comes to utilizing your 401(k) benefits as a homeowner.

In the here and now, since contributions to a traditional 401(k) are pretax, they lower your taxable income each year. That can help free up cash for property taxes, insurance, and maintenance costs.

The drawback is that you’ll need to pay the taxes on withdrawals in retirement, though potentially at a lower rate. 

Once you reach retirement age, having a fully funded retirement account could be the key to paying off your mortgage.

A recent study by Capitalize and the Center for Retirement Research at Boston College found that $2.1 trillion is sitting idle in 401(k) accounts with an average balance of $66,691, as savers have lost track of these accounts due to job changes, rollovers, or lack of portability.

The reality for American homeowners and their retirement savings

But saving more money is easier said than done, and if there’s one thing the country has an abundance of, it’s debt. 

A recent AARP survey finds that 20% of adults ages 50+ have no retirement savings, and more than half (61%) are worried they will not have enough money to support them in retirement. 

The hurdles preventing Americans from saving run the gamut from inflation and student loans to rising housing costs. Property taxes have jumped 10.4% over the last three years, while home insurance premiums are expected to surge 8% by the end of the year. Utility costs have increased at almost twice the pace as inflation in the last year and could continue to climb as data centers continue to increase prices.

Overall, according to Experian, Americans owed a total of $17.57 trillion in the third quarter of 2024, up 2.4% from the previous year. That staggering amount of debt is particularly challenging for the generations currently saving for retirement. Millennials carry the highest total average balance at $371,864, with Gen X close behind at $351,715, and Gen Z at $288,879.

Even retired generations are not debt-free. Baby boomers have an average total debt of $241,752, and the Silent Generation—those over 79—still carry about $173,045 on average.

The best strategy to pay down debt and save for retirement

The best advice is to burn the candle at both ends, so to speak. Experts agree that paying off high-off interest debt while putting money away in retirement accounts should be the top priorities, even if other sacrifices need to be made. 

For example, if maxing out your 401(k) isn’t an option right now, at least make sure you’re contributing enough to receive the maximum employee matching contribution. Don’t leave free money on the table. 

As for your other debt, consider the snowball method (paying off your lowest balance in full while paying the minimum on other credit cards, then tackling the next debt with as high a payment as you can handle), or at the very least put every available extra dollar toward those high-interest balances to pay them off as quickly as possible. 

That way, as your debt decreases, you can utilize retirement deferrals to make up the difference. 

“Maxing out can also protect your home equity because contributing to your 401(k) diversifies your assets,” says Alajian. “A boost can, over time, make a huge difference in your financial health when it comes time to retire, so you can avoid being house rich and cash poor.”

But what you don’t want to do is dip into your 401(k) early. In 2024, 4.8% of people with 401(k)s account holders took "hardship withdrawals"—up from 3.6% in 2023, according to Vanguard Group.

"A 401(k) is intended to fund your retirement, and withdrawing money prematurely can lead to significant penalties and lost retirement savings," Steven Sarrel, CPA and partner at Raines & Fischer LLP previously explained to Realtor.com.

"As a CPA, I recommend finding other ways to manage your mortgage before considering tapping into your 401(k). Use this as a last resort."