Still maxing out your 401(k)? Rich Americans say it’s smarter to put your money elsewhere: ‘We need to be more sophisticated’

In 2026, long-term savers can steer up to $24,500 pre-tax to a 401(k) plan. Additionally, 50-year-olds and up can add $8,000 in pre-tax or Roth catch-up contributions to gain more financial traction for retirement.

Maxing out on a 401(k) plan can add significantly to a retirement account. According to data compiled by USA Today, a 40-year-old 401(k) plan participant who’s never contributed to a plan, and puts the maximum $24,500 into a 401(k) in 2026, leaves it untouched and gains an annual 10% return, can expect that amount to grow to about $265,000 by age 65.

But is it always the best retirement saving strategy? Here’s how some Americans are now choosing to save more strategically.

401(k) maxing has its limits

Yet data show that the percentage of U.S. workers who max out their 401(k) plan is declining. In 2025, 51% of workers earning $150,000 or more annually maxed out their 401(k), according to Vanguard. In 2018, that figure was 60% for the same cohort.

Why the downside shift in the retirement plan maxing realm? Money management experts say several factors are at play, but they all point to one issue: retirement savers want to earn more cash and pay less in taxes, and they think they can get the job done without maxing out a 401(k).

“When we first started on the 401(k) plan, it was, ‘Let’s get people going. Let’s get people accumulating,” Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute, told Bloomberg. “Now we have these successful people doing it. We need to be more sophisticated than just max it out.”

Part of the problem, if you can call it that, is that many Americans in their 40’s and 50’s have outperformed in their 401(k) savings so much, they’re looking elsewhere, especially for tax reasons.

“A traditional 401(k) saves you taxes now,” Gerry Keene, a financial advisor at LPL Financial, told Moneywise. “The money grows tax-deferred and is withdrawn at future tax rates. One way to think about this is that you get tax savings on the seeds and pay taxes on the harvest.”

But consider a 45-year-old retirement saver with a $200,000 salary and $500,000 in the 401(k) who plans to retire at 60.

“Retiring at 60 means this person’s 401(k) is accessible without penalty, so early access isn’t a problem,” George Varimezov, CPA and Founder at Varstan Bookkeeping Services, told Moneywise. “The real issue is tax diversification. With $500,000 already pre-tax, they’re likely heading toward large required withdrawals later.”

Currently, tax rates are historically low, and even the higher brackets are low by historical norms. But Keene notes it’s reasonable to assume tax rates will go up in the future — “making the differential between tax savings on the seeds and taxes on the harvest much higher.”

“Once you have reduced your bracket to whatever your goal is, it makes sense to reallocate future funds to a different type of investment as opposed to doubling down on the tax savings,” he added.

Take a graduated approach

For higher-earning investors who want to bypass maxing out their 401(k) and minimize retirement tax impact, money managers recommend spreading portfolio cash across several tax-advantaged investment vehicles through a stepladder approach.

First, you should always contribute enough to get your full employer match. “That’s an immediate return no other account can beat,” said Varimezov.

Varimezov recommends starting with a health savings account (HSA). An HSA is a solid tax-management vehicle, as it’s the only account that’s tax-deductible going in, grows tax-free, and comes out tax-free for medical costs. The 2026 limits are $4,400 for individual coverage and $8,750 for family, plus $1,000 at age 55.

“To use it as a retirement account, invest the balance instead of leaving it in cash, pay current medical bills out of pocket, and keep the receipts,” Varimezov advised. “You can reimburse yourself tax-free years later.”

However, there are several limitations with HSA accounts. You must be on a high-deductible health plan and on-medical withdrawals before 65 carry a 20% penalty plus income tax. But after 65, any non-medical withdrawals will be taxed like a traditional IRA.

From there, you’d move to maxing out a Roth IRA, which Varimezov notes beats out a traditional IRA in this scenario.

“A Roth wins when you expect your rate in retirement to be the same or higher,” Varimezov said. “That’s typical of early-career professionals, people with large pre-tax balances that will create big required withdrawals later, and anyone who wants to leave tax-free money to heirs.”