Is maxing out my 401(k) good enough?

Full Transcript:

I’m maxing out my 401(k)! Is that good enough?

High-earning Shell professionals can put away up to $74,300 in tax-advantaged accounts in 2022. Let’s talk about how.

First, let’s start with your 401(k). Within your 401(k), you can contribute to the Roth or pretax options. The total contribution limit for this year is $20,500. In addition to your contribution, Shell will also contribute up to 10% based on your years of service. Shell contributes based on your base pay and your bonus and will max their contributions out at $30,500. Now, for most people, they stop here. However, there’s also an after-tax option to your 401(k). You can contribute another $10,000 into your 401(k) using the after-tax option. Now you’re truly maxing out your 401(k) by putting in up to $61,000.

In addition to your 401(k), Shell also now offers you a health savings account if you are enrolled in the high deductible health plan. With the health savings account, you put in money pretax, it grows tax-deferred, and then you can use that money tax-free if used for health expenses. Within the health savings account, you can put up to $6,300 this year if you have a family, and Shell will put in another thousand dollars. If you are single, these limits are reduced by 50%.

Lastly, most Shell professionals make too much money to put money directly into a Roth IRA or a pretax IRA. You can still put money into an after-tax or nondeductible IRA. This year you can put $6,000 into an IRA.

Earnings on the after-tax IRA and the after-tax 401(k) are subject to income tax. To avoid this, you can convert or roll this money into a Roth IRA. Once it is in the Roth IRA, all future earnings will be tax-free. As everyone’s situation is unique, please check with your financial professional and understand the pro-rata rule before doing this.

Now back to the initial question. I’m maxing out my 401(k). Is that good enough? Well, it depends. What are your goals, and how long do you want to work for Shell? The more you save, the sooner you can make work optional. Look at your current savings and compare that with your financial plan to see what is best for you.