Maxing out a 401(k) plan is a tall order. This year, that requires you to contribute $23,000 if you’re under the age of 50, or $30,500 if you’re 50 or older.

In 2025, 401(k) limits are going up. The maximum allowable contribution for workers under 50 is rising by $500 to $23,500. And those 50 and over will be able to contribute an extra $7,500 for a total of $31,000.

Image source: Getty Images.

There’s also a new 401(k) feature for workers between the ages of 60 and 63 in 2025 — a super catch-up contribution of $11,250. If you’re in that category, it means you can put up to $34,750 into your 401(k) in the new year.

You might assume that maxing out a 401(k) is one of the best things you can do for your retirement. But here’s why it may not be the smart bet you think it is.

You lose out on investment options and flexibility

If you’re a hands-off investor, then you may find that a 401(k) is a perfect retirement savings plan for you. That’s because 401(k)s typically do not let you hold individual stocks in your account.

Instead, you’ve given a set of funds to choose from. And if you’re someone who would rather buy shares of a mutual fund or rely on a target date fund to invest for retirement, then a 401(k) works very well.

But if you’re not a hands-off investor, the problem with being limited to different funds for your retirement portfolio is twofold. First, this means you don’t get a complete say over your holdings. Secondly, depending on the funds you choose, it could mean facing costly fees that eat into your returns (though to be fair, most 401(k)s offer low-cost index funds on top of funds that are more expensive).

Another issue with 401(k) plans is that withdrawals taken before age 59 1/2 are typically subject to a 10% penalty. If you’re fortunate enough to be able to retire early from a savings perspective, having all of your money in a 401(k) could take that option off the table.

It’s best to spread your money around

It definitely pays to contribute enough to your 401(k) plan in 2025 to claim your full workplace match. There’s no sense in forgoing free money your employer is willing to offer. But beyond that point, you may want to put the rest of your money into a different account.

In fact, one thing you may want to do is split your remaining contributions between an IRA and a taxable brokerage account. The IRA comes with tax breaks and lets you invest in individual stocks if you so choose. A taxable brokerage account gives you no IRS benefits, but you have the option to invest your money as you see fit and take withdrawals at any age without a penalty.

It’s a great thing to be able to save enough money for retirement in 2025 to max out a 401(k). But whether all of that money should actually go into your 401(k) is definitely another story.

The $22,924 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

View the “Social Security secrets” »

The Motley Fool has a disclosure policy.