We’re in our 50s with over $2 million in retirement accounts — should we keep maxing them out?

Key Points from 24/7 Wall St.

• Maxing out a 401(k) or IRA gives you a nice tax break.
• There may come a point when it pays to branch out into different accounts.
• You not need to max out if you’re in a good place financially and want to spend more of your money in the near term.
• Also: Is your 401(k) optimized for your retirement plans? (Sponsored)

A lot of people reach their 50s feeling insecure about their retirement savings. In fact, an AARP survey conducted earlier this year found that 20% of Americans ages 50 and over have no money at all set aside for their golden years. So when I stumbled across this Reddit post by a solid saver who, combined with their spouse, is 50-something with more than $2 million banked already, my first thought was “Hey, these folks are doing amazingly well.”

But the poster brings up an interesting point. They and their spouse are in the habit of maxing out their retirement plan contributions, but they’re wondering if it’s time to stop. I have some thoughts on that, but I’ll caution that the answer is a bit more nuanced than you might expect.

Weighing a tax break against flexibility

I used to be inclined to tell people to max out their IRAs or 401(k)s no matter what for the tax benefits involved. And I still stand by that advice to a large degree. Given the IRS’s tendency to take people’s money, I’m a firm believer in shielding income from taxes (legally, of course).

The problem with IRAs and 401(k)s, though, is that you risk penalties for taking a withdrawal before age 59 1/2. And if you have a traditional IRA or 401(k), you’ll eventually be forced to take required minimum distributions in retirement, which could create a mess from a tax perspective.

So what I’d tell this couple to do is think about their retirement plans. They don’t say exactly how old they are — only that they’re over 50.

But let’s say they’re 52 and may want to retire in another year or two. At that point, it would be a good thing to have more money outside of an IRA or 401(k) so that early withdrawal penalties aren’t a concern. So if you’re in a similar boat where you have a lot of money saved by your early 50s, you may want to reduce your IRA or 401(k) contributions and start putting more money into a taxable, unrestricted brokerage account.

I’d even say that if you think you might retire in the next couple of years, to put a bit of cash into a CD ladder while rates are still strong. That could give you a bit of guaranteed, safe income for the start of your retirement.

Consider your qualify of life, too

Another thing I’d say to the couple with $2 million in savings is to think about whether maxing out an IRA or 401(k) will limit the amount of money they’re able to spend on themselves in the near term. I hate hearing stories of people who wait until they’re officially retired to travel or do other things they’ve always wanted to, because a lot of people’s health and mobility start to decline as they get older.

So let’s say you’re 52 with $2 million saved, and you’re considering maxing out a 401(k) in 2025 at $31,000. I’d encourage you to think about whether putting in that entire amount means not being able to take a trip on your bucket list or do a home improvement that makes your living space more comfortable. If putting half of that sum into a 401(k) frees up money for an important goal, then why not give yourself that option if you’re already in such a great place financially?

Of course, everyone’s situation is different, so I always recommend sitting down with a financial advisor who can review your circumstances and give customized guidance. But the takeaway is that while it’s not necessarily a bad thing to keep maxing out an IRA or 401(k) in this situation, it’s also not your only option.