For most of the past four decades, the advice on retirement savings barely changed. Max out your 401(k), cut your tax bill today, and let time do the rest. The account built its reputation on that simplicity.
What made the advice compelling was the tax environment it was designed for. When Congress created the 401(k) framework in 1978, the top federal marginal rate sat at 70%. A pre-tax contribution at that level delivered real value.
The top rate today is 37%. That gap is changing the math for high earners, and a growing number of them are no longer contributing the maximum as a result.
Also read: Fidelity uncovers striking shift in 401(k) balances
The data on who is pulling back from 401(k) contributions
Vanguard tracks contribution behavior across millions of plan participants. Its How America Saves 2026 report found that about 51% of workers earning at least $150,000 maxed out their 401(k) last year. In 2018 that figure was 60%.
Among workers earning between $100,000 and $149,999, the drop is even steeper. The share who maxed out fell from 22% in 2018 to just 10% today.
Part of that is the rising limit. Workers can contribute up to $24,500 in 2026, compared with $18,500 in 2018. For a worker earning $150,000, hitting the ceiling now takes about 16% of their pay. A few years ago, it took 12%. Maxing out requires a bigger commitment than it used to.
Craig Copeland, director of Wealth Benefits Research at the Employee Benefit Research Institute, told Bloomberg the trend started about two years ago and has picked up speed over the past 12 months.
“We need to be more sophisticated than just max it out,” Copeland told Bloomberg.
Why the tax argument is shifting
A traditional 401(k) has a simple logic. You put money in before taxes, it grows, and you pay taxes on it when you take it out. The bet is that your tax rate in retirement will be lower than it is right now.
With the top rate at 37%, down from 70% when the account was created, that spread has narrowed considerably. Some high earners now expect to pay a smaller tax bill today only to face a larger one when they start withdrawing in retirement.
Required minimum distributions make the concern more concrete. Once investors reach a certain age, the IRS requires them to take taxable withdrawals from traditional accounts whether they need the money or not.
For retirees drawing other income, those forced withdrawals can push them into a higher bracket at exactly the wrong time. Some early retirees are converting traditional accounts to Roth before RMDs kick in to get ahead of the problem.
Early retirement is another reason to rethink the account
Charlie Dice, a 39-year-old who helps farmers and ranchers obtain federal loans, has about $500,000 in her 401(k). She plans to cut her contribution from 20% of her pay to 5%, keep her full employer match, and redirect the rest to a brokerage account and a Roth IRA.
Her reason goes beyond the tax argument. She wants the option to stop working before 60, and money inside a traditional 401(k) generally cannot be touched before age 59½ without a 10% penalty. Locking away additional savings in an account she may not be able to use for two decades does not fit her plan.
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“People, especially my generation, need to not box themselves into one way of thinking,” Dice told Bloomberg.
Roth IRA contributions can be withdrawn at any time without tax or penalty. Earnings carry restrictions, but the principal stays accessible. A taxable brokerage account goes further. There are no age restrictions, no penalty rules, and no contribution limits beyond what your budget allows.
Where the money is going instead
Health savings accounts are one of the more popular destinations for redirected savings. Contributions go in pre-tax, growth is tax-free, and withdrawals for medical expenses are also tax-free.
Few accounts offer that combination. After age 65, you can use the money for anything, not just healthcare, and pay ordinary income tax on it the same way you would with a traditional IRA.
Roth IRAs work differently. You contribute after tax, but the money grows tax-free, and qualified withdrawals in retirement are also tax-free. If you expect your tax rate to be the same or higher later, paying taxes now can be the smarter trade.
High earners above a certain income cannot contribute directly, but many use a backdoor Roth, which means contributing to a traditional IRA first and then converting it, to get around the limit.
Taxable brokerage accounts offer the broadest investment access. Most employer-sponsored 401(k) plans limit participants to a set menu of funds chosen by the plan administrator.
A brokerage account has no such restrictions. It also lets investors manage tax-loss harvesting and make charitable giving more efficient, which matters more as balances grow.
What this means for your own retirement plan
The employer match still comes first. If your employer matches contributions up to a certain percentage, hit that number before you do anything else. The match is part of your compensation. Not taking it means working for less than you are actually being paid.
After the match, your next step depends on your situation. If you expect to be in a lower tax bracket in retirement, pre-tax 401(k) contributions beyond the match still make sense. If you expect your rate to stay flat or rise, a Roth account or taxable investment account may serve the extra dollars better.
Think about your timeline. If you want to stop working before 59½, a 401(k) can work against you. The money is there but you cannot get to it without a penalty. Planning to retire early while locking most of your savings in a traditional account is a mismatch worth catching now.
The 401(k) is not going away. Fidelity counted a record 769,000 401(k) millionaires in the second quarter of 2026, up 19% in just three months. The account still does what it was designed to do. The question for high earners is whether doing exactly what the account was designed for still fits what they are trying to build.
Related: Dave Ramsey warns Americans on 401(k)s, Roth 401(k)s