UpTrajectory Review

The max-out-your-401(k) rule was built for a tax world that no longer exists. When Congress created the 401(k) framework in 1978, the top federal marginal rate was 70%, so every pre-tax dollar delivered enormous immediate value. Today the top rate is 37%, and that gap is changing the calculus for high earners. Vanguard's How America Saves 2026 report, which tracks millions of plan participants, found that only about 51% of workers earning at least $150,000 maxed out their 401(k) last year, down from 60% in 2018. Among those earning between $100,000 and $149,999, the drop is even steeper: from 22% to just 10% over the same period. Craig Copeland of the Employee Benefit Research Institute told Bloomberg the trend started about two years ago and has accelerated in the past 12 months.

Part of the decline is mechanical. The contribution limit has risen from $18,500 in 2018 to $24,500 in 2026. For a worker earning $150,000, maxing out now requires about 16% of pay, up from 12% a few years ago. The bar has simply moved higher. But the deeper driver is the shrinking tax advantage. At a 70% marginal rate, pre-tax contributions were a near-certain win. At 37%, the benefit is real but smaller, and it comes with a catch: every dollar in a traditional 401(k) is taxed as ordinary income on withdrawal. For high earners who expect to be in a similar or higher bracket in retirement, or who want access to funds before age 59 and a half, the trade-off looks less compelling than it once did.

This matters to small-business owners in two direct ways. First, if you are a high earner yourself, the default advice you have likely followed for years may no longer be optimal. Roth conversions, taxable brokerage accounts, HSAs, and even paying down debt can offer better after-tax outcomes depending on your bracket trajectory and liquidity needs. Second, if you sponsor a 401(k) for employees, the shift in behavior among your highest-paid workers could affect plan testing, nondiscrimination results, and the overall health of the plan. When highly compensated employees pull back contributions, it can trigger corrective distributions or limit what rank-and-file employees are allowed to defer.

What is genuinely new here is the speed of the change. The data shows a clear inflection point around two years ago, and the past 12 months have seen acceleration. The 401(k) is not dying: Fidelity counted a record 769,000 401(k) millionaires in the second quarter of 2026. But the one-size-fits-all advice that defined retirement planning for decades is being replaced by something more nuanced. Copeland's quote to Bloomberg captures the shift: the answer is no longer automatic. We agree with that framing. The skepticism we would apply is toward any strategy that abandons the 401(k) entirely. Employer matches, creditor protection, and disciplined automation still make it a powerful tool, especially for business owners who control the plan design.

The second-order effects are worth watching. If high earners redirect savings into Roth accounts, taxable investments, or real assets, that changes the flow of capital across the economy and the tax base. For business owners, it also changes the competitive landscape for talent. A 401(k) with a generous match and Roth options becomes a stronger recruiting tool when employees are actively weighing where to put their next dollar. Plans that only offer traditional pre-tax deferrals may start to feel dated. There is also a compliance angle: if your plan fails nondiscrimination testing because highly compensated employees are contributing less, you may need to revisit your match formula or add a safe harbor provision.

What to do next depends on your role. If you are an individual high earner, run the numbers with a tax-aware advisor. Compare your current marginal rate to your expected retirement rate, factor in state taxes, and model Roth versus traditional contributions across your full balance sheet, not just the 401(k). If you are a business owner with a plan, review your plan design this year. Consider adding Roth deferral options, evaluating your match structure, and benchmarking your plan against peers. The era of automatic maxing is ending. The winners will be those who treat retirement savings as a portfolio decision, not a reflex.

“We need to be more sophisticated than just max it out” — TheStreet

Takeaway: High earners are abandoning the automatic max-out rule as tax benefits shrink; business owners should revisit both personal strategy and 401(k) plan design now.