The creation of the 401(k) retirement program in 1978 was a watershed moment for American workers. Originally designed to supplement pensions that more than half the working public held at the time, the 401(k) quickly became the dominant vehicle for retirement savings.
Workers poured trillions of dollars into these accounts over the decades, and the scale today is staggering. According to the Investment Company Institute’s 2025 Fact Book, 401(k) plans held $8.9 trillion in assets at year-end 2024, covering roughly 70 million active participants. That figure is part of a broader $44.1 trillion retirement market, a number that climbed 11% in a single year.
The millionaire milestone within 401(k)s has also become far more common. Fidelity Investments, which tracked 25,600 corporate defined contribution plans as of June 30, 2025, reported that the number of 401(k) accounts with at least $1 million in their balance reached an all-time high of 595,000 in the second quarter of 2025. That is up 27% from just a year earlier.
Yet as impressive as the 401(k) has been for workers, it is not the only investment vehicle available, nor necessarily the best choice for every dollar. Roth IRAs, Health Savings Accounts (HSAs), and other tools each carry distinct tax advantages that, used in combination, can meaningfully strengthen a retirement plan.
Not everyone takes that approach. A Redditor on the r/Bogleheads subreddit was surprised to learn that his father, who retired as an IT manager and was reportedly well-read on financial subjects, had only contributed to his 401(k) and nothing else. While the father is still in reasonable financial shape, he will need to live more frugally in retirement than he did during his working years. The Redditor wanted to know whether it was common for people to simply max out a 401(k) and call it done.
24/7 Wall St. Key Points:
- The 401(k) retirement program has been one of the best developments in retirement planning, creating hundreds of thousands of 401(k) millionaires.
- The retirement program is not your only option and not necessarily your best one, making talking with a financial planner an essential part of your planning process.
- With numerous investment vehicles available, make sure you are taking advantage of the best aspects of each to lay the groundwork for a comfortable retirement.
- Also: Take this quiz to see if you’re on track to retire (Sponsored)
401(k) plans are great to a point
Retirement planning is far more complex than simply setting money aside in a single account. As good as a 401(k) is, it comes with real limitations that are worth understanding before you decide how to allocate every retirement dollar.
Because contributions are made with pre-tax dollars, withdrawals in retirement are taxed as ordinary income. If your investments inside the plan grow substantially over decades, the resulting tax bill at withdrawal can be significant, even for retirees in relatively modest tax brackets. The bigger the balance, the bigger the potential hit.
This is why many financial professionals recommend contributing to a 401(k) only up to the employer match before routing additional savings elsewhere. The employer match, where a company adds its own dollars for every dollar a worker puts in (up to a certain percentage of income), is essentially free compensation. Every eligible worker should capture that match in full before thinking about where to put the next dollar.
Once you have secured the full employer match, the conventional wisdom is to turn to a Roth IRA, an HSA, or both. Only after maxing out those accounts does it typically make sense to contribute additional money to the 401(k).
Key takeaways
A Roth IRA flips the 401(k) tax structure on its head. Contributions are made with after-tax dollars, but the earnings grow tax-free and qualified withdrawals in retirement are also tax-free. For 2025, the contribution limit is $7,000 for those under 50 and $8,000 for those 50 and older, figures that remain unchanged from 2024.
Many planners suggest funding an HSA before topping off the Roth, because HSAs offer what is sometimes called a triple tax advantage. Contributions are pre-tax, reducing your taxable income today. Earnings inside the account compound tax-free. Withdrawals used for qualified medical expenses are also tax-free. For 2025, the HSA contribution limit is $4,300 for individuals with self-only coverage, or $5,300 for those 55 and older who are not yet enrolled in Medicare. Healthcare costs are among the largest expenses most retirees face, making this account one of the most powerful tools in the retirement kit.
Only after maximizing these alternatives does it make sense to direct additional contributions back into the 401(k). Doing so in that order lets you capture tax-free growth, reduce current taxable income, and still build a large tax-deferred balance over time.
There are more advanced options as well, including a backdoor or mega backdoor Roth IRA, that can extend your options further. The right strategy depends heavily on your income, tax bracket, employer plan rules, and timeline, which is why consulting a financial planner and a tax professional remains the most important step anyone can take. They can help you build a sequence that fits your actual situation rather than a generic rule of thumb.
Editor’s note: This article has been updated to reflect the latest ICI and Fidelity Investments data, including 401(k) assets of $8.9 trillion at year-end 2024 (up from the previously cited $7.4 trillion), Fidelity’s all-time high count of 595,000 401(k) millionaires as of Q2 2025, and current 2025 HSA contribution limits of $4,300 for self-only coverage ($5,300 for those 55 and older).
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